By Lane F. Cooper

The votes are in, the tally has been taken and we have a winner in the race to capture CIO mindshare among the most aggressive IT implementers in the global economy. In a recent survey of U.S. IT executives at 500 companies—who are collectively responsible for approximately $150 billion in annual IT spending—innovation looms as one of their largest issues for 2007. The survey, conducted by InformationWeek magazine's research group in mid-2006, surveyed CIOs at the most innovative IT organizations in the United States.

The survey highlights ways in which CIOs play increasingly strategic roles in their organizations:

• Approximately 60 percent of the CIOs surveyed plan to streamline their organizations' business processes. They intend to improve the customer experience via the Web and improve levels of customer satisfaction. CIOs also plan to create both new products and services—in some cases, with development done by the IT staff itself—that can be offered to customers.
• More than half of the CIOs use technology to develop new products and services for their organizations' customers.
• Roughly a third of the CIOs say their organizations are currently seeking a patent, trademark or copyright on at least one IT-driven business process, product or service.

The not-so-good news, say industry analysts, is that tremendous progress in IT-business alignment must still be made if CIOs are to fulfill the total promise of their IT investments. "If the CIO and the IT organization do not truly understand the complex choreography and the intricacy of today's 21st century commerce, then technology is not going to be instrumental in effecting any meaningful change," warns Cedric Tyler, CEO of BusinessGenetics, an Englewood, Colo., consulting firm that helps clients with business complexity.

Driving the move toward greater innovation is the emergence of new technological capabilities. These IT advances offer CIOs the ability to quickly assemble software using modular programming techniques, then rapidly deploy applications across the enterprise using Web-based infrastructures. These changes allow IT staffs to proactively take the initiative in their dialogues with the business units. "IT can say, 'Hey, I know we've always had the customer service process work this way, but we think that if we do these three things we can get a 10 percent improvement in productivity,'" says Peter Kusterer, president of NvestNtech Inc., a Raleigh, N.C., consulting firm that helps organizations optimize their IT investments.

Older infrastructures were simply unable to support such innovations, Kusterer adds. "As a result, the business units would take the initiative. They would make a request for an action or an event or an application or a program that IT needed to develop," he explains. "It was a user- and business-driven process. IT would then respond."

The Rub
The problem with this approach, however, arose after IT took these requirements and rolled out what it thought the business groups wanted. "Here is where—all too often—you would find the historical rub," Kusterer says. "The users would not get what they thought they were asking for."

Much of the disconnect revolved around the limitations of the older technology itself. Legacy software systems have been difficult to change and adjust, and the embedded infrastructure has been pretty rigid as well, Kusterer says. New technologies, including modular programming, Web-based application development, and service-oriented architectures (SOA), are making technology far more flexible.

Also, the need for innovation is shifting—or at least expanding—the focus of the IT department, the InformationWeek 500 survey finds. Gone, increasingly, is the old, cost-based approach; in its place is a new, revenue-oriented perspective on their activities. "CIOs and IT departments have in the past mostly looked for ways to improve the way processes work within an organization," says Robert Austin, director of the innovation practice at Cutter Consortium in Arlington, Mass., and an associate professor at Harvard Business School. "They have typically innovated by changing a process from a manual one to an automated one, where the benefits have been cost-based. The organization is then able to do more with fewer resources—it improves efficiencies and reduces headcount, etc."

At the same time, however, CIOs must osition, and sometimes defend, IT innovation in an era of global outsourcing. Austin has seen meetings about innovation where IT departments show up to report on ideas for achieving improvements from IT projects, only to find themselves thrust into conversations with business heads who have very different ideas about innovation "The business-group leaders end up saying, 'Well, if we're going to go that far, why don't we just have them do what you're talking about in India?'" he says.

That's one reason why CIOs are placing more focus on the role of IT in achieving competitive differentiation, whether by enabling or enhancing revenue generation. "Not all IT is cost based," Austin says. "Sometimes you can accelerate revenues."

As an example, Austin points to Dell Computer, which collects money from a customer before it builds the customer's systems or pays its vendors. "This is a great example of an IT initiative with revenue impact," Austin says.

Similarly, Spanish retailer Zara competes by responding to fashion and consumer trends more rapidly than its competitors. The company has harnessed a unique system for product design, order administration, production, distribution and retailing to deliver garments to its 507 stores in 33 countries within 15 days of being designed. That level of innovation won Zara the Indiana University Center for International Business Education and Research's 2004 case study competition. "Zara doesn't necessarily spend more on IT," Austin says, "but they use IT in a strategic way that differentiates them."

Knowledge Gap
Still, some industry observers warn that many CIOs still lack a full understanding of their organizations' key business imperatives. This knowledge gap, experts say, must be cleared up before IT innovations can improve the business.

One key reason for the gap: Many IT organizations still apply simplistic, static models for depicting and describing business operations. "They still use planning tools and methodologies that have been used for decades," says Tyler of BusinessGenetics. "The idea that antiquated methodologies can be applied to understand the much more dynamic, digital and global implications of today's business environment is ludicrous."

In a sense, Tyler adds, IT advances have gotten ahead of CIOs' ability to implement new technologies effectively. Closing that gap will be a key task for the future. "Emerging standards and technologies, like those based on xBML, will be able to help CIOs model, define and depict business processes based on rules and multi dimensional understanding of their operations," he says. Now that would be innovative.

Lane F. Cooper is an editor and analyst covering the impact of technology on business operations. He has written for publications including InformationWeek, Optimize, Byte and Enterprise Systems Journal.