By Bob Violino

Innovation is the new imperative for business today. But the challenge of building a business strategy around innovation is that innovation is difficult to plan for or count on. Innovation is about uncovering a new insight or developing a new capability and recognizing how to take advantage of the opportunities created by these new discoveries. CIOs and other corporate leaders can establish an environment that fosters innovation and creates processes for determining how to understand and exploit the implications of innovation. By contributing to a culture of innovation at their organizations, CIOs can help enable business growth. That can come in the form of improved customer service, more efficient processes and technology-based market offerings.

There are specific steps CIOs can take to enable more innovation in their IT organizations. For starters, they can reduce the amount of time spent on maintaining systems, freeing up time to focus on strategic initiatives. One way to do this is to reduce the complexity of IT environments.

Some CIOs, like Kamal Bherwani, CIO and associate commissioner at New York City's Department of Health & Mental Hygiene, are focused on simplifying the management of their complex IT environment to enable growth. Historically, New York's agencies have taken an ad hoc approach to adding systems, without a centralized enterprise architecture strategy. That made maintenance more time-consuming and costly.

"We're rolling out enterprise wide application integration solutions that reduce the cost and time of keeping the lights on," Bherwani says. That's enabled him to work on strategic initiatives and look for innovative technologies and processes that the agency can use to accomplish its primary goal of improving public health.

Fat-Free City
The Department of Health & Mental Hygiene is establishing a reputation for innovation; it recently launched a program to bar the use of trans fats in city restaurants— making New York the first large city in the nation to strictly limit those ingredients—and banned smoking in city restaurants long before other cities took such action.

The IT department contributes to innovation in its own way. It's in the midst of a $30-million initiative to create an electronic health records system that will use a public-health-focused decision-support application layer to improve the quality, safety and efficiency of medical care in low-income communities. The system will have interfaces with laboratories, hospitals and several health information exchange initiatives in New York City.

CIOs can slash the time devoted to maintenance by increasing the level of IT automation, notes Al Nugent, chief technology officer at CA. "They need to find ways to make operations dramatically more efficient than they are today," he says. "That can come from policies, practices and tools."

CA looked at every opportunity to increase automation and improve the efficiency of its operations center, and as a result reduced the amount of labor needed for maintenance. By lowering costs associated with day-to-day IT maintenance, there's money leftover for strategic initiatives. This opens up the opportunity for innovation, he says.

CIOs and IT organizations can spawn different types of innovation: one that benefits the technology side of the organization and another that benefits the business. Creating innovation for the business is "considerably more difficult, because not all [technology] people have the kinds of insights that are appropriate to specifically address business innovation," Nugent adds.

Still, CIOs should take every opportunity to develop strategic relationships with senior executives across the organization in order to build institutional credibility, trust and leadership for IT, says Mitchel Davis, CIO at Bowdoin College in Brunswick, Maine.

The strategy worked for Davis. He reduced the time IT spends on systems maintenance by 80 percent, thanks to storage virtualization and hardware consolidation in the data center. That has freed Davis and his staff to focus on more innovative projects such as the development of an ultramodern multimedia lab for students, faculty and staff that incorporates digital still and video cameras, scanners, media card readers, online storage and other technology.

Some CIOs are putting money and resources into innovation labs staffed with seasoned, visionary technology professionals and several of the most creative developers in the organization, notes Patricia Seybold, president of Patricia Seybold Group, a technology consulting firm in Boston, and author of the book Outside Innovation: How Your Customers Will Co-Design Your Company's Future (HarperCollins, 2006).

Companies are using the innovation labs to try out new ideas the business comes up with or to experiment with new things customers are looking for. One example of such an effort is Fidelity Labs, an online proving ground established by Fidelity Investments, a financial services firm in Boston. Fidelity Labs enables the firm's customers and others to test and provide feedback on beta versions of some of the company's latest ideas.

In addition to the labs, Fidelity generates new ideas by working closely with universities and with emerging companies that have new and innovative technologies, says Steve Elterich, president of Fidelity Investments Systems Co. and CIO of Fidelity Investments.

Idea Incubator
The Fidelity Center for Applied Technology, founded in Boston in 1999 to enable the company to filter through leading-edge technologies to find tools that provide maximum benefit to Fidelity's customers, is just one example.

At the center, "we focus on incubating innovative thinking," Elterich says. "[The] sole mission is to look at what's happening those ideas to Fidelity and look at how they apply to Fidelity and benefit our customers."

Among the innovations Fidelity has recently created is an online application that enables customers to easily create bond ladders—portfolios of bonds that mature at regular intervals—and a set of tools for retirement planning. "We're offering capabilities to our customers that they wouldn't normally be able to get on the Internet," Elterich says.

Face to Face
CIOs should also plan face-to-face innovation "summits"— at least two interactive workshops per year in which the technology executives work directly with business units and their customers to co-design services, products and business processes, Seybold suggests.

"We run these customer co-design sessions with many organizations and always insist that IT stakeholders be well-represented," Seybold says. "But there's no reason why IT management couldn't take the lead in sponsoring these customer co-design sessions. What better way to get a clear set of priorities and build consensus about company priorities for the IT projects that have an impact on customers than by getting the customers to drive those priorities?"

Technology itself can play a major role in fostering innovation at organizations. Some of the most exciting new technologies help enable better collaboration (see sidebar). But there's a variety of IT solutions that can help deliver or advance new ideas.

"Innovation toolkits come in all forms, but the basic idea is to give lead users tools that enable them to configure and/or design new solutions, services or products using your [organization's] domain knowledge and expertise," says Seybold.

These can be configuration, customization or free-form design tools, or open APIs that encourage users to extend a company's offerings. "In every case, you should provide customers the ability to optionally contribute their designs back for others to see, appreciate, learn from, reuse and extend," Seybold says. "You may be surprised by the number of users who will be happy to show off their inventions."

Organizations that are successful and innovative are those that aim to make people more creative and more productive, adds Guy Kawasaki, co-founder and managing director of Garage Technology Ventures, an early-stage venture capital firm in Palo Alto, Calif., author of eight business books, and a former Fellow at Apple Computer. "IT can contribute [to this] in several ways: developing innovative products and supporting the employees who are creating innovative products," he says.

Product and service innovation is critical now primarily because information is just about "perfect" these days, Kawasaki says. "This means that people find out very quickly what is innovative and what isn't. One cannot rest on one's laurels today."

How an organization governs its technology spending can play a significant role in developing and executing successful projects.

Part of governance should include creating a technology investment portfolio and setting priorities for IT spending based on meeting primary goals, concludes Mark Lutchen, senior partner, IT Effectiveness, in the Advisory Practice of PricewaterhouseCoopers, New York, and the author of the book, Managing IT as a Business: A Survival Guide for CEOs (John Wiley, 2003). With a portfolio, organizations will make conscious choices to look at things that will give them the maximum return.

Some investments will be more stable but have less return, while others are riskier but promise higher returns. "That's why you should do this as a portfolio," Lutchen says. "Part of the governance process is to look at how much you should be putting aside for those kinds of innovative things and in what time frame."

Bherwani and the New York City Dept. of Health launched a Web-based IT Governance and Portfolio Management initiative in February 2006. It has helped the agency prioritize projects and focus on those most likely to have a positive impact on the agency's goals.

Agency managers submit ideas and requests for an IT project online, and the requests go through several levels of quick reviews and approvals. If the commissioner of health approves the initial idea, the project progresses through a high-level analysis, led by IT, of how it aligns with the agency's mission, its estimated cost and risk factors. It then goes before a steering committee that includes the CIO, COO and two other deputy commissioners. The committee rates projects on scorecards based on how they match the goals and priorities of the agency. "There are many more ideas and requests for resources than actual resources," Bherwani says. "Governance assists with managing IT demand and helping us decide which ideas have the most merit."

New York's governance program also includes monitoring projects over time to ensure that they're meeting goals and to take corrective action as early as possible if a project is in trouble. The goal, Bherwani notes, is to "do the right thing, and then do the thing right." For help, the New York department has turned to CA Clarity™, a solution designed to be easily configurable for all relevant portfolio analysis metrics. CA Clarity can then provide rich decision support for the governance committee's portfolio analysis process. "We increasingly see our customers include innovation as a portfolio analysis metric, along with such traditional metrics as alignment, risk, cost and expected return," says David Hurwitz, vice president of CA's Business Service Optimization unit.

As part of governance, Seybold recommends setting up a "customer innovation council," including top executives in IT, research and development, marketing, sales, customer support, operations, fulfillment and finance.

Each of these executives should be linked with a customer community—made up of several leading-edge customers. They should also have contact with an online community of users to keep the dialogue going between meetings, Seybold adds.

Customers work side-by-side with cross-functional teams to help design processes and identify key metrics for success. The team then collaborates with customers to brainstorm new approaches for supporting the things they care about most.

While customers can be good sources of ideas, they don't always know what they want or need, Bherwani points out. "I remember that quote from[automotive pioneer] Henry Ford, who said if he asked people what they wanted, they would have said 'faster horses'."

One of the more effective ways organizations can foster innovation is by rewarding creative thinking. But a lot of companies today base performance metrics on short-term achievements, such as reducing the length of customer support center calls or help desk short-term achievements, such as reducing the length of customer support center calls or help desk requests, rather than on strategic thinking.

"The problem with performance metrics with a short time horizon is that projects that are innovative or experimental often have a longer payoff structure," says Melissa Schilling, an associate professor of management at New York University's Stern School of Business and the author of a book Strategic Management of Technological Innovation (McGraw-Hill, 2006). "Companies need to change their metrics to create a longer time horizon," she adds. "Part of the CIO's pay or bonus should be linked to longer-term goals or projects. That could free up the CIO from thinking [only] about the current year."

In fact, organizations in general need to shed an inherent bias in reward structures that focus on the current year. "That really has the effect of discouraging innovation," Schilling says.

One potentially effective strategy is to create a system in which a team receives a reward for an innovative idea, and the individual who generated the idea gets an even bigger reward. "This helps create encouragement for individuals in a team to come up with ideas," Schilling says. "It creates a little bit of a hero effect and can be a powerful motivator."

More Than Money
Not all incentives for innovative ideas and solutions need be monetary, however. For example, organizations can publicly recognize creativity by presenting awards and holding awards ceremonies for innovation, or placing a plaque in a prominent place that says an individual was innovative.

"That helps tap people's intrinsic motivation, which is often more effective in fostering creativity than monetary rewards, and gets them thinking about innovation," Schilling says. "At the same time you have to build a support structure that allows them to be innovative. Give people a small amount of funding [for projects]. This is important because it says [innovation] is valuable and we want you to work on this. People feel it's available to anyone. Creativity can and should come from anyone in the organization."

One thing many organizations need to guard against is a phenomenon called the "Einstellung effect," a basic tendency of people to have a fixed mental attitude or disposition that predetermines their responses to situations, Schilling notes. "When people have solved a problem in a particular way, they can become mechanized in their belief that the problem has to be solved that way; they automatically look to the same solution," she says.

In the same way, organizations tend to favor their core competencies, becoming mechanized in how they create incentive systems and hire people with certain skills. That can help a business be successful for a while, Schilling says, "but it can also make companies very rigid. What's turned out to be very valuable is getting people to challenge things the company or a division is best at. What are some alternative ways of approaching problems?" In the end, innovation should be about making improvements, not just change, Kawasaki notes. "The overarching goal is to make the world a better place, not to innovate for the sake of innovating."

Bob Violino is a freelance writer in Massapequa Park, N.Y. He covers a variety of business and technology topics.

Kamal Bherwani, CIO of New York City's Department of Health and Mental Hygiene discusses how to tap innovation to achieve mission-critical objectives on the IT Enabled Innovation Smart Minute Audio Broadcast

Kamal Bherwani, CIO of New York City's Department of Health and Mental Hygiene discusses how to tap innovation to achieve mission-critical objectives on the IT Enabled Innovation Smart Minute Audio Broadcast