CIOs must master knowledge management, m-commerce, alliancing in networked economy
Madanmohan Rao reports from the CIO Summit in London
The dotcom wave has certainly passed its peak, but these times are still turbulent for those at the helm of traditional businesses operating in a networked economy.
Caught in the middle of the two fast-moving forces of technology change and globalised business is the chief information officer (CIO), who today has to have a command not just of Internet-enabled skills, but also a good grasp of finance, customer product development, alliance management, technology assessment, marketing, and brand management.
Some CIOs even joke that managing all those complex forward-placing roles in the midst of day-to-day operations is somewhat akin to "performing open heart surgery while running a marathon" or "building a ship while it is sailing."
CIOs, CTOs, consultancy firms, and technology vendors gathered in London recently for the second annual CIO Summit, hosted by The Economist Group which includes "The Economist" and "CFO" magazines, the Economist Intelligence Unit, and Pyramid Research.
By unleashing new value from existing IT assets and harnessing the forces of e-transformation, an effective CIO can help improve not just the support and efficiency of an organisation but also its competitive advantage, the dynamics of an entire supply chain, or even its whole industrial sector.
"In the post-dotcom era, investors are mainly punishing those e-firms that have violated business tenets. But worldwide, e-business continues on its inexorable expansion. This is extending to e-government as well," said Denis McCauley, regional director of Pyramid Research.
In many parts of the world, the number of leased lines for Internet access, their bandwidth, and affordability is increasing, and CIOs need to exploit these conduits to re-configure organizational information flows.
"In Europe, backbone carriers have deployed 10 million kilometers of fibre in the last two years. We almost have a fiber frenzy," observed McCauley.
On the telecom front, a recent development which CIOs need to accommodate and exploit is the explosion of mobile phone services for everything ranging from conferencing and ticketing to messaging and entertainment, in consumer and corporate markets.
To reach a base of 50 million users, it took radio 38 years, PCs 16 years, TV 13 years, digital mobile phones 5 years, and the Web 4 years, said Matt Wisk, VP marketing at Nokia Networks, a leading supplier of mobile phones and communication networks for mobile, fixed, broadband and IP networks.
"By 2002, mobile users worldwide will be sending 100 billion SMS messages a month. In 2002, more handsets than PCs will be connected to the Web. In the U.S., the PC may be everything, but not so in the rest of the world," said Wisk.
As for WAP, he said traction for WAP services is picking up and dismissed accusations that "WAP is crap." He advised CIOs to stay abreast of technological innovations in the wireless application development groups such as those supported by Nokia (www.forum.nokia.com).
CIOs must focus on changes in customer environments and expectations with new media while not compromising basic security of operations, according to David Weymouth, CIO of Barclays Bank, which has implemented secure WAP banking services as well as an enterprise information portal.
"A blend of communication, transaction and always-on capability is a feature of the Internet society," said Bernd Voigt, CIO of airlines and cargo giant Deutsche Lufthansa. Its offerings cover passenger business, logistics, maintenance, repair, catering, leisure travel, IT services, and ground services.
Lufthansa, which launched its first flight in 1926, has recently unveiled an "eViation" initiative for e-business, which covers travel portals, internal processes, supply chains, and WAP/SMS services for passengers.
CIOs at globally distributed enterprises will need to figure out a way to coordinate centralized as well as de-centralized approaches to information systems, said Harriet Edelman, CIO of Avon Products.
Avon is the world's leading direct seller of beauty and related products, with $5.7 billion in annual revenues; it markets to women in 139 countries through 3.4 million independent sales representatives, and handled over a billion customer transactions last year.
As market dynamics and technology infrastructure evolve rapidly around the world, irrelevancy of business models becomes a bigger risk than business inefficiency, said Edelman, citing business strategy guru Gary Hamel.
CIOs of international companies need to juggle regional and global Internet-enabled supply chain strategies, hundreds of diverse applications, and integrated data centres. This can involve complex technology choices, project management, and change management.
Avon has constituted a "Global IT Council" which investigates IT strategies for different demographics and geographies - such as investing in start-ups to learn about Internet marketing for teen consumers in the U.S., or using NTT DoCoMo's iMode wireless Internet service for sales forces in Japan.
Internally, many companies are investing significant amounts and efforts in Intranet-enabled knowledge management (KM) initiatives to collectively tap the tacit learnings of employees and accelerate the speed of innovation.
"KM must be harnessed at the level of e-commerce, supply chain management, and employee learning," said Mogens Jensen, CIO of Canon Europa.
Founded in 1937, Canon has over 20,000 employees worldwide with a wide range of offerings including copying machines, fax machines, computer peripherals, cameras, and lenses.
Canon is unveiling a number of innovative Web-based services: for instance, customers will soon be able to upload pictures taken by digital cameras, and then pick up high-quality prints from local photo studios or have them mailed directly to their homes or offices.
This will require a seamless chain of Web-linked processes, continuous monitoring of performance, and learning from successes and failures. "Imaging across networks is our new slogan. These could be analog or digital products," said Jensen.
The demands for new tools and work methodologies for the management of knowledge production, storage and distribution are increasing rapidly, and IT departments should not become obsessed only with daily transactions, he advised.
Jensen cited studies by market research groups such as IDC which showed that in 1999, the top 500 companies worldwide lost US$12 billion due to a lack of effective information management practices; this could rise to $31 billion in 2003.
"KM is the foundation of e-business. Knowledge is the lifeblood of our business," said Jensen. Canon Europa is also investing in start-ups to study how digital images are being used by online communities.
A CIO needs to mobilize the organization and show its leaders the legacy which the Internet has created -- but while companies across the world have been eager to launch elaborate Web sites over the past several years, very few are geared up even for simple tasks like responding to incoming emails appropriately, observed Gary Shaw, director of European IT services firm Morse.
He cited data from research firms like Jupiter Media Metrix which showed that many e-commerce sites fail to respond to business queries within time spans of a day or two, and the replies are often too generic and lacking in information content.
"CIOs need to tackle integration issues so that the right responses are given to the questions in the right time, with the right amount of legal safeguards. Decisions also need to be taken as to what needs to be done with the incoming queries and responses: who will analyse this data, and what trends and lessons might be learned from them," advised Shaw.
Very few CIOs have devised an internal Internet user policy or an Internet usage audit; measures must be taken against irrelevant or unrelated email and Web usage by employees, he said.
Otherwise, a tentative e-commerce venture will be like "navigating a minefield" or "holding a tiger by the tail," some CIOs joked.
CIOs should also monitor employee attitudes towards Internet usage, advised Ole Jorgensen, senior vice president at Norwegian oil major Statoil. Established in 1973, the company has 16,000 employees operating in 23 countries, and is the world's third largest seller of crude oil as well as the largest operator of shuttle oiltankers.
It recently launched an initiative called IT Step, involving Internet access options at home, mandatory Internet training, and an Intranet called Eureka with services like e-learning.
"78 per cent of our employees say their work behaviour and processes have changed for the better. This initiative has also improved our image in public, and has made it easier to recruit younger talented IT staff," said Jorgensen. Statoil is now motivating its employees to take their own initiative for self-development via training.
As CIOs forge closer ties with partnering companies, standardization of information formats, applications, and business processes will become an increasingly important requisite.
"We structure our offerings via XML in such a way that our clients can use our logistics software on their Web site - but brand it with their own look and feel on the front end," said Ross McCullough, VP of UPS eVentures Europe.
UPS, a global logistics leader and also the world's 11th largest airline, recently acquired the Fritz group of companies, a freight forwarding and customs brokerage with operations in 120 countries. Since 1999 it has also acquired another seven customs brokerages responsible for handling goods being imported into the U.S. from Canada and Mexico.
"By coupling this single-point solution for multi-border transport with the financial solutions offered by UPS Capital and supply chain management provided by the UPS Logistics Group, our e-business infrastructure is at the cutting edge," said McCullough.
UPS invests close to a billion dollars a year in IT for signature capture devices, escrow, accounting, and Web infrastructure, and has unveiled an e-commerce centre in Atlanta called Innoplex.
The company has implemented direct Web links within email messages to customers, call centre integration with Web operations, datamining to track patterns in the returning of packages, and compatibility with SAP and Oracle platforms.
"Despite the growing importance of XML, many departments still do not have an XML strategy in place. CIOs need to be proactive in determining XML standards for their respective industries," advised Neil Holloway, managing director of Microsoft UK.
"A CIO's activities impact both the bottom- and top-lines of a business, and CIOs are therefore becoming accountable to shareholders as well. But time scales to research new technologies and time spans to market new products have reduced dramatically," he said.
Microsoft UK has devised XML-based solutions for e-commerce sites of the UK government as well as Tesco, one of the largest grocery retailing outlets in the world. Microsoft's Dot Net tools initiative is intended to enable rapid application development and seamless integration of information and services across Web environments.
At larger levels of aggregation, outsourcing is progressing from the level of ASPs and MSPs to business exchanges. Business process standardisation will not only be required by companies participating in such B2B exchanges, but also for workflow between exchanges cooperating with other exchanges in industry metahubs, added Gerry Palmer, CTO of San Francisco-based Global Net Exchange (www.gnx.com), a global business-to-business retail online marketplace targeting supply chains of retailers and suppliers.
Founded last year by Sears, Carrefour and Oracle, GNX now has 8 retailer equity partners from around the world, including Kroger, Sainsbury, Metro, Coles Myer, PPR and Karstadt Quelle. Total purchase volume of GNX members is over US$400 billion, and GNX claims its members have already conducted over 500 transactions valued at more than US$600 million.
"CIOs must participate in standards-forming bodies, and ensure that their concerns and interests are being addressed as standards are formulated. They should join business exchanges, or at least learn from these new models," Palmer advised.
"The Internet is driving business velocity, despite turbulence in the stock markets and slowdown in capital spending. Productivity is being improved and more is being squeezed out of IT infrastructure. Besides, there is no slowdown in government spending on IT - in fact, we see a rise in e-government services," said Paul Di Leo, regional director of enterprise solutions at Cisco Systems.
He cited a recent Gartner survey which showed that business leaders see a fundamental and irreversible change due to e-commerce. But studies from IDC also show that Europe faces a shortage of skills for the fast and medium growth sectors of its economy; IT companies and call centres in countries like India are aiming to fill this gap.
According to Leo, Cisco sells $80 million worth of products a day online and its Web site accounts for 90 per cent of all orders; its Web-enabled supply chain management solution has cut order lead times by 70 per cent and reduced inventory by 45 per cent, cumulatively leading to $307 million savings in annual operating costs.
Cisco has deployed a converged voice, video and data architecture, and advises European companies like British Petroleum on Internet strategy.
New challenges in a fast-paced global economy also open up in the area of mergers and acquisitions, where integration of different companies' IT infrastructures and Web operations can become a problem.
"We had to integrate 80 SAP systems and 10 logistics operations, but this was critical in breaking down data silos and enabling cross-functional thinking," said Ragnar Nilsson, CIO of Aventis Pharma, formed via the merger of Hoechst of Germany and Rhône-Poulenc of France in 1999.
"CIOs must realize that they have to not only support but also initiate new business models," said Nilsson. Aventis has invested in seven portals for end-consumers of health products, and a Web-based physicians network to facilitate faster supply of prescription drugs.
He cited figures which show that the pharmaceutical sector ranks fourth - after telecoms, finance and retail - in IT spending in terms of percentage of sales.
"IT will transform an organisation's business architecture as well as relationships with business partners. At the strategic sourcing level, an entire spectrum of partnership with vendors is emerging, including engagement, cross-selling of partner services, and investment or equity holdings," said Srinjay Sengupta, regional head in Europe for Bangalore-based software services and consulting firm Infosys Technologies, which was a lead sponsor of the CIO Summit.
Technology outsourcing is especially a good option when it comes to managing systems in their twilight years. "We have a number of software systems implemented in the 1970s, and it is difficult for us to retain staff to manage these systems," said David Morgan, CIO of the Reuters Group, a global leader in financial information and transaction services.
Reuters computerized its transmission of information from 1964 onwards. With content in 23 languages and a presence in 157 countries, it also manages the world's largest private telecom network.
"We are continually pushing the boundaries of IP technologies," said Morgan. Reuters' infrastructure includes Lotus Notes, Oracle for financials, Siebel for CRM, and various e-commerce engines; its outsourcing partners include IT companies in India.
In terms of national competitiveness, each country needs to find a way to nurture and develop corporate leaders of global caliber who can mix technology and vision with communication skills and inspirational power, according to Rene Carayol, author of the forthcoming management book "Corporate Voodoo."
Unfortunately, the UK currently has only two world-class corporate leaders: Tesco CEO Terry Leahy and Vodafone CEO Chris Gent, according to Carayol. "Innovation, fresh blood and IT savviness need to find a place on corporate boards - not just basic management skills," he urged.
The "e-CIO" must take businesses to places where they have never been before; they must not be mere implementers of other people's strategies. "The game is not about first-mover advantage, but first-prover. This is now the most exciting time to be in the technology industry," Carayol said.
The writer can be reached at email@example.com
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