Taming the Digital Dragon: The 2014 CIO Agenda

31 December 2013 ID:G00261080
Analyst(s): Dave Aron, Graham P. Waller

VIEW SUMMARY

In 2014, CIOs must transition to a new era of enterprise IT — an era of digitalization that impacts strategy, leadership, structure, talent and financing. They must build digital leadership and bimodal capability, while renovating the core of IT and otherwise preparing for the digital future.

Overview

Key Question

  • How are leading CIOs adapting to the additional challenge the evolving digital world represents?

Opportunities and Challenges

CIOs today face a host of digital opportunities and threats, with all industries in all geographies undergoing digital disruption. This is a CIO's dream come true and a career-changing leadership challenge. 2014 will be a year of meeting ongoing needs for efficiency and growth while exploiting the new digital paradigm.

How This Report Will Help

Powerful digital and societal forces have created much broader and deeper opportunities and threats than the scope of traditional enterprise IT covers. The 2014 CIO Agenda explains why CIOs need to act and how they can act fast and act smart to protect their enterprises, their IT organizations and themselves. A three-part response is needed to tame the digital dragon: create powerful digital leadership, renovate the core of IT and build bimodal capability — the last involving conventional IT and a new "nonlinear" mode of IT. This report looks at emerging best practices that will require your attention in the next 6-12 months.

  • You will expand digital leadership and integration, encourage more innovation and agility, differentiate your enterprise from competitors and develop better win-win relationships. You will learn the "CIO golden rules" for investing in public cloud, partnering with the small and young companies, and building bimodal IT capability — to shepherd the enterprise into the new era of digitalization and reap the benefits.
  • Your stakeholders will heighten their digital awareness — and thanks to CIO-led initiatives like technology showcases, "hackathons," reverse mentoring and development of digital nonexecutive directors — your peers in the business will develop into digital leaders, too.
  • Your organization will build talent in digital design, data science, social anthropology, startup skills and agile development, and it will learn to deal with the disruptive innovation, accelerated delivery and rapid readjustment that characterize "nonlinear" IT.

Table of Contents

Contents
Figures
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Foreword

CIOs are facing all the challenges they have for many years, plus a torrent of digital opportunities and threats. Digitalization raises questions about strategy, leadership, structure, talent, financing and almost everything else.

This report addresses the question, How are leading CIOs adapting to the additional challenge the evolving digital world represents?

"Taming the Digital Dragon: The 2014 CIO Agenda" was written by members of the CIO & executive leadership research group, led by Dave Aron (vice president and Gartner Fellow), assisted by Graham Waller (vice president, executive partner).

We would like to thank the many organizations and individuals that generously contributed their insights and experiences to the research, including:

  • The 2,339 CIOs who responded to this year's survey, representing more than $300 billion in CIO IT budgets in 77 countries.
  • The contributors to our interviews and case studies: Luis Uguina, BBVA (Spain); Kevin Gallagher, Channel 4 (U.K.); John Hagel, Deloitte LLP Center for the Edge (U.S.); George Labelle, IPC (U.S.); Larry Matias, Jollibee Foods (Philippines); Gianni Leone, Miroglio Group (Italy); Krischa Winright, Priority Health (U.S.); Dr. Hee Hwang, Seoul National University Bundang Hospital (South Korea); Mike Yorwerth, Tesco (U.K.); José Tam, Universidad Tecnologico de Monterrey (Mexico); and Baron Concors, Yum Brands (U.S.).
  • Other Gartner colleagues: John Adey, Heminder Ahluwalia, Nicky Bassett, Militza Basualdo, Peter Bogaert, Allison Chaffee, Terick Chiu, Youn Choi, Jeffrey Cole, Marco Delfino, Eberhard Elbs, Jan Eriksson, Arnold Gutmann, Kimberly Harris-Ferrante, Rob Heselev, Chris Howard, Renske Jansen, Jim Kamp, Kasper Kjaergaard, Kazunari Konishi, Jon Krause, Cristina Lazaro, Thierry Kuperman Le Bihan, Poh-Ling Lee, Ian Marriott, Marc Mergen, Ritsuko Miyamoto, Hans Moonen, David Norton, Pierluigi Piva, John Rath-Wilson, Jose Ruggero, David Scemama, David Mitchell Smith, Cristiane Tarricone, Alastair Tipple, Cristina Vila, Kevin Zhou and the entire executive client manager team.
  • Other members of the CIO & executive leadership research group: Heather Colella, Richard Hunter, Jorge Lopez, Leigh McMullen, Patrick Meehan and Andrew Rowsell-Jones.

Executive Summary

In the IT industry, we have become inured and immune to new buzzwords and messages about how everything is changing. But this time it really is. All industries in all geographies are undergoing radical digital disruption — a "digital dragon" that is potentially very powerful if tamed but a destructive force if not. This is both a CIO's dream come true and a career-changing leadership challenge.

Welcome to the third era of enterprise IT

2014 will be a year of dual goals: responding to ongoing needs for efficiency and growth, but also shifting to exploit a fundamentally different, digital paradigm. Ignoring either of these is not an option.

The behaviors mastered in the second era of enterprise IT are potential hindrances to exploiting digitalization (see figure below). New capabilities must be developed. Fifty-one percent of CIOs are concerned that the digital torrent is coming faster than they can cope, and 42% don't feel they have the talent needed to face this future.

Figure 1. We are entering the third era of enterprise IT
Figure 1.We are entering the third era of enterprise IT

Source: Gartner.

In 2014, CIOs face the challenge of bridging the second and third eras with a three-part response. They have to build digital leadership and bimodal capability, while renovating the core of IT infrastructure and capability for the digital future (see figure on page 6).

Figure 2. A three-part response is needed to tame the digital dragon
Figure 2.A three-part response is needed to tame the digital dragon

Source: Gartner.

Create powerful digital leadership

Most businesses have established IT leadership, strategy and governance but have a vacuum in digital leadership. To exploit digital opportunities and ensure that the core of IT services is ready, there must be clear digital leadership, strategy and governance, and all business executives must become digitally savvy.

There is a fast-rising trend to hire chief digital officers, who are more likely to come from roles in the rest of the business than from IT. Whatever their previous roles, digital leadership must be clear and powerful. Clarifying the coverage and scope of digital leadership, and integration with enterprise IT leadership, should be high on every CIO's agenda in 2014.

But individual digital leaders are not enough — all business leaders must become digital leaders. The 2014 CIO Survey found that the CEO's digital savvy is one of the best indicators of IT and business performance. To raise digital awareness and digital savvy in your company or public-sector agency, consider interventions like digital nonexecutive directors, technology showcases, "hackathons" (intensive periods for discovering and creating innovations) and reverse mentoring.

Renovate the core

Top technology priorities for 2014 reveal two complementary goals: renovating the core of IT and exploiting new technologies and trends. Exploiting the new speaks for itself. Meanwhile, the core of enterprise IT — infrastructure, applications such as ERP, information and sourcing — was built for the IT past and needs to be renovated for the digital future.

The renovations include moving to a more loosely coupled "postmodern-ERP" paradigm, deploying public and private clouds, creating the information architecture and capabilities to exploit big data, and augmenting conventional sourcing with more innovation, including sourcing from, and partnering with, smaller and less mature enterprises (see figure below). The talent needed to execute on renovation includes different skills, such as digital design, data science, "digital anthropology," startup skills and agile development.

Figure 3. Reimagine the core
Figure 3.Reimagine the core

Source: Gartner.

Build bimodal capability

There is an inherent tension between doing IT right and doing IT fast, doing IT safely and doing IT innovatively, working the plan and adapting. The second era of enterprise IT has been all about planning IT right, doing IT right, being predictable and creating value while maximizing control and minimizing risk — in short, about running IT like a business within a business.

To capture digital opportunities, CIOs need to deal with speed, innovation and uncertainty. This requires operating two modes of enterprise IT: conventional and "nonlinear."

Those CIOs who have moved early on digitalization, learned the lessons and gotten the scars, have often extended their second-era restructuring to a more comprehensive change. In these cases, the grow-and-change function has become a more full-fledged digital development function, often reporting in a straight line to P&L/business unit owners, with a dotted line to IT for architectural governance. Teams are structured around products (not projects) and are multidisciplinary (see figure below).

Figure 4. Completing bimodal capability is necessary to compete in a digital world
Figure 4.Completing bimodal capability is necessary to compete in a digital world

Source: Gartner.

Welcome to the Third Era of Enterprise IT

2014 will be a year of dual goals: responding to ongoing needs for efficiency and growth, but also shifting to exploit a fundamentally different, digital paradigm. Ignoring either of these is not an option.

"For the CIO, there is a strong opportunity, and also a responsibility, to be part of this new digital game. However the organizational model plays out, there will be a strong push for the digital future."
Gianni Leone, chief digital and information officer, Miroglio Group

Business as usual, with a shift to growth

As we enter 2014, economists expect a mixed year, with many advanced economies finally recovering from protracted downturns, and growth slowing in some developing countries.

In the 2014 CIO Survey, we asked CIOs to allocate 100 points between five outcomes (efficiency, effectiveness, integrity, agility and growth/innovation). In terms of business leaders' focus, we observed a gradual but undeniable shift toward growth (see figure below).

Figure 5. Management's mood: A gradual but insistent shift to growth
Figure 5.Management's mood: A gradual but insistent shift to growth

Source: Gartner.

IT spending, portfolio balance and the choice of technologies, talent, sourcing options, leadership, structure and governance must all be designed to make the business win. Despite the need to grow, there is pressure on IT budgets. The global weighted average expected change in CIOs' IT budgets is an increase of 0.2%. This lack of significant growth presents substantial challenges for the CIO and IT organization since, as we discuss later in the report, there is a need to both renovate the core of IT systems and services, and exploit new technology options.

Still, more than ever, the size and shape of IT budgets are unique to each enterprise. With a shift to digitalized business models, there can be no more vanilla IT. The more that information and technology get intertwined in the customer experience, and the more IT serves the most strategic and tactically nuanced parts of the business, the less appropriate it is to have the same IT as everybody else, even in the same industry. The global weighted average explodes into highly different averages when our survey respondents are segmented by geography, size and industry — as shown in the figure on page 12 and in the Appendix.

Figure 6. A gradual shift to growth will supplement business as usual
Figure 6.A gradual shift to growth will supplement business as usual

Sources: 2013 and 2014 Gartner CIO Surveys.

Even more significant, CIOs report that a quarter of IT spending will happen outside the IT budget in 2014 (see figure below). And that is the spending they know about; the reality may be significantly higher. This is a direct result of the new digital opportunities that are more entwined with customer and colleague experiences, and that may in some cases reflect concerns that the IT organization is not fast enough or otherwise ready for more digital opportunities.

The opportunity for bimodal IT to change the reality and the perception is discussed later in the report. However, this spending pattern should not necessarily be seen as a problem; it is more an emerging digital reality that should be managed with smart, lightweight and collaborative governance.

Figure 7. Where IT spending will happen in 2014
Figure 7.Where IT spending will happen in 2014

Source: Gartner.

The digital dragon is upon us, and most companies aren't ready

"To compete in the new era of retailing, I believe that Tesco has to be more than a retail company. We have to become a technology company, too."
Philip Clarke, CEO, Tesco
"Digital is different. And I think that less than a quarter of my team is ready and able to make the transition."
Anonymous CIO

Against the backdrop of this gradual shift to growth and company specialization in the use of IT, there is a much bigger tectonic shift happening. Every industry and every geography is being radically reshaped by digital opportunities and threats. Arguably, the traditional, physical-asset-heavy and primary industries are even more affected than high-tech companies. Examples include agriculture companies that can help predict and optimize yields in near real time; sports companies that blur the boundaries with healthcare organizations; logistics companies that can price financial risk in real time better than banks; and governments that can go beyond asking what citizens want, observing and responding to their needs in real time.

Definition

Gartner defines "digital" as "all electronically tractable forms and uses of information and technology. It is bigger in scope than the typical company definition of 'IT' because it includes technology outside a company's control: smart mobile devices (in the hands of customers, citizens and employees), social media, technology embedded in products (such as cars), the integration of IT and operational technologies (such as telecom networks, factory networks and energy grids) and the Internet of Things (physical objects becoming electronically tractable)."

Current enterprise IT is not set up to easily deliver on these digital dreams. In our CIO survey, we tested agreement with a very strong statement: "My business and IT organization are being engulfed by a torrent of digital opportunities. We cannot respond in a timely fashion. This threatens the success of the business and the credibility of the IT organization." Fifty-one percent, the majority of CIOs, agreed. This is why we chose the meme of the "digital dragon" — potentially very powerful, but also potentially destructive if not tamed.

Beyond not being ready now, 42% of CIOs believe their IT organizations do not have the right skills and capabilities in place to get ready for the future. And in confidential discussions with the authors about what proportion of their existing IT talent could make the shift to meeting the digital challenge, many CIOs estimated this to be 25% or less.

We are entering a third era of enterprise IT

"The biggest risk is not taking any risk ... In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks."
Mark Zuckerberg, founder and CEO, Facebook
There is a growing disconnect between our increasingly nonlinear world and the linear mindsets, practices and institutions that we deploy in our work."
John Hagel, co-chairman, Deloitte LLP Center for the Edge

It would be tempting to think that the CIO and IT organization just need to absorb some of the new technology and societal trends into what they are doing already — to do it just a bit faster, cheaper and smarter. But if we dig deeper, we see something more fundamental going on. We are moving to a new, third era of enterprise IT (see figure below).

Figure 8. The third era of enterprise IT has arrived
Figure 8.The third era of enterprise IT has arrived

Source: Gartner.

Up until about the year 2000, we were in the first era, where IT could help do new and seemingly magical things — automating operations to create massive improvements in speed and scale, and providing business leaders with management information they never had before. The downside was that the IT organization was often a little unreliable, almost like a mad inventor who could do wonderful things but was neither timely, nor dependable, nor a good communicator. Beyond this, the IT department was normally an isolated subculture — not seen as an integral part of the business. From inside IT, the rest of the business was seen as an annoyance, a distraction from building beautiful technical architecture.

All this came to a sudden end with the Y2K problem and the dot-com boom and bust. There was less tolerance for an unreliable "black box" IT organization in the business. We entered the second era of enterprise IT, and have been in it ever since.

This has been an era of industrialization of enterprise IT, making it more reliable, predictable, open and transparent. It has also been an era of processes, services, standards and smart sourcing — an era of ITIL, COBIT, Prince2 and PMBOK, and of the IT organization professionalizing and treating the rest of the business as its internal customers.

This second era has been necessary and powerful, but with one casualty: disruptive innovation in end-user organizations and arguably also in the IT industry. There has been relatively little innovation in enterprise IT in the last decade or so. IT budgets have been tight, and appetite for risk has been low. The process, service and internal-customer lens has led to an internally focused, incremental-improvement view.

However, in the last few years, technological and societal trends around technology have been building and maturing, such as the Nexus of Forces (social, mobile, cloud, information and analytics), the Internet of Things (integrating sensor networks, factory networks and technology in products and consumer devices, with enterprise IT), 3D printing, and new currencies and payment mechanisms. Technology's voice, and the voices of individuals empowered by technology, won't be silenced any longer!

Now we are entering a third era of enterprise IT, where these new trends are not only improving what businesses do with technology to make themselves faster, cheaper and more scalable, but fundamentally changing businesses with information and technology, changing the basis of competition and the portfolio of businesses people are in, and in some cases creating new industries. Think of white-goods companies (aka major-appliance makers) providing "house as a service," of mobile phone companies becoming banks, and hospitals seamlessly including home-based telemedicine.

"The Y2K crisis was, in part, a result of shortsightedness on the part of the mad inventors. The same risk is inherent in the third era, where the pace of innovation may lead to longer-term brittleness. The third era must build on the learnings of the previous two."
Chris Howard, managing vice president and Distinguished Analyst, Gartner

This digital industrial economy requires enterprise IT to shift to an era of digitalization. The possibilities right now, and in the future, are powerful and exciting, but ironically, the practices and behaviors learned in the second era — the industrialization of IT — are stopping many from realizing the potential. Two issues holding IT back are: treating colleagues as customers (looking at everything through a business process lens), and aiming for "inside-out" incremental efficiencies through industry best practices.

Many of the new digital innovations require the IT organization to ideate, or dream the digital dream, and execute in close partnership with colleagues, in an exploratory way, with understanding of the potential of new trends. Thinking of the rest of the business as IT's customers, and of IT's highest goal as being an order taker, is the wrong model. Although the word "partnership" has been abused by the IT industry, there is a need for the IT organization to treat colleagues as true partners, discovering and inventing the digital future of their company together, with the real customers being the external customers or citizens that the company or public-sector agency is there to serve. Indeed, there are also opportunities to treat external customers as partners and discover the future with them as well.

It is important to recognize that much of the innovation will come as major disruptions to the way we think about businesses, and that processes are not the whole story, and possibly not even the main story, in the unfolding digital future. Customer experiences, digitalized products (like cars), digital communities, digital corporate decisions (e.g., entering or creating new industries) are not about safe, steady improvement of internal business processes. They require broader, deeper and quicker thinking.

This is not a quantitative improvement; it is a fundamental change in the way information and technology show up in the enterprise — a rethinking of the role of the CIO and the IT organization, and the rest of the business's expectations, getting unstuck, and shifting to the third era of enterprise IT. And this needs to happen as the important work of delivering and incrementally improving existing enterprise IT continues.

If this transition succeeds and tames the digital dragon, massive new value for businesses can be created, and with it, a renewed role and greater credibility for the CIO and the IT organization. If the dragon isn't tamed, businesses might fail and the relevance of the IT organization will almost certainly disappear.

Taming the digital dragon necessitates a three-part response

The data and case study interviews from the 2014 CIO Survey show that leading businesses, governments and public-sector agencies are bridging the second and third eras of enterprise IT, taming the digital dragon by radically innovating in three areas (see figure below).

Figure 9. A three-part response is needed to tame the digital dragon
Figure 9.A three-part response is needed to tame the digital dragon

Source: Gartner.

  1. Create powerful digital leadership. The transition to the third era starts with leadership. This means ensuring that the business's digital leadership vacuum is filled and that every business executive becomes digitally savvy. At the same time, CIOs must communicate a vision that excites and mobilizes the IT organization, helping staff understand that the status quo is not an option.
  2. Renovate the core of IT. Ensure that the "engine room" of IT — the infrastructure, operations, core applications (like ERP), services and sourcing models — are fit for purpose, not just for the present but also for a highly digitalized future involving greater speed and scale. Emphasize information as a competitive asset, and form relationships with suppliers that encourage, rather than stifle, innovation.
  3. Build bimodal capability. Solve the age-old tension between needing to provide safe, reliable and integrated enterprise IT while also being able to exploit "business moments" — experimenting with, and capturing value from, new technologies, and societal and industrial trends at digital speed. This subsumes and goes way beyond agile software development. It includes creating separate multidisciplinary digital innovation teams, working with small businesses and startups, and adapting governance and metrics for a lightweight, second-stream capability.

In the next three sections, we will explore each of these three imperatives in detail.

Create Powerful Digital Leadership

To exploit digital opportunities, ensure that the core of IT services is ready; strive for clear digital leadership, strategy and governance; and help all business executives improve their digital savvy.

"If the CEO asks, 'Who owns digital?' and gets multiple names, then you have to wonder who owns it."
Baron Concors, CIO, Yum Restaurants International (former CIO and CDO, Pizza Hut)

Progressing to the third era of IT requires an emphasis on leadership

In relatively certain, stable times, management is arguably the most important discipline. The second era of enterprise IT fits that model. Straddling the second and third eras is inherently complex and ambiguous. In times of great change and uncertainty, leadership comes to the fore; more specifically, as Bob Johansen at the Institute of the Future has pointed out, clarity will be disproportionately rewarded. Leaders need to be very clear about the future they are making, but flexible about how it gets made.

As demonstrated by the case studies in the Appendix, to seize the digital opportunity before them, CIOs must step forward and provide the vision and leadership needed for the future, even if this means stepping into the unknown and out of their comfort zones.

Recognize digital leadership as distinct from IT leadership

IT strategy is a technical answer to a business question: "Given our business strategy, how should we use IT to help our business win?" Digital business strategy is, on the other hand, a business answer to a technical question: "Given how the digital world is unfolding, how should we evolve our business strategy to allow us to survive and thrive?" ("Let's Get Digital: A Template for Digital Business Strategy" explores the answer in detail — see Further Reading). Note that digital business strategy is not an extension of, or a replacement for, IT strategy. It serves a different function.

Similarly, digital leadership is not a replacement or substitute for IT leadership. It, too, serves a different function by:

  • Ensuring that the business is answering the digital business strategy question
  • Ensuring that the company or public-sector agency is positioning itself to win in an increasingly digital world
  • Building, acquiring and divesting the company or agency's portfolio of business units (and the products and brands in each)
  • Adapting sources of competitive advantage and marketing positions
  • Building new partnerships

All this is more an adaptation of business leadership to the digital context than a matter of IT leadership. Most enterprises have IT leadership — creating, executing and monitoring IT strategy to some degree. But most have a vacuum in digital leadership.

Companies have always needed both IT and digital leadership, but as we enter 2014, digital technologies and societal trends that can radically change a business (not just make it a bit more efficient or effective) have exploded onto the scene. The case studies on Seoul National University Bundang Hospital and Universidad Tecnologico de Monterrey (see the Appendix) highlight how much digital technologies and trends can transform every aspect of an enterprise.

Understand the role of the chief digital officer

"I have to play Dr. Jekyll and Mr. Hyde as I move between the two roles, making sure I apply the correct set of rules depending on the hat I'm wearing — traditional IT versus leading digital transformation."
Gianni Leone, chief digital and information officer, Miroglio Group

In recognition of the leadership issue, leading companies are creating a chief digital officer (CDO) role. The role started off as a digital marketing and media officer, and was concentrated in media companies. Now the CDO role has broadened; around 7% of enterprises have a CDO, and they are spread across all geographies and a wide variety of industries (see figure on page 22). Gartner is predicting a tripling of the prevalence of CDOs and similar roles in the next year.

Figure 10. CDOs are everywhere
Figure 10.CDOs are everywhere

Source: Gartner.

Even more important than sheer numbers is the evolution of the CDO's role. Now only 42% of CDOs are primarily focused on digital marketing. A similar number are true advisors to the CEO and board on digital business strategy. (This figure has been changing so fast, even during the three months we collected survey data, that the balance noticeably shifted away from an exclusive marketing focus with every data sample we took.)

Forty-two percent of CDOs now report to the CEO. Just under a quarter (22%) report to the CMO, and 16% to the CIO (the others varied). Similarly, the resources available to the CDO are highly variable. Nine percent are lone advisors and change agents, 23% have a small team of analysts and evangelists and/or a budget to run pilots, 27% have a substantial team to develop digital services, and 26% are resourced to develop and run digital services separate from IT.

A critical question arises: Could/should the CIO also be, or become, the CDO? The short answer is, possibly — but such a dual role is neither easy nor the default. The Yum Brands and Miroglio Group case studies (see the Appendix) are two very successful examples of one individual holding both the CIO and CDO roles. But the CDO is more an extension of the chief strategy officer than the CIO — it is a strategy role informed by the digital context. Board-level strategy, communication and influencing skills are key. As of the end of 2013, 35% of CDOs have come primarily from a business strategy or marketing background, 19% have an IT background, and 46% have mixed/other backgrounds.

It is certainly not necessary, or probably even desirable, for all CDOs to fall into one scope, role and set of resources. But it is essential that there are no gaps, overlaps or ambiguities of coverage between the CDO and CIO. Two-thirds of enterprises that have CDOs are somewhat OK with how IT and the CDO integrate, but less than a third are very clear on this. Clarifying the coverage and scope of digital leadership, and integration with enterprise IT leadership, should be high on every CIO's agenda in 2014.

Build a digitally savvy C-suite

"We believe it's important to embed digital in the role of every key executive."
Willem Eelman, global CIO, Unilever
"[Our leadership] have set it as a goal and objective for everyone in the company to become digitally enabled."
Bill Ruh, vice president global software center, GE

In the era of digitalization, having a smart CIO and IT team is not enough. Every executive needs to think of him or herself as a digital executive and ask the question, "What does the evolving digital world mean to our business, and to my area of responsibility in particular?" This is especially essential for the CEO.

Of all the CIO survey data we collected this year, the best correlations were between the CEO's level of IT/digital savvy and other leading and lagging indicators of success (see figure below). There were strong correlations between CEO digital savvy and business performance, IT performance and the CIO's level of power and influence, each rising with the level of the CEO's digital savvy.

Figure 11. CEO digital savvy is critical
Figure 11.CEO digital savvy is critical

Source: Gartner.

The table below contrasts CIO responses from businesses at either end of the spectrum. We asked CIOs to rate their CEOs' IT/digital savvy from very weak to strong. The table shows average answers to other questions based on those who rated their CEO at either end of the scale (8% with very weak CEO digital savvy; 7% with strong CEO digital savvy). Note the stark differences between the two.

Figure 12. CIO responses to the CEO's digital savvy
Figure 12.CIO responses to the CEO's digital savvy

Source: Gartner.

So how can CIOs influence the level of IT/digital savvy of CEOs and other executives? Along with the perennially smart behaviors of creating great business-success-focused IT strategies, and translating all IT-related issues into business outcomes and strategic business themes, there are a number of specific proven approaches and interventions:

  • Use of digital nonexecutives. These people can inject some fresh external thinking into board meetings and lower-level governance mechanisms. Select individuals who have achieved credibility through successful digital innovations in contexts similar to that of your enterprise, with personalities that will provide the right amount of "stretch challenge." Don't automatically look for the digerati from famous digital-era companies like Google, Apple and Facebook. (In early 2014, look for a research note from Gartner on selecting digital nonexecutives for boards.)
  • Technology showcases. A technology showcase is typically an annual or semiannual event, where some or all employees are invited to come and peruse new technologies and technology-enabled business innovations. It may involve external technology companies showing their wares, external end-user companies presenting their case studies, internal staff demonstrating company-specific examples they have pulled together, or simply internal staff explaining new technologies. Each approach has costs and benefits. Baron Concors of Yum Brands (see the case study in the Appendix) runs a digital summit for the top 200 people in the company, with thought-provoking external speakers.
  • Hackathons/hackdays/innovation jams. Fashionable right now, these events tend to be intensive, typically lasting 24 hours, where a large number of employees (and possibly others) work in small groups to either come up with ideas or actually build prototypes of potentially valuable business innovations (which can then be used in showcases). Most companies that do this report occasional breakthrough opportunities, but the most reliable benefit is getting the entire staff involved in thinking differently and more deeply about digitally enabled business opportunities. Mike Yorwerth, group technology and architecture director at Tesco, told us that his IT organization has run hackathons for the last few years. Tesco also holds a supplier innovation day that extends the concept to its vendor community (see the case study in the Appendix). Though hackathons more directly influence those below the C-suite level, they often have a strong indirect effect on CxOs.
  • Reverse mentoring. Radical and virtually unheard of only a few years ago, reverse mentoring is taking hold in a significant minority of organizations. It involves junior staff (or even external youths) advising senior staff about the possibilities of using digital innovations to work and collaborate differently. Yum Brands does reverse mentoring for senior executives (see the case study in the Appendix).
  • Use of examples and analogies. Digital innovation is complex and abstract. Preparing examples of what others have done with digital, how they have done it and what the results have been makes it more intelligible and engaging for busy business executives. Examples of both successes and failures can be helpful. Relevant business model analogies from other industries are another powerful tool.
"We borrowed other industries' best practices — our national security agency's approach to cloud, for example."
Dr. Hee Hwang, CIO and chief medical officer, Seoul National University Bundang Hospital.
"In my previous position at Neoris, I collaborated as strategy and architecture advisor on the CEMEX Shift project. When I joined the university, I saw the opportunity for 'Shift reloaded.'"
José Tam, CIO, Universidad Tecnologico de Monterrey

Consider using one or more of these techniques to drive the digital savvy and digital thinking of the CEO and other business leaders.

Renovate the Core

The core of enterprise IT — infrastructure, applications, information and sourcing — along with the talent needed to execute on it, was built for the IT past and needs to be renovated for the digital future.

"In my previous role overseeing an Indonesia mobile payments initiative, we had to simulate 5 million customers, three banking gateways and 10 telecommunications companies. Public cloud was the only cost-effective way, and I got to see the power of it."
Larry Matias, CIO, Jollibee Foods
"Some of the small companies we work with consist of only two or three people. Fortunately, it is in our DNA as a program maker to work this way. You have to focus on helping these smaller partners succeed, managing risk more than the legal aspects."
Kevin Gallagher, CIO, Channel 4

Technology priorities reveal two complementary goals

This year we asked CIOs specifically about the highest areas of new technology spending (as opposed to previous years, when we simply asked about priority). It is clear that, in addition to new opportunities like big data and mobile, a lot of new spending is going into improving core systems and capabilities (see figure below).

Figure 13. CIO technology priorities for 2014
Figure 13.CIO technology priorities for 2014

Source: Gartner.

How do we interpret this? The clear signal is that the major new categories of spending are split between two important imperatives. The first is to renovate the core of IT — in other words, to ensure that the infrastructure, and the main IT applications and services such as ERP and solutions development, are fit for purpose. Part of this is a function of the investment cycle, but part is about getting "digital-ready." This requires creating a detailed vision of what digital innovations in the business are likely to take place, and making sure core services are ready, or that at least they can be made ready fast. A common example is companies that are used to a B2B model, needing to prepare for a B2B2C future.

The second imperative is to exploit new digital trends, including the ability to mine a greater volume, velocity and variety of information (big data); the ability to engage customers, employees and the crowd in a more compelling and coordinated manner using mobile, social and other channels; and, more generally, to deeply innovate the business models based on these digital possibilities.

Both imperatives are important, and it is essential to pursue them in parallel. Getting stuck on renovating the core only is too slow, and those who skip this step, and overly focus on exploiting the new, will find themselves dreaming digital dreams that are not achievable or sustainable.

Renovate all aspects of the core

Which aspects of the core should you be innovating? The obvious answer is all of them. But four aspects are especially important:

  1. Move away from monolithic ERP to a more loosely coupled paradigm, including integration with cloud components. Gartner calls this "postmodern ERP."
  2. Build next-generation information architectures and analytic capabilities, including in-memory databases; better metadata; and the ability to exploit multimedia, social and other unstructured data, and data from outside the enterprise.
  3. Deploy the public cloud as part of a hybrid enterprise infrastructure, application and service portfolio — to increase agility, innovation and efficiency.
  4. Rethink and extend supplier, vendor, and partner and service provider relationships, including the use of smaller, faster, more innovative partners, and working with partners in new domains such as mobile.
Figure 14. Reimagine the core
Figure 14.Reimagine the core

Source: Gartner.

Gartner will continue to publish extensively in all of these areas (see Further Reading for previously published research). In our 2014 CIO Survey and associated case studies (see the Appendix), we tested hypotheses about public cloud and new partnerships. These are explored in this and the next section of the report.

First, we should note that all of these changes require a rigorous review of the digital talent in the IT organization, across the business and in partner organizations, asking the question, "Do we have the right skills for the future?" As mentioned earlier, 42% of CIOs replied with a resounding no. And there are other, even starker, figures.

When we asked those involved with agile whether they had the right agile skills, 18% said yes, 43% said improvements were needed, and 39% said the IT organization needed a major talent overhaul. CIO interactions and Gartner thinking suggest five common areas of increasing concern around talent:

  • Digital design. The ability to design for new digital platforms to provide compelling customer experiences.
  • Data science. The ability to use big data and generate insight. Gartner has been stating for a number of years that lack of data science skills will be a major bottleneck in economic activity globally. Specific capabilities here include the ability to analyze unstructured, multimedia and noisy/imperfect data; and visualization, simulation and advanced modeling techniques.
  • "Digital anthropology." Unknown to most enterprises until recently, the discipline of understanding human behavior, customs, rituals, and economic and political organization — increasingly important as digital permeates all aspects of our clients', employees' and citizens' personal and private lives.
  • Small or midsize business (SMB)/startup engagement. The need to engage small enterprises as partners to gain innovation and speed (which more and more companies are recognizing). This is not an easy task, and special skills are needed. See the discussion on partnerships starting on page 32.
  • Agile development. Both specific skills (e.g., methodologies like Scrum and Extreme Programming) and a mindset for highly collaborative, iterative development.
"When you look at our systems, you see only what appear to be conventional technologies. The key to patient-centered systems is their softer aspects, which reflect understanding of the patient's journey."
Dr. Hee Hwang, CIO and chief medical officer, Seoul National University Bundang Hospital.

Deploy the public cloud to support agility

"We are looking for an architecture that could serve 1 billion people. We could afford traditional infrastructure when customers came to the bank once a month. Now they may access their accounts via mobile phones 10 times per day. The cost per transaction must approach zero to make this usage viable for the bank."
Luis Uguina, global head of remote channels and new digital business, BBVA

For most organizations, the dialogue around public cloud has transitioned relatively quickly from extreme skepticism stemming from concerns about performance, reliability, control and risk, to a pragmatic discussion of what, when and how. This change has been driven by supply-side improvements from cloud service providers, an increasingly well-informed understanding by CIOs and their businesses, and pressure to achieve Web-scale architecture, performance and agility (given cost constraints).

BBVA, a large Spanish bank also featured in the 2012 CIO Agenda Report, based its large, early move into public cloud on collaboration services with Google. Despite being in an industry with high regulation and customer privacy issues, BBVA is pressing ahead with plans for a hybrid future, based on smart load balancing across multiple private and public clouds to achieve efficient scale, meet regulatory requirements, yet prevent private data from going into the public cloud.

Jollibee Foods, a fast-food chain based in the Philippines, is relying on public-cloud infrastructure and services for better cost, speed and scale for many core services. These include Web and phone food delivery services, material requirements planning (MRP) and interim ERP services for overseas subsidiaries (until the company's own ERP templates are deployed). (See the BBVA and Jollibee Foods case studies in the Appendix.)

"Potential benefits of cloud include cost savings and other capabilities such as agility, innovation and time-to-market. It is often the latter that is the real impetus. These benefits are often less quantifiable but are more and more commonly cited as the true drivers and value of cloud."
David Mitchell Smith, vice president and Gartner Fellow

Survey data shows that a quarter of businesses have made significant investments in public cloud (not just tests). Seventy-two percent of these invested in software as a service (SaaS), 47% in infrastructure as a service (IaaS), 43% in platform as a service (PaaS) and 17% in business process as a service (BPaaS). For half, agility is the primary motive. Although all cloud investments must have a business case, only 14% were investing primarily to reduce costs.

Perhaps not surprisingly, the benefits of public cloud have been mixed. Overall, respondents averaged a 22-month payback period on cloud investments. Comments on their experiences suggest an equal mix between those who got more than they expected, those who got what they expected, and those who got less (in terms of business benefits). Why are some cloud investments yielding benefits and some not? The combination of survey results, case studies and Gartner insight leads us to propose eight "CIO golden rules" for investing in public cloud:

  1. Whatever your plans, test public cloud quickly and safely to dispel myths and elevate executives' and IT staff's understanding, and to promote internal dialogue.
  2. Manage internal and external expectations and concerns, focusing on issues and concerns around performance, control and innovation.
  3. Understand and communicate your primary goal: Is it innovation, agility, cost or something else?
  4. Consider public cloud for multiple uses: long-term cost-effective agile capacity, interim capacity during periods of change and as a tool to test.
  5. Plan for a hybrid architecture based on economics, performance/agility needs and regulatory/security/privacy considerations.
  6. Don't get stuck with websites only, and don't discount putting mission-critical systems on the public cloud.
  7. Ensure that you have the right partner. Focus on reliability, configurability, granularity of pricing and availability of tools.
  8. Retain the ability to exit a cloud partnership gracefully, with your data intact! (Build this and rule 7 into contractual terms and conditions.)

Most CIOs believe in a hybrid future with a significant cloud component, and they are moving toward it. In the 2011 survey, and again in this year's survey, we asked CIOs how soon in the future they expect more than half of their business to run on public-cloud infrastructure and SaaS (see figure below).

Figure 15. The future still looks increasingly "cloudy"
Figure 15.The future still looks increasingly "cloudy"

Source: Gartner.

The short answer is that despite being three years closer to that future, CIOs remain pretty bullish that public cloud will represent the majority of the IT estate in the not-too-distant future. About a quarter of CIOs continue to believe that public cloud will never represent the majority.

Escape partner relationships that aren't working for you

"IT sourcing strategies must be structured to enhance IT agility and address the needs of digital businesses. Organizations that don't adapt their strategies, and the competencies required to execute them effectively, will fail to achieve the value opportunities presented by a highly digitalized future."
Ian Marriott, research vice president, Gartner

At the beginning of this report, we discussed the transition to the third era of enterprise IT— moving from a dominant focus on the industrialization of enterprise IT, to a period of digitalization, characterized by deep innovation beyond process optimization, exploitation of a broader universe of digital technology and information, more integrated business and IT innovation, and a need for much faster and more agile capability.

Aside from the inherent "stuckness" of IT organizations in the second era, the nature of relationships between IT and its providers of technology, services and people, is exacerbating the situation. As the figure below (derived from the 2013 Gartner CIO Survey) shows, most CIOs don't feel that the biggest IT names have been bringing enough innovation to the market, and they see the future (especially in the digital space) in the "long tail" of small enterprises.

Figure 16. CIOs do not feel that innovation will come from the usual suspects
Figure 16.CIOs do not feel that innovation will come from the usual suspects

Source: 2013 Gartner CIO Survey (n = 1,305 respondents to the first question; 1,255 respondents to the second question).

Why is this? Most large IT companies, being invested in the second era of enterprise IT, are set up to monetize that model. Sure, most of them have cool, funky stuff in their labs, and in some "bleeding-edge" deployments, but this is not represented in most of their client contexts and contracts.

Moreover, in keeping with our earlier argument, if the big vendors have it, everyone can, and "it" becomes vanilla. Innovation from big vendors doesn't help differentiate you from your competitors.

Is this just idle talk and negativity, or do CIOs intend to change? There is no sign that outsourcing will stop — 59% of CIOs intend to outsource more in the next two to three years, and only 13% will outsource less. However, more than two-thirds (70%) report that they will change their technology and service providers in the next two to three years.

Change to what? And how do CIOs encourage more agility and innovation? In addition to continuing to push the usual suspects to bring their "A game" and developing more flexible win-win relationships and contracts, there is a strong case to be made for CIOs to directly engage with smaller businesses, including startups, to reap the benefits of innovation and differentiation. Almost a third (29%) of CIOs say they will diversify their partner portfolio in the next two to three years to include more small organizations. At the 2013 Gartner EMEA Sourcing Summit, Mark Hall, then CIO of the U.K. revenue and customs agency, spoke of bringing in startups from unusual areas like gaming to drive more innovation.

Kevin Gallagher, CIO of U.K. TV broadcaster Channel 4, has been using startup and small-enterprise partners for some time, mainly out of necessity due to the nature of the film and TV broadcast business. He told us he has seen the value, the challenge and the need to approach partnerships with small and young businesses differently, especially when you are in a large business (see the Channel 4 case study in the Appendix).

We offer nine more "CIO golden rules," these for partnering with small and young companies:

  1. Build a competency center around working with smaller companies, recognizing that this needs to be much more than a procurement exercise.
  2. Consider a broad range of partners: startups, incubators, universities, crowdsourcing services, local SMBs and citizen development services.
  3. Design the relationship for win-win; don't try to hold smaller companies to minimum price/maximum delivery — they might say yes because they want to work with you, but by the time you finish with them, they may be dead!
  4. Keep legal issues light and focused on intellectual property. Don't focus on the liabilities should a partner fail, because they might not be able to pay them (assuming they are still around).
  5. Expect to put a project management/delivery wrapper around small partners. Let them focus on and provide what they are good at.
  6. Think about the partner's cash flow, as well as their profit. You may need to adapt your payment processes (e.g., lower latency, higher frequency).
  7. Develop the ability to do quick, lightweight audits of potential small partners (neither you nor they can afford to do slow, heavyweight ones). Focus on the people and their capabilities.
  8. Make every effort not to constrain partners in terms of methodology, tools and approach. Focus on the outputs.
  9. Don't try to lock small partners into only working with you. Manage intellectual property issues in conventional ways.

Partnering with small companies introduces complexity and has risks, neither of which should be underestimated, but the risk can be managed (see "The Nexus of Forces Enables Differentiated Business Value Services" in Further Reading). Note that sticking with the usual suspects and/or inflexible contracts may represent even higher risks to your business.

Build Bimodal Capability

To capture digital opportunities, CIOs need to deal with speed, innovation and uncertainty. This requires operating two modes of enterprise IT: conventional and "nonlinear."

"The reality is that you do have to operate at two speeds. And some of that you do by creating dedicated teams for each. Focusing on the big systems, making them run smooth, while at the same time having disrupters to innovate, together with marketing and the customer, exploiting digital."
Willem Eelman, global CIO, Unilever

A single mode of IT is not enough

There is an inherent tension between doing IT right and doing IT fast, doing IT safely and doing IT innovatively, working the plan and adapting. The second era of enterprise IT has been all about planning IT right and doing IT right, being predictable and creating value, while maximizing control and minimizing risk. In short, it has been about running IT like a business within a business.

But the third era — digitalization — poses additional challenges such as the following "nonlinear" needs:

  • The need to absorb disruptive new business models, enabled by new digital technologies
  • The need to scale up and down in Internet time
  • The need to react fast to capture business moments
  • The need to flex painlessly to support business model innovations
  • The need to explore and evolve solutions that are surrounded by uncertainty

Conventional IT doesn't do well under such conditions. In fact, trying to capture these needs with one mode of IT is impossible. Since the needs present a bimodal distribution, so must the capabilities to deliver on them. CIOs must develop an additional mode of IT to be deployed under three circumstances:

  1. Nonlinear speed: when there is a need for low latency and/or highly accelerated development
  2. Nonlinear innovation: when there is a need for a high level of disruptive innovation
  3. Nonlinear direction: when there is a need to continually readjust to deal with high levels of uncertainty

Mythbuster

The second mode of IT is not only applicable where speed is needed, it is not only applicable for experiments, and it is not only applicable for non-mission-critical initiatives.

Agile software development is helpful but not enough

In the process of transitioning to the second era, there has been a general trend to restructure and professionalize IT. This has included the following:

  • Separating IT into two big chunks: run-the-business IT, and grow-and-change-the-business IT. Run involves everything done to keep the lights on, including some maintenance development. Grow and change contains or links tightly to everything needed for change, including change management and benefits realization.
  • The build-out of an office of the CIO with transversal functions, such as strategy, governance, security and risk management, IT finance, procurement and HR.
  • The creation of a demand/relationship management function to interface with internal "customers"/business units.
  • In some cases, the addition of a chief technology officer (CTO) — in effect, the chief operating officer of IT, freeing up the CIO to be more of an information and technology leader in the business and broader ecosystem (see "The Many Flavors of the CTO Role" in Further Reading).

All this is designed to run IT as a more professional and predictable business within a business, and those who have gone in this direction are set up nicely for transition to the third era of digitalization. Establishment of the CTO role lets the CIO be more of a digital leader, and the grow-and-change function is isolated as the main target for nonlinear innovations.

As the figure below suggests, a number of CIOs (45% according to the 2014 CIO Survey) have already built some agile software development capability into their grow-and-change function. Those who are doing this are typically running half of their development using traditional waterfall techniques, and half using iterative and agile methodologies and tools, such as Scrum (47%), Lean (24%), Kanban (10%) and Extreme Programming (7%). This second mode typically involves very short cycle iterations, and high levels of collaboration with users and sometimes external customers, throughout the life cycle.

CIO George Labelle of IPC has made extensive use of agile methodologies to create greater business value. For him, test-driven development and automated testing are key pieces of the puzzle. IPC has found this approach so powerful that it has re-insourced a number of systems and services, such as point-of-sale systems, to create new forms of value for the enterprise (see the IPC case study in the Appendix). However, it is important to realize that faster and more agile software development is a partial solution; we also need a complete second mode of IT that creates agility from top to bottom (all aspects of management and execution) and from cradle to grave (the entire life cycle of all assets and capabilities).

Figure 17. Many business have developed agile capabilities
Figure 17.Many business have developed agile capabilities

Source: Gartner.

Mythbuster

The second mode of IT is not only about software development.

Competing in a digital world requires completing your bimodal capability

Those who have moved early on digitalization, learned the lessons and gotten the scars have often extended their second-era restructuring to a more comprehensive change. In these cases, the grow-and-change function has become a more full-fledged digital development function, often reporting in a straight line to P&L/business unit owners, with a dotted line to IT for architectural governance. Teams are structured around products (not projects) and are multidisciplinary, including technical staff, design staff, marketing staff, engineering staff, etc. (see figure below).

Figure 18. The structure of IT is evolving toward bimodal
Figure 18.The structure of IT is evolving toward bimodal

Source: Gartner.

Gartner calls this second mode of enterprise IT "nonlinear" because it deals with disruptive innovation and requires accelerated delivery and rapid readjustment.

Agile software development is a must for nonlinear IT, but it is nowhere near enough. Other facets of a nonlinear IT are as follows:

  • A separate "nonlinear team" (47% of those using agile have a second team at present). This team should be multidisciplinary and probably report outside IT.
  • Lightweight governance and metrics that allow the second mode to be highly adaptive and take more calculated risk. (See the discussion of layered governance following these bullet points.)
  • The addition of the different digital-related skill sets mentioned earlier (see page 29), including agile development, digital design, data science, digital anthropology and SMB partnering. (Note that only 18% of survey respondents who have a second mode of IT feel they have the needed talent — 43% need additions, 39% a major overhaul.)
  • Aside from conventional sourcing models, consider radical alternatives such as crowdsourcing, microsourcing, hackathons and working with small enterprises and startups.
  • The ability to move systems and services between modes. This often means refactoring nonlinear-mode developments into a more stable, conventional mode. Occasionally it means the opposite — unleashing conventional systems into a more dynamic mode to exploit new opportunities. In this regard, George Labelle of IPC mentioned bringing a point-of-sale system back in-house to make it more dynamic and to exploit business moments with customers at the cash till. The effort required for such modal shifts — particularly hardening nonlinear experiments into industrialized, conventional solutions — should not be underestimated (it may be many times the initial investment).

Gartner's Pace-Layered Application StrategyTM is helpful in selecting which initiatives and investments should be handled with which mode. Systems of record should almost always be part of conventional IT, and systems of innovation almost certainly part of nonlinear IT. Systems of differentiation should be considered case by case. Businesses with advanced bimodal IT may operate at multiple speeds within the nonlinear mode, while getting more granular about which aspects of which systems should be developed at which speed.

Drawn from case studies, survey respondents and Gartner analysis, here are the nine "CIO golden rules" for building bimodal IT capability:

  1. Create clear principles on what goes into conventional IT and what goes into nonlinear. Default criteria would be: need for speed, need to innovate, need to address high levels of uncertainty.
  2. Design all components — structure, staffing, sourcing, governance, metrics and tools — to form a consistent nonlinear environment.
  3. Lightweight architectural governance is critical, so ensure that nonlinear-mode initiatives don't make a mess; but also, don't slow them down.
  4. Provide sufficient focus on the ability to refactor or industrialize nonlinear-mode into conventional-mode IT. And be open to the possibility of unleashing conventional systems into the nonlinear world when the need arises.
"Refactoring is the hidden 'gotcha' of agile. If you don't get this right, architecture and code debt can build four to six times faster than with nonagile, and the total cost of ownership can become far higher."
David Norton, research director, Gartner
  1. Consider skills (e.g., in the customer experience, digital design, digital anthropology, data science, startup and agile) and cultural aptitude (e.g., neophilia and tolerance for risk/uncertainty) when staffing the nonlinear-mode organization.
  2. Face up to the need for new people, skills and culture in the nonlinear mode. Don't set yourself up for failure with the wrong people.
  3. Don't reward your best staff members by placing them in the nonlinear-mode organization. They may not be the right cultural fit.
  4. Manage communications so that both conventional- and nonlinear-mode IT are seen as important and exciting places to work.
  5. Manage the cultural distance of the nonlinear-mode team from the core of the company — not too near, not too far (see "Masters of Innovation: What CIOs Can Learn From the World's Best Innovators" in Further Reading).

Conclusion: Craft Your Digital Legacy

The digital future needs your vision for change. Craft a compelling digital legacy, and factor it into your plans, operations and communications.

Those of us who have been in the IT industry for a while have heard this rallying cry too many times: "It's all going to be different. You need to reinvent yourself, your IT department, your technologies and your sourcing!" While the changes underlying these messages did represent opportunities to improve, the messages were massively overcooked.

This time, the combination of powerful digital and societal forces — the digital dragon — has created much broader and deeper opportunities and threats than the scope of traditional enterprise IT covers. And this time, it really is different. CIOs need to act, act fast and act smart to protect their companies, their public-sector agencies, their IT organizations and themselves. Don't let the past persuade you to ignore the powerful digital opportunities and threats that are now upon us.

In the first quarter of 2014, explicitly craft your "digital legacy" and write it into the "coupon" below. It should feel authentic, being based on what your business needs are and what you can truly give. It should also be enough of a stretch to make you proud.

Figure 19. Your digital legacy
Figure 19.Your digital legacy

Source: Gartner.

For inspiration, the figure below offers selections from the 874 responses to our 2014 CIO Survey. Don't let your digital legacy be like one survey response we received: "I'll get back to you on that."

Figure 20. Selected digital legacies from 2014 survey respondents
Figure 20.Selected digital legacies from 2014 survey respondents

Source: Gartner.

Appendix: Case Studies, Additional Data, Demographics

BBVA implements a sophisticated multicloud vision

Headquartered in Spain and operating in 31 countries, BBVA is a bank with 50 million customers, nearly 20,000 ATMs and 8,000 branches. The company has 113,000 employees with more than €600 billion (US$825.5 billion) in total assets.

When interviewed for the 2012 CIO Survey, BBVA was exploring a large commitment to the public cloud. At that time, the company used a private cloud internally for speed and agility, limiting its use of the public cloud to collaboration services. Although championed as a savings project, improved collaboration capability was the primary benefit.

Since then, BBVA has moved forward with cloud architectures. According to Luis Uguina, global head of remote channels and new digital business, "You may think that your hardware, infrastructure, personnel, security and licenses are better than the ones in the cloud. The truth is they are not."

This perspective has led BBVA to develop "Liberty," a cloud wrapper that provides access around mainframe services through hybrid multicloud data caching while ensuring that regulatory requirements are met and client data never goes into the public cloud. The company also has a vision for secure use of the public cloud in core bank processes, mainly to achieve efficient scale and agility.

"We are looking for an architecture that could serve 1 billion people," says Uguina. "We could afford traditional infrastructure when customers came to the bank once a month. Now they may access their accounts via mobile phones 10 times per day. The cost per transaction must approach zero to make this usage viable for the bank."

The vision has led to "Hydra" (see figure below and http://innotech.github.io/hydra/), a sophisticated multicloud approach designed to run and load-balance across multiple private and public clouds to achieve efficient scale and provider-proof extreme resilience. Components of Hydra will roll out in early 2014, with its first practical use including the ability to deliver millions of notifications on user app status to the real-time performance-monitoring system.

Figure 21. Hydra, the hybrid-cloud approach of BBVA
Figure 21.Hydra, the hybrid-cloud approach of BBVA

Source: BBVA

"The multicloud vision is needed to avoid vendor dependencies and increase our resilience," says Uguina. "There is genuine innovation in our architecture, but we are developing Hydra open source. We want to share it with the world and hope to inspire a passionate crowd of enhancers — for free!"

He adds that, as the journey to the cloud begins, talent has emerged as a major factor. "Skills are a real challenge," he explains, "but the solution isn't to get rid of everybody and hire a new batch of people. You need to take your staff with you on a cloud journey."

Based on an interview with, and material from, Luis Uguina, global head of remote channels and new digital business, BBVA, October 2013.

Channel 4 is working with small partners to drive innovation

Launched in 1982 and based in the U.K., Channel 4 is a publicly owned, commercially funded TV broadcaster focusing on innovative content, with revenue of £941 million (US$1.54 billion) and a

staff of 800.

CIO Kevin Gallagher explains that the TV business is agile by nature, since it must meet tight non-negotiable deadlines, use a wide variety of conventional IT and operational technology, and partner with small specialist organizations. The company's focus on innovation increases these demands.

"The small companies we work with may consist of only two or three people," says Gallagher. "Fortunately, it is in our DNA as a program maker to work this way."

Channel 4 often works with small creative teams from the outside to develop its TV programs. The key to success in this business is the ability to help creative people realize their vision without burdening them with organizational weight. This discipline in its core business translates well to working with smaller IT vendors, too.

"You have to focus on helping these smaller partners succeed, managing risk more than the legal aspects," says Gallagher. "Our culture is to deliver as much as possible. For example, we are currently using a company expert in the Apple and Google Play ecosystems to help us negotiate the App Store process, and we are working with universities to develop advanced algorithms for sales."

Two streams, both agile

Gallagher oversees two workstreams: conventional IT to run the business, and content and services, such as websites and games, to complement specific TV shows created by third parties.

A core team in IT supports online streaming and video-on-demand — viewer-facing products that must be available 24/7. The company uses agile methods such as "short sprints" (mini-projects — with a deliverable — often only a week in duration) and ongoing testing, with content released in a series of environments to ensure its integrity. The third parties are used to extend capabilities in the television front ends of niche areas like iPad and Xbox.

A second team supports program commissioning by managing online content and apps developed by third parties. "We do technical due diligence and security/data protection reviews," says Gallagher, "but we don't impose our systems or processes on them." He adds that having run on the cloud since 2008 helps greatly in these areas.

Managing small partners requires a different approach

What can other CIOs glean from Gallagher's experience with small enterprises? He offers these tips on developing a successful working relationship:

  • Use different skills. IT contracts with big suppliers can be run almost as a procurement project. But small companies require a much more hands-on approach. This involves different skills, such as providing a project management wrapper around partner activities.
  • Help your partners succeed. Understand that you are using small companies because of their unique skills and intellectual property. Don't expect them to be mature businesses good at project management and the like. Provide an internal wrapper that helps capitalize on their special skills.
  • Get to know your partners. When you use a small niche company, you essentially hire its people, so meet them and spend time with them. Visit their premises and make sure you can work with them. If they want to be left alone for six months to develop solutions for you, you must be comfortable with the relationship.
  • Help your partners stay alive. Paying partners regularly helps them manage their cash flow. Don't overburden them with administrative and legal tasks, though proper intellectual-property protections are a given. "There is no point in trying to protect the company from every conceivable liability if things go wrong," says Gallagher. "Even if you did, such partners often don't have the financial means to address liabilities."
  • Be pragmatic about risk. Get comfortable with risk but never with failure. Gallagher's team is good at mitigating risk — for example, by reducing scope, even at the last minute. "We focus on making things work," he says.

Based on an interview with, and material from, Kevin Gallagher, CIO, Channel 4, November 2013.

IPC makes a commitment to agile

IPC, a U.S.-based purchasing cooperative owned by North American Subway franchisees, provides procurement, IT and other services to 30,000 restaurants in the U.S. and Canada. The company's mission is to make the franchisees more profitable and competitive. IPC has a staff of 250, half of whom work in IT.

Frustration brings agile to the forefront

CIO George Labelle has been with IPC since 1999. "Prior to agile, we had a lot of unhappy stake-holders," he says. "Business analysts would get requirements and pass them on to developers, who would code and hand off to QA people for testing. Upon receiving the solutions, the stakeholder would then say, 'What the heck is this? It looks nothing like what we asked for six months ago.'"

As frustration grew, Labelle learned about agile and became very enthusiastic about it as a solution. "But I initially approached it very naively," he explains, "getting everyone to read the books, running two-week development sessions and meeting daily with business users. We were scrambling." Labelle soon realized this was merely traditional waterfall software development done in shorter cycles.

A change in culture and mindset

Things began to improve when IPC worked on changing the culture and mindset to agile, augmenting the practices with test-driven development and automated testing. "It was hard because we took developers used to working any way they liked and imposed very rigorous discipline. For six months, it was a big churn. You have to be prepared for some of your staff leaving because they can't make the transition. In our case, about 15% couldn't or didn't want to make the change, so they left or we asked them to leave."

According to Labelle, IPC is now 100% committed to lean agile development, using methodologies and tools like Scrum and Kanban. "Once people understand the value of agile, they become so excited about it there's no going back," he says. Those most passionate about agile become coaches and mentors.

The company is developing payment-processing and point-of-sale (POS) solutions that follow the new methodology, replacing packages and service providers with in-house solutions. "The relationships with our processing vendors weren't going well," explains Labelle. "We were paying a lot but not getting what we wanted. And once you get in bed with them, it's very hard to get out."

Labelle cites some impressive results: "We built a payment-processing platform and saved our franchisees $20 million — almost $1,000 per year per franchisee. It was risky because many restaurants are 24/7, with more than 50% of payments on plastic, so the system can't go down. It took two years to develop, but we had the credibility to convince leadership that we could do it."

IPC also set to work on a platform that wouldn't be set in stone for years. The nimble system has resulted in weekly software releases, and it processes 2 million transactions per day. Yet it has been down less than 60 minutes in the last 4.5 years (due to a DNS problem). Plus, Labelle reports that the weekly software releases have never caused a single disruption in service. "This gives the business an extreme advantage," he says. "We can react almost instantly to business requests, like mining customer information to provide one-to-one marketing at the cash till."

Meanwhile, the move to agile has fired up Labelle's staff. A group previously uninvolved in the POS solution suddenly became interested. "Meeting on weekends, these four built a POS solution that works and can take payments on an iPad," says Labelle. "They came to my office, pulled out an iPad and showed me the fully functioning solution. Soon we will test it with a Subway mobile seller at Florida Atlantic University. It blows my mind!"

For Labelle, another important indicator of success is how purchasing, supply chain, distribution management and other IPC business units have adopted agile approaches they have seen in IT. "They especially like the daily stand-up sessions (where people huddle to solidify the day's game plan, standing to keep the tempo high and the meeting brief), the transparency and the ability to hold people accountable," he says.

Based on an interview with, and material from, George Labelle, CIO, IPC, November 2013.

Jollibee Foods uses a mature hybrid-cloud approach

Founded in 1975, Jollibee Foods Corporation (JFC) has 2,100 fast-food stores in its home base of the Philippines and 500 additional stores in China, Vietnam, Brunei, Hong Kong, the Middle East, Indonesia and the U.S. JFC has 8,000 employees and had 2012 systemwide sales of PHP92.27 billion (US$2.07 billion).

Before joining the company, CIO Larry Matias led a mobile-banking initiative in Indonesia that required the simulation of 5 million users, three banking gateways and 10 telecommunications providers. "Public cloud was the only cost-effective way," he says, "and I got to see the power of it."

Moving critical apps to the public cloud

Matias has led the deployment of cloud-based services at Jollibee for the last two years, starting with Web portals and then building internal cloud competencies. Today JFC has several mission-critical applications on Amazon Web Services' (AWS) infrastructure as a service, such as material requirements planning (MRP) and the company's Web and phone food delivery services.

Moving to the cloud has improved handling of peak loads, with 20 on-premise servers augmented by access to the equivalent of 150 servers, without a budget increase. JFC currently spends about $30,000 per month on AWS. New capacity can be deployed in a couple of hours; formerly it took months to properly size, select, procure, receive and deploy new servers.

"It is much better than virtualization," says Matias. "You can't really reduce your data center's air conditioning and power consumption when you turn off a virtual server, since the physical servers and storage underneath all that virtualization continue to require power and air conditioning." In addition, the step-fixed costs incurred when infrastructure outgrows a data center are no longer an issue.

Exploiting new cloud opportunities

Until JFC's global ERP templates are deployed, Matias is using SaaS ERP for countries outside the Philippines. "IaaS is a good long-term business case for us," he says, "but SaaS is better in the interim, since charging is by seat, as opposed to on/off."

Matias believes in continuing a hybrid of on-premise and cloud capabilities. For example, with JFC's largest distribution facility, he uses the Infor Warehouse Management System in the cloud, linked to on-premise Schaeffer conveyor belt systems that manage physical systems in real time.

Matias and his team rely heavily on Amazon's cloud management tools, such as Dynamic DNS, Route 53 and Storage Gateway. They also use the cloud to size on-site infrastructure needs. "You can try it on cloud first, working out what compute power and storage you need by experiment," says Matias. "If you then want to bring it on premise, you're well prepared."

A smarter approach to the cloud

Based on his experience with the cloud, Matias has distilled some key lessons:

  • Many people have misconceptions about the cloud. The best way to overcome them is through limited experimentation. To allay staff fears, help them see that they don't need to own assets; they just need to control them.
  • It is essential to select a true public-cloud provider, not focus solely on monthly billing. A provider must be able to turn your services on and off, tune configurations (e.g., storage and compute power), bill on a dynamic basis and offer a good set of cloud management tools.
  • For IaaS, it is important to develop a time-conscious mindset in IT (e.g., "I would pay more for a cloud than for an on-premise solution if I didn't downsize or turn off systems when there was little or no demand").
  • If you succeed with the cloud, executive satisfaction and expectations will go up, so keep reminding executives of the innovation that results.

Matias' final advice is for cloud vendors: "I suggest to IaaS providers that they add a different model whereby they can extend on-premise processing power with a grid-computing-like model. This helps in weaning new clients onto the cloud before the change to cloud architecture. Furthermore, I would encourage SaaS vendors to pursue on/off business models, which make for a stronger long-term business case."

Based on an interview with, and material from, Larry Matias, CIO, Jollibee Foods, November 2013.

Digital leadership transforms Miroglio Group

Miroglio Group is an €883.2 million (US$1.2 billion) clothing and fabric manufacturing and distribution company. Headquartered in Alba Cuneo, Italy, since its establishment in 1947, the company has 49 business operations in 34 countries and sells 18 million garments a year.

Augmenting the CIO role with CDO responsibilities

Gianni Leone joined the company as group CIO three years ago and for the last year has assumed the additional responsibilities of chief digital officer (CDO), delivering digital services to the final customer. When top management looked at shifting customer knowledge and engagement practices from a tactical to a brand and countrywide effort, they saw the need for a groupwide role.

With his experience as CIO and previous e-business experience at Gucci, Leone was an ideal candidate. A CIO-CDO role also made sense because of the technology implications of digital service delivery and the need to execute innovative projects formerly handled by a central marketing team.

Early digital initiatives

To fulfill his vision of multichannel holistic customer engagement, Leone formed an 18-member team responsible for the digital experience, e-commerce and CRM. It operates with a very different set of rules than traditional IT teams.

"I have to play Dr. Jekyll and Mr. Hyde as I move between the two roles, making sure I apply the correct set of rules depending on the hat I'm wearing — traditional IT versus leading digital transformation," explains Leone. "Where delivering ERP functionality relies on thorough testing and standardization that takes time, the digital team must operate very fast, experiment, fail fast, and either iterate or move on."

To ensure there were strong connections between the corporate and brand organizations, Leone has established digital champions who support brand needs and, as representatives of the central professional community, share central best practices.

Thus far, the team has had good results engaging consumers through multiple channels, applying customer information and using digital channels to understand opportunities in new geographies. In some markets, the company partners with strong digital malls to acquaint customers with the brand before trying to move them to Miroglio's own digital store. "This way, companies can also gauge the size of a market to determine the wisdom of a brick-and-mortar investment," says Leone.

Leone is looking at digital mass customization. He thinks designers would reap benefits from using digital technology, but he sees more value in digitally engaging customers with made-to-order customizations. "The beauty for a multibrand group like ours is being able to play with all these directions — to test them before spreading out in a digital or physical way," he says.

A revolutionary interim role

Leone views his dual role not as an evolution of the CIO role but as a revolution. After years of focusing on infrastructure, ERP and the like, he sees the traditional CIO role shrinking as new digital opportunities grow. For other CIOs who wish to exploit new customer engagement opportunities and influence the coming digital world, he recommends a strong liaison with the chief marketing officer.

"Marketing has a lot of ideas, but they cannot see all the opportunities available in the technical world," he says. "At the end of every dream marketing has, there is the need to deliver and provide value — to execute on the dream."

Leone sees the CIO-CDO role as crucial to any company in the early stages of new digital business models. Someone who can coordinate traditional CIO duties and emerging digital services, while maximizing synergies between the two, can greatly increase a company's effectiveness. Still, Leone sees this as a temporary arrangement — an incubator for training, adopting and providing services, and building the expertise to take the enterprise into the digital world.

"When all the world's business is digital, everything — including the organizational model currently followed — will be different," he says. "In a few years, we will need something other than a CDO. For now, however, we and other companies do not have the final recipe for this kind of role and the teams that work under it."

Based on an interview with, and material from, Gianni Leone, chief digital and information officer, Miroglio Group, October 2013.

Priority Health sees speed of response as vital in uncertain times

Priority Health is a Michigan-based U.S. health plan covering 600,000 people at 12,000 employers.

CIO Krischa Winright faced a complex challenge when developing a new mass-market regional presence for Priority Health. The effort required Web, mobile and deep back-end integration. The launch date was immoveable, and the website's profile among customers, the healthcare industry and the media was extremely high. Add to all this a legislative reform process that had left requirements in a state of flux.

The company met the challenge with an agile development approach consisting of multiple small teams, many complemented by small boutique partners — a seemingly counterintuitive answer but second nature to Winright and her team. It resulted in the highly successful launch of a major new capability, on time and without major issues.

Two modes of development at different speeds

"Standard upgrades and package implementations are planned and executed using traditional waterfall approaches," explains Winright, "but development projects where significant digital assets are created — approximately 70% of our portfolio — follow an agile path involving two-week sprints across the environment. In a large healthcare enterprise like ours, we need discipline around the funding of releases, along with the option to say no at any point. We have a standard five-stage methodology, but the path through it can change dramatically depending on the nature of the work."

Priority Health broke the mission-critical healthcare initiative into several workstreams, each supported by small multidisciplinary agile teams. Most of the teams, in turn, leveraged small, innovative external partners with specialist skills in areas such as the digital shopping experience. Architecture and other key disciplines were embedded in every team, with a separate integration team helping to mitigate execution risk.

To support the cross-functional teams, which are mobile and constantly changing, the company redesigned the physical workspace. A whole floor supports a work style whereby project teams swarm into a collaborative area. This avoids internal silos, prevents inertia and minimizes handoff errors, while fostering trusting and productive business partner relationships.

The benefits of bimodal IT

According to Winright, changes introduced over the last three years by the faster of Priority Health's "two-speed IT" (agile approaches with two-week sprints, support for the PMO, and collaborative workspace areas) have improved velocity and throughput by 38%, for the same resource investment (i.e., dollars and people). She notes that velocity improvements of the highest-performing teams are far more dramatic — as much as 200%. Winright adds that the benefits go beyond speed and throughput, and they do not end at "go live." On the contrary, the company's ongoing fast-cycle development capability keeps solutions meeting market needs into the uncertain future.

"It is very important to maintain our small-project muscle," Winright concludes, "breaking large and complex initiatives into small parts and two-week sprints. This way, we reap the benefits of high-velocity approaches that are also highly adaptive to changing requirements."

Based on an interview with, and material from, Krischa Winright, CIO, Priority Health, November 2013.

Seoul National University Bundang Hospital goes fully digital to replatform its health systems and services

Opened in 2003 with 609 beds, Seoul National University Bundang Hospital (SNUBH) has grown to a 1,400-bed facility with 38 operating theaters. The hospital hosts 5,000 outpatient visits per day, employs 700 doctors and 1,000 nurses, and has been digital from the start.

Dr. Hee Hwang, CIO and chief medical officer, has a Ph.D. in pediatric neurology. He leads the IT steering committee and supervised the latest rollout of digital health information systems at SNUBH. "I am not an engineer or an IT guy, but I have a great interest in digital technology," he says.

His digital leadership challenge was to muster both corporate and IT resources into a single vision: Design SNUBH to be fully digital. "We were chartless, filmless and order-slipless from the start," says Hwang. Digital assets include clinical decision support systems, clinical pathways and clinical indicators. As Hwang explains, "We now use 147 clinical pathways in 13 specialties, and more than 300 clinical indicators in areas such as recovery time, transfusion management and antibiotics management. Digital covers every aspect of our practice."

The first system was built using a previous version of Microsoft's .NET Framework and browser-based interfaces. "It was getting outdated," says Hwang. "Specifically, it could not support the Nexus of Forces Gartner refers to: social, mobile, cloud and information."

The next system, implemented in 2013, took SNUBH further into the digital world. "I can say that we used IT to build our first system, but we applied digital technologies to create the second one," explains Hwang (see figure below for digital milestones in the hospital's evolution).

Figure 22. IT adoption status at Seoul National University Bundang Hospital
Figure 22.IT adoption status at Seoul National University Bundang Hospital

Source: Seoul National University Bundang Hospital

The latest system, called Next-Generation Health Information System (NGHIS), took three years and 3,000 months of human effort to build, including contributions from 30 full-time physicians in every specialty. The vision of NGHIS is "to promote human health utilizing digital technologies through a system that is easy to use, smart, cloud based, data oriented, service oriented, mobile, stable, flexible and secure." Still based on Microsoft Windows and .NET, it has a service-oriented architecture, uses an enterprise service bus on a BizTalk server and creates the user experience through Windows Presentation Foundation.

NGHIS supports integrated systems and services for staff on virtualized desktops and mobile clinical devices; secure data on patient devices (including mobile e-consent); smart bedside terminals; large-screen dashboards in wards; and multimedia animation-based patient education (the last available on any device).

"We call this patient-centered healthcare delivery," says Hwang. "With a just few touches to the personal monitors in their rooms, patients can check their schedules and medications, type questions to ask their doctors or research an upcoming examination. Outpatients can receive information on their medical consultations through their smartphones. Bluetooth receivers and transmitters in the ceilings guide patients through the maze of hallways. If you don't own a smartphone, you can use hallway kiosks."

According to Hwang, SNUBH is the first Asian hospital to reach level 7 of the Healthcare Information and Management Systems Society (HIMSS) Analytics Electronic Medical Record Adoption Model (EMRAM), and its bedside station won a 2013 Red Dot Award for communication design. "When you look at our systems," he says, "you see only what appear to be conventional technologies. The key to patient-centered systems is their softer aspects, which reflect understanding of the patient's journey."

Hwang notes that SNUBH had no option but to design and build its own system. "There were no packages out there that did what we needed," he says. "That made the process a challenge, because there was no precedent. We borrowed other industries' best practices — our national security agency's approach to cloud, for example. We had to get creative."

Based on an interview with, and material from, Dr. Hee Hwang, CIO and chief medical officer, Seoul National University Bundang Hospital, October 2013.

Tesco is innovating with suppliers

Tesco is a £72 billion (US$117.8 billion) retail group headquartered in the U.K. The company has 530,000 employees in 12 countries and serves 75 million in-store and online shoppers every week.

A digital-innovation imperative that involves partners

According to Mike Yorwerth, group technology and architecture director, Tesco has always been good at incremental innovation of internal processes, but the need today is for disruptive innovation that goes beyond process. Since CEO Philip Clarke stated that supermarkets formerly competed based on property but now increasingly compete based on technology, digital innovation has moved to a higher place on the company's agenda.

Recent examples of Tesco's digital innovation include a virtual shopping wall in South Korea, which combines the notion of a billboard (say, on a subway wall) with a "shop-able" Web page; entry into streaming media with its "Blinkbox" business (which rents movies and TV shows on a per-use basis); and a low-priced Android tablet called Hudl.

For the last few years, Tesco has run internal 24-hour "hackathons" — showcases for the ideas of a large group of participants. Recently Yorwerth realized that IT's external partners could contribute to innovation, since the top partners alone spend huge amounts on innovation, without a retail bias.

Yorwerth took the opportunity to conduct an IT supplier innovation day in place of the company's traditional pre-Christmas meetings with vendors. He asked each IT vendor with a strategic relationship with Tesco to send two people — an account manager and a big-picture architecture thinker. Twenty-four vendor representatives came, including people from Gartner. The agenda consisted of five major sections:

  • Yorwerth kicked off the meeting, explaining where Tesco was as a company, its goals going forward and its ambitions for digital innovation.
  • Groups from the most recent Tesco hackathon presented their creations, which included an app for tracking calories and physical activity. Another idea was an intelligent display stand for high-priced retail items such as digital cameras, using 3D-printed components, sensors and a Raspberry Pi (a tiny computer developed in the U.K.) as a controller, and with the capability to send video between a big screen and a tablet.
  • Yorwerth then explained the level of ambition Tesco was looking for and tried to get everyone in an innovative mood.
  • Gartner gave a presentation on business model innovation.
  • The vendors were split into groups and asked to work together to come up with innovative solutions to four business challenges Yorwerth had discussed.

Getting a supplier innovation day right

"The big question was whether a supplier innovation day could work," says Yorwerth. "Did we have the right people in the room? Would they be able to work together? It did work, and we got some interesting ideas. For example, one very large vendor spoke passionately about its experience with tools and technology for creating a social organization. And in a discussion on how technology could help with physical health, a vendor helped us think more about mental health and social value, such as the importance of contact with those who don't have anyone checking up on them. Perhaps delivery drivers could help make older, single people feel more connected."

Going forward, Yorwerth plans to run supplier innovation days every four months. For others wanting to experiment with this approach, he offers the following advice:

  • Keep the group reasonably small — 20 to 30 people.
  • Give strong direction up front on the level and type of innovation expected.
  • Don't try to run too fast. Initially, just establish a forum where vendors will listen to and think about your innovation issues, a valuable outcome in itself.
  • Encourage openness and sharing by setting out nondisclosure concerns at the start of the meeting. You work with vendors on confidential projects anyway, and the idea is only a small piece of the puzzle. The tough part is execution.
  • Don't be limited by your industry. Look for analogies from other industries and exploit them.

Based on an interview with, and material from, Mike Yorwerth, group technology and architecture director, Tesco, November 2013.

Universidad Tecnologico de Monterrey takes higher education from "nano-collaboration" to "hyperconnection"

Founded in 1943, Universidad Tecnologico de Monterrey is a private nonprofit group of two Mexican universities, with 60 campuses and an online Spanish-language virtual campus. The university community consists of 14,000 teachers, 700 researchers, 330,000 students and 250,000 alumni.

An underserved network of "the brilliant minds of Latin America"

"We have a very broad community network, with professors, researchers and alumni in powerful places [35% of C-level executives in Mexico are alumni of the university, and 37% of alumni are running their own companies], and a large, demanding group of millennial students," says CIO José Tam. "We are trying to capture the brilliant minds of Latin America."

Tam has a background of 20 years in management consulting. He worked on CEMEX Shift, an internal-innovation, open-collaboration platform. "When I joined the university, I saw the opportunity for 'Shift reloaded,'" he says.

Online services to all stakeholders had not been empowering the university network. "Each university was an island," Tam explains, "with tools such as email, content repositories isolated from one another, and lots of isolated applications. We experimented with massive open online courses (MOOCs) and virtual classrooms for blended learning. Knowledge is classified by course for students, but we wanted to 'flip the knowledge' to Mexican society, too. We also had low alumni engagement for teaching and learning. We were 'nano-collaborating,' and this was not good enough. We were making people miserable."

A vision beyond simple collaboration

Tam and others had a vision of "hyperconnection for reciprocity" to replace the limited collaboration of the past (see figure below). "As a not-for-profit," he says, "the most important thing for us is to help connect students, teachers, researchers, counselors and alumni. Giveback and reciprocity are a key value for us."

Figure 23. Apps being developed at Universidad Tecnologico de Monterrey (TEC) to foster collaboration
Figure 23.Apps being developed at Universidad Tecnologico de Monterrey (TEC) to foster collaboration

Source: Universidad Tecnologico de Monterrey

With the necessary capabilities now in one place and restructured around content, services and collaboration, the university is building on this base with tools that connect researchers, and semantic tools such as folksonomies that make data shareable.

For example, in "Dreams Come True," a gamification tool under development, "money markets" enable users to "invest" their starting capital in ideas. This process ensures that the best ideas bubble to the surface, with selected ideas paying a "return" to initial investors. The tool not only generates ideas but also opens innovation to wider communities. People don't need an idea to be part of the innovation process; they can simply invest in a good idea when they see it. For students, there is "Mentoring 2.0," which exploits social-network capabilities to facilitate virtual mentoring.

After having certain capabilities built on a Microsoft platform, Tam has learned that a key stakeholder is recommending a Google alternative — just one road bump in a technical journey he knows won't be easy. Still, he's not worried about the particulars of technical evolution. More important is that the university remain firmly focused on the overriding goal: empowering its extensive human network.

Based on an interview with, and material from, José Tam, CIO, Universidad Tecnologico de Monterrey, November 2013.

Yum Brands recognizes the importance of the CIO-CDO role

Based in Louisville, Kentucky, USA, Yum Brands is the $13 billion owner of Pizza Hut, KFC and Taco Bell, owning 20% of its stores and franchising 80%.

Baron Concors recently became CIO of Yum Restaurants International after serving five years as both CIO and chief digital officer (CDO) of Pizza Hut. Yum does not have a CDO at the group level, but Concors intends to remain involved in digital initiatives. "I enjoy that side of the business very much," he says.

Running a digital team alongside IT

In his CDO role at Pizza Hut, Concors had focused on digital marketing and technology: online, mobile, social and customer loyalty programs. "I was responsible for the online business of Pizza Hut," he explains. "I also strived to give my colleagues more visibility into digital than they ever had." He also had the opportunity to balance the creative input of marketing. "We applied a lot of data science to digital marketing, and we learned from and adapted the practices of companies like Amazon. No point in reinventing the wheel."

The digital team at Pizza Hut was separate from the IT team — 12 to 15 people with critical skills in usability, design, CRM and loyalty programs. "We needed to make it easier for customers to order online," says Concors. "Airlines and others may be able to make it more expensive to order over the phone, but we didn't have that luxury. We would lose customers if we did that."

The digital team also leveraged those on the IT team with Web platform experience. "We used sophisticated content management systems to allow rapid changes to digital marketing without coding changes," explains Concors. "We have a lot of peak periods in our business — for example, around the Super Bowl."

From CIO to CDO

Concors believes the CDO role, though still not represented in many companies, is critical to enterprise leadership. "If the CEO asks, 'Who owns digital?' and gets multiple names, then you have to wonder who owns it," he says.

At Pizza Hut, Concors saw his role as digital leader as balancing left- and right-brained people (the analytical vs. the intuitive). To increase the company's digital savvy, he helped organize a digital summit every year for senior leaders in the organization. He also believes in reverse-mentoring programs (whereby junior staff members, or even external youths, advise senior staff on using digital innovations to work and collaborate more effectively).

Concors believes that his previous background as a management and transformation consultant helped prepare him for the CDO role; he doesn't feel it is a simple extension of the CIO role. "You have to be seen as a breakthrough thinker and innovator in your current job," he maintains.

In Concors' view, CIOs who wish to become CDOs need deep business acumen, strong relationship and influencing skills, and the willingness to manage the inevitable tension between IT and marketing. "Be the voice of reason between the left- and right-brained," he advises.

On the CIO side, Concors sees the need to create more agility and speed, and a calculated approach to risk. "Failing is OK as long as you learn," he says. "But people remember if you deliver something of terrible quality. Bring your peers and even your customers in. Be transparent."

Based on an interview with, and material from, Baron Concors, CIO, Yum Restaurants International, November 2013.

Figure 24. Survey respondents by geography
Figure 24.Survey respondents by geography

Source: Gartner.

Figure 25. Survey respondents by industry
Figure 25.Survey respondents by industry

Source: Gartner.

Figure 26. Survey respondents by reporting line
Figure 26.Survey respondents by reporting line

Source: Gartner.

Figure 27. Expected IT budget changes by industry
Figure 27.Expected IT budget changes by industry

Source: Gartner.

Further Reading

Related content

Access report components including tools, presentations and case studies here:

Taming the Digital Dragon: The 2014 CIO Agenda (Report and Tools)

Gartner Executive Programs reports

Aron, D. and Weldon, L., "Let's Get Digital: A Template for Digital Business Strategy," G00257724, 2013 No. 9

McDonald, M. and Aron, D., "Hunting and Harvesting in a Digital World: The 2013 CIO Agenda," G00248536, January 2013

McMullen, L., Hunter, R. and Cole, J., "Innovate Like a Startup: The CIO's Front-Office Toolkit," G00254272, 2013 No. 6

Mesaglio, M., Aron, D. and Lazaro, C., "Masters of Innovation: What CIOs Can Learn From the World's Best Innovators," G00213393, May 2011

Weldon, L. et al., "The Gartner Travel Guide to the First Digital Decade," G00255443, 2013 No. 7

Core research

Aron, D., "Does Your Business Need a Chief Digital Officer?" G00238298, 20 September 2012

Aron, D. and Jones, N., "The Art of Innovating by Partnering With Small Companies," G00239799, 22 March 2013

Aron, D. and McDonald, M., "Approaching Cloud Services Strategically Helps Banco Bilbao Vizcaya Argentaria Simplify Platforms and Processes While Enhancing Productivity," G00231037, 23 January 2012

Aron, D. and Raskino, M., "The Many Flavors of the CTO Role," G00238323, 19 September 2012

Aron, D., Berry, D. and Mok, L., "Toolkit: Chief Digital Officer Job Description," G00249735, 30 May 2013

Aron, D., McLellan, L. and Genovese, Y., "The Three Types of Digital Business Leader," G00251979, 16 May 2013

Da Rold, C. and Karamouzis, F., "The Nexus of Forces Enables Differentiated Business Value Services," G00245426, 27 March 2013

Drakos, N., "Hackathons, World-Jams and Mashup Days Can Fit Your Collaboration Strategy," G00152782, 29 October 2007

Drobik A. and Rayner, N., "Develop a Strategic Road Map for Postmodern ERP in 2013 and Beyond," G00252735, 31 July 2013

Haight, C. and Plummer, D., "Use Web-Scale IT to Make Enterprise IT Competitive With the Cloud," G00250754, 15 May 2013

McGee, K., "Early Trends in Recruiting Chief Digital Officers," G00258352, 14 November 2013

Plummer, D. and Smith, D., "Hybrid Cloud Is Driving the Shift From Control to Coordination," G00252934, 19 September 2013

Raskino, M. and Lopez, J., "CEO and Senior Executive Survey 2013: As Uncertainty Recedes, the Digital Future Emerges," G00247308, 25 March 2013

Raskino, M. et al., "CEOs and CIOs Must Co-design the C-Suite for Digital Leadership," G00258536, 22 November 2013

Swanton, B., "Toolkit: Pace-Layered Application Strategy Starter Presentation," G00249808, 20 May 2013