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A report from the Economist Intelligence Unit sponsored by Capgemini, Cisco Systems and SAP

A new mandate for IT

© The Economist Intelligence Unit 2007


A new mandate for IT is an edited compendium of two reports published in 2006 and 2007 by the Economist Intelligence Unit and the Global Technology Forum, a research programme targetted at senior executives responsible for managing and deploying information technology in the pursuit of business objectives. The Global Technology Forum is sponsored by Capgemini, Cisco Systems and SAP.

The two reports combined in this publication are Great expectations: The changing role of IT in the business (published in September 2006) and Mission accepted: IT as revenue generator (published in February 2007). The research for each was based on global surveys of, respectively, 288 and 293 senior executives, as well as interviews with CIOs and other senior technology managers. In combining the reports, we have edited each to eliminate redundancy and ensure a logical flow.

The Economist Intelligence Unit’s editorial team executed the surveys, conducted the interviews and wrote the reports. The findings and views expressed here do not necessarily reflect the views of the sponsors. The Economist Intelligence Unit bears sole responsibility for the reports’ content.

Our sincere thanks go to the survey participants and interviewees for sharing their insights with us.

April 2007

Preface

1



Executive summaryInnovation is no stranger to the information technology function. Armed with increasingly sophisticated applications, IT-led teams have consistently found new ways to streamline enterprise business processes, vastly improving operating efficiency and reducing costs. Corporate leaders, however, are raising the bar: they expect IT’s core mission to expand from cost-cutting to enabling revenue generation within a short period of time.

Most IT leaders are ready to accept the challenge, but what does revenue generation mean for the IT function? And how can organisations encourage truly innovative behaviour from IT that contributes to revenue growth? To find out, the Economist Intelligence Unit surveyed senior executives in both

technology and business functions from across the globe. The principal findings of the research are highlighted below.

l An “expectations gap” exists between IT and the executive suite. Most technology managers (62%) also believe that enabling revenue generation will come to be IT‘s primary mission within the next three years, but CEOs and board members (83%) are almost wholly convinced of it. The gap yawns particularly wide in Asia-Pacific and Europe, where many IT managers retain a strong belief in the primacy of IT‘s cost-reduction role—partly due to continued C-level insistence on hitting cost-efficiency targets. This gap will need to close—and C-level priorities to become more consistent— for better IT-business alignment to be achieved.

l Customer relationships and product development are the key areas where IT will enable top-line growth. When it comes to revenue generation, surveyed executives expect IT to be at its most innovative in using technology to enhance the customer experience, and thus boost customer spend. No less important will be the ability to improve product development through the origination of new product or services ideas, or new channels for existing products.

l Revenue generation and cost-cutting are not mutually exclusive missions. An overwhelming 91% of surveyed executives believe their firm’s IT capabilities can be structured to support both revenue generation and cost reduction. Creating the right performance metrics that address both sets of objectives will help. IT executives believe outsourcing non-core processes will also be important here. CEOs, on the other hand—and IT executives to a lesser extent—put great store in a new design for application and service delivery, service-oriented architecture (SOA), to create such a flexible structure.

About the surveys

The analysis presented in this report is based on two Global Technology Forum surveys conducted by the Economist Intelligence Unit. The first, completed in May 2006, attracted 288 executives, and the second, completed in December 2006, drew 293 executives. In both surveys, about 40% of the respondents were based in Europe, 30% in the Americas and 26% in Asia-Pacific. (Full survey details can be found in the appen-dix to this report.)

Both survey samples were also very senior. In the first survey 43%, and in the second survey 48%, of respondents were C-level executives such as CEOs, CIOs and CFOs, with the balance being senior managers such as heads of business units and departments. In order to compare views of IT from different functional perspectives, we achieved a rough balance between IT and non-IT executives. 17 industries were represented in both surveys, with the largest number of respondents hailing from the financial services, professional services, manufacturing and technology sectors. Participants also came from a range of company sizes, with roughly half in each survey reporting annual revenue of over US$500m.

2



l Contribution to revenue growth is already the leading metric used by firms to measure return on investment in IT. Boosting the firm’s agility—its ability to adapt to a changing environment—is also a frequently used assessment. Cost-reduction metrics, meanwhile, are favoured by only a handful of companies—no more 10% of global respondents.

l Some restructuring of IT is on the cards to encourage innovation. Meeting revenue-generation objectives will entail some changes in how IT is managed. Integrating IT staff within business units and assigning them to product development teams are measures that many firms will take to

promote innovation in support of revenue growth. IT executives also stress the potential of outsourcing to enable a focus on revenue growth, although it is not a CEO priority. Few firms will go in for full-scale decentralisation, but IT services will be delivered in a considerably more decentralised fashion than is the case today.

CEOs and senior technology managers also diverge on some prescriptions for fulfilling IT’s revenue-generation mandate. Their thinking converges in at least one area, however: the executive suite must become much better informed on IT’s real capabilities for the revenue-generation mission to proceed.

3



Re-defining the mission Since the early days of the IT department, the dominant role of information technology as viewed from the executive suite has been as a driver of cost efficiency. This has been the case even as companies deploy advanced IP (internet protocol)-based networks and applications with unprecedented levels of functionality. In a global survey of senior managers—in technology and other functions—across 17 industries, 61% of respondents say that IT’s primary mission today remains that of reducing costs and boosting productivity.

But the IT mission in enterprises is changing: nearly 70% of the same executives say that within three years, IT’s predominant role will be to enable revenue growth. Boastful posturing from technology managers? Clearly not, as this expectation is most pronounced in the survey among CEOs and board members (83%), considerably more than among IT executives (62%).

This is more than a matter of opinions. The strength of C-suite expectations suggests that the expansion of IT‘s mission to encompass revenue generation is becoming a corporate mandate. Thus the insistence from the highest levels that IT strategy and capabilities become much more closely aligned

with the company‘s overall business objectives. “It is becoming critical” to align IT more closely with business goals, says Charles Soobroy, vice president of information systems and technology at Sony BMG Music Entertainment, based in London. Responsible for IT in 22 Europe, Middle East and Africa countries, Mr Soobroy adds: “It is essential now that IT partners with [and not just serves] other departments, and stands shoulder to shoulder with them.”

This is not to say that the mandate to improve cost efficiency will fall away. Reducing operational costs remains among the top one or two imperatives for executives when the discussion shifts to IT investment priorities over the next three years. But for CEOs in particular, a more important technology objective is to help improve knowledge management, and another major imperative is to help the firm ”respond quickly to market changes”.

As competition intensifies in virtually all markets and companies’ scope for product differentiation narrows, many are turning to innovation in business models—how they develop, produce, sell and deliver products—to drive revenue growth. IT‘s contribution to the top line is perhaps most visible in the development of web-based sales channels. But improved knowledge management—for example in analysing customer preferences and channelling the

In your view, what is IT’s predominant role today in helping your company to achieve its strategy goals, and what will it be in three years? (% respondents)

Today

To enable revenue growth 39

To drive cost efficiency 61

In 3 years



Source: Economist Intelligence Unit, Global Technology Forum survey, May 2006.

4



analysis to product development teams—and faster speed of executive decision-making are also enabled by the effective use of IT and also impact on revenue growth.

For Sony BMG, the better use of corporate knowledge is a way to increase revenue, according to Mr Soobroy. “We have to know the fan base, what music they’re interested in, and what music they’re buying,” he says, noting that IT is the means with which to obtain that knowledge. “This can become a corporate asset,” he adds.

Enabling better collaboration with partners is another key IT mission. Says Mr Soobroy: “We are increasing our involvement with specialist third-party companies to maximise exploitation of our digital and physical assets, via as many channels as possible. It is IT’s job to ensure that the handshaking between all parties goes well.”

The expectations gapAs we have observed, the executive suite’s vision of IT as revenue generator is not shared with the same level of confidence throughout the organisation. This is the clearest indicator of a gap in expectations that exists between C-level executives—particularly CEOs—and IT managers.

Expressed in quantitative terms, a global expectations gap of 13% on the question of IT’s primary role in future—enabling revenue generation or driving cost efficiency—seems substantial. (It rises

to 21% when only the responses of CEOs and board members are considered.) This masks considerable differences between regions, however. The views of C-level executives and IT managers seem to be relatively aligned in North America, with only a 3% gap. It widens to 13% in Europe and to 23% in Asia-Pacific.

What accounts for this gulf in perspectives, particularly outside of North America? The greater C-level enthusiasm in IT‘s revenue-generating mission may partly result from a general rise in IT literacy among business executives, affecting their views on how, for example, the web and new applications can be used to greater benefit. Corporate leaders have also found themselves under greater pressure from shareholders to justify their investments in new technology; visualising a broader IT impact on the business that reaches to the top line helps them do that. Both of these trends have been more in evidence in North America than in other regions, at least until recently.

It is in the perspectives of IT managers, however, where the regional differences are greatest. European and Asian IT executives are considerably less convinced of a new mission for IT than their North American peers.

IT executives might explain that their day-to-day responsibilities for managing networks do not afford

Survey respondents believing that IT’s predominant strategic role in three years will be to enable revenue growth (% respondents)

CEOs & board members

Total C-level executives

Total sample

IT executives

75

83

69

62

Source: Economist Intelligence Unit, Global Technology Forum survey, May 2006

Expectations gap: % difference between C-level executives and IT executives who believe that the primary role of IT will shift from driving cost-efficiency to enabling revenue generation in three years

Source: Economist Intelligence Unit, Global Technology Forum survey, May 2006

Asia-Pacific0

5

10

15

20

25

Global North America Europe

13.33

3.08

12.70

22.75

5



them the luxury of such strategic thinking. Mr Soobroy of Sony BMG also observes that dual pressures are often placed on IT from above. “It’s a bit of a dichotomy,” says Mr Soobroy. He often hears other IT managers complain that “the business managers say ‘Move us forward’ while we all remain under pressure to reduce costs.”

Such dichotomy is evident in our survey: as noted earlier, while C-level respondents stress the importance of IT‘s revenue-generation role, driving down operational costs remains at or near the top of their list when it comes to budgeting priorities. No surprise, then, that many IT executives are relatively reluctant to let other goals take priority over that of reducing operational costs.

Different perspectives also emerge in other areas, for example when seeking to divine the chief obstacles to closer IT alignment with the business. For CEOs and board members, the chief impediment to closer alignment is organisational—difficulties in breaking down barriers between functions and departments. IT executives agree that this is an obstacle but point upstairs to identify the main problem: senior management‘s poor understanding of IT‘s capacity to support the business objectives.

As CIO at Van Eck Global, a US-based money management firm, Laurent Comès has a foot in both camps. He agrees that senior management‘s failure to understand how IT works is a problem. For one thing, IT is often perceived to be lagging because its assistance is not solicited early enough. “Mostly, IT finds out too late” about an innovative project or a new business model, says Mr Comès, leaving IT insufficient time to put the proper procedures and policies into place. This is manifested even within the executive suite: “CIOs are still brought in only at the tactical level, and not enough at the strategic level.”

Defining revenue generationWhen it comes to determining the meaning of revenue generation for IT, two areas come top of mind to surveyed executives: improving the customer experience and developing new products and services.

For CEOs looking forward over the next three years, it is most critical that IT help enhance the customer experience through the innovative use of new technologies and applications, thus improving customer retention and, potentially, boosting customer spend. This also ranks near the top of the list for IT executives, but for them a more frequently-mentioned contribution to revenue generation is the development of new products and services. Introducing electronic banking products or hotel booking services are familiar examples, as is the development of electronic channels for traditional products. IT will also help enhance product development in other ways, such as creating automated channels to solicit customer and partner input into new product design.

Improving business process efficiency also figures as a priority revenue-generating activity in the responses of both CEOs and IT executives. When asked how IT is innovative in revenue generation today, improving processes is by far the top response of all survey groups, and it is also prominent in their

In which areas is it most important for IT at your company to be innovative in revenue generation over the next three years?(% respondents)

New product/service development

Improving the customer experience

Improving business process efficiency

Improving the quality/flow of business intelligence24

2921

28

2630

33

3132

33

3427

Total sampleCEOs & board members IT executives

Source: Economist Intelligence Unit, Global Technology Forum survey, December 2006.

6



thinking about the future.Rorie Devine, CTO of Betfair, a UK-based online

betting exchange, holds that a single technology can sometimes cut costs, improve the customer experience and generate revenue. Betfair, for example, uses an application platform that compresses web traffic and accelerates the response time for users. It also saves money, says Mr Devine, because Betfair has to process less backup traffic.

It is nonetheless clear that businesses aim to focus IT’s attention on the customer experience and product development. For UPS, a global logistics firm, technology innovations to improve the customer experience have helped improve profitability. According to Nick Gray, vice-president for IT EMEA, the key technologies at UPS are those that give the customer greater visibility—the ability to track a parcel online from the initial order to recipient sign-off—and allow the customer greater integration of UPS data with their own business processes. Each week, Mr Gray and his business peers review the significant customer wins, and a substantial number of those, he says, are directly related to UPS’s customer-facing technology.

The right metric

The growing emphasis on revenue-enhancing activities is also reflected in the way companies assess IT success. Asked how they measure return on investment (ROI) in IT, all respondent groups unanimously rank IT’s contribution to revenue growth as the most important metric today. Boosting the firm’s agility—its ability to adapt to a changing environment—is also a frequently used assessment. Cost-reduction metrics, meanwhile, are favoured by only a handful of companies—no more than 10% of global respondents (and a remarkably low 1% of those in Asia Pacific).

Duelling mandatesIT’s cost-cutting mandate is not likely to disappear. But cost-cutting and revenue enhancement are not mutually exclusive. An overwhelming majority (91%) of surveyed executives are confident that their firms’ IT capabilities can be structured in a way that flexibly supports both revenue generation and cost-cutting. Nearly as many (88%) say that IT currently enhances the business’s revenue-generating capabilities to at least some extent.

Mr Gray sums up the change in approach toward IT spend at UPS: “Lines between IT and the business started blurring about seven to ten years ago, when we realised as a business that without technology we couldn’t compete. When I joined 19 years ago, IT was an expense; now it’s an investment.”

Theory into practice How can organisations create a structure that efficiently pursues both missions? For many executives—particularly senior IT managers—one answer lies in developing the right performance metrics that emphasize both revenue generation and cost-cutting. CEOs also stress good metrics but appear to put greatest store in technology itself—particularly

What is the most important measure of return on investment in IT at your company today?(% respondents)

Contribution to the revenue growth of the business

Contribution to the firm’s ability to adapt to a changing environment

Contribution to the firm’s ability to innovate and collaborate

Contribution to the firm’s ability to get close to its customers

Contribution to the firm’s ability to control or cut costs

21

2123

20

18

1919

19

14

1318

12

14

158

16

10

131

12

Global N. America Europe Asia-Pacific


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the ability of service-oriented architecture (SOA) to increase the flexibility of the entire IT structure.

IT managers, although slightly less effusive about the promise of SOA, recognise the part it can play in creating a more responsive IT infrastructure. Says Betfair’s Mr Devine: “We’re transforming our applications into discrete, autonomous services. The main advantage is agility. The more discrete and autonomous your IT infrastructure is, the more agile it’s going to be.”

Many CIOs also have hopes for new technologies to help bring IT’s capabilities into closer alignment with the business objectives. Van Eck‘s Mr Comès, for example, is looking for business analysis tools that will help portfolio managers make better buying decisions to boost revenue. Stuart Werner, CIO of Footstar, a US-based footwear retailer, says that his firm is looking into better analytical tools that can help with assortment planning and inventory optimisation. New applications written for mobile computing devices may also “improve the ability of a retailer to bring customers into the store, and then to reach out to them through customer relationship management software,” he says.

IT executives differ markedly from CEOs, however, in their strong emphasis on outsourcing non-core activities. They see it not only as an important means of enabling IT to innovate in ways that will enhance

revenue generation, but also as critical if IT is to pursue this mission while continuing to improve cost efficiency. The activities that IT managers think are most likely to be performed by outsourcing partners in five years are IT helpdesk and infrastructure management. Applications and desktop management also rank high on their list.

For the UK-based Automobile Association (AA), a membership organisation that runs a breakdown recovery service, insurance services and driving school, the decision to outsource some IT activities was central to the doubling of its profitability, according to Information Systems Director Trevor Didcock. In 2004, the IT function faced a major organisational challenge when the AA de-merged from parent company Centrica. Mr Didcock decided to focus his department’s efforts on areas where it could uniquely add value: “What happens behind the scenes in data centres doesn’t really matter much to us as a business. We decided that we would focus internally on services that enable the business to grow profitably and outsource ‘commodity’ services. We also didn’t have enough time in the de-merger to create our own infrastructure, buy two data centres, fit them out and set up our own data network and desktop services; so outsourcing these activities was a no-brainer.”

Addressing the structureOutsourcing non-core processes should allow IT to focus on more value-adding activities, but by itself it does not address the challenge of how to align IT’s thinking with that of the business functions. To make this a reality, executives are looking to a series of structural measures, some of them far-reaching.

For CEOs in our survey, embedding IT staff in product development teams is the most oft-cited means of unleashing IT innovation in support of revenue generation. They also believe that empowering IT end-users at the enterprise to innovate with technology will provide an added source of impetus.

In your view, what should be the key elements of an IT structure that supports both revenue generation and cost-cutting?(% respondents)

Applying Service Oriented Architecture—building IT services according to internal or external needs

Developing performance metrics that emphasise both revenue generation and cost cutting targets

Outsourcing non-core functions, keeping internal IT focused on revenue generation

Pursuing new technologies that provide more functions at lower cost32

3332

37

44

27

40

44

38

44

4248



8



As discussed above, IT executives in the survey look to outsourcing to help make this happen, but they also agree with CEOs on the positive impact that assigning IT staff to product development teams will have. Others stress the importance of assigning joint IT and business managers to technology projects—with joint responsibility for their success or failure. “For IT to be successful, you need dual ownership of any project,” says Mr Comès. IT executives and CEOs alike also display enthusiasm for the use of cross-functional teams to foster better understanding between line of business and IT staff.

Many firms are moving in these directions. Footstar, for example, proactively recruits staff with a combination of business and technical expertise. “Most of our technology projects are a combination of business and IT staff,” says Mr Werner. “They go much more successfully than when IT handles projects on its own. One plus one definitely equals three with this approach.”

Many take this a step further, however, by advocating the integration of IT staff within business units. “An IT department will be more successful if it can integrate into the business units,” believes Mr Comès.

Ten years ago, UPS’s European operations were losing money; they now turn a healthy profit.

According to Mr Gray, IT helped achieve this turnaround, and the key change was to restructure the IT function. Rather than align IT with a sales group, marketing group and so on, management created within the IT function a customer service portfolio to deal with customer-facing technology; a transportation technology group to run the airline systems and ground networks; an operations portfolio to provide the systems that run the package operation environment, including the visibility systems; and an administration portfolio to support back office systems such as human resources and billing. Each portfolio manager owns the relationship with the business.

Mr Gray asserts that the restructuring has allowed IT to be more aware of the business’s requirements: “Our business solutions have technology interwoven into them: in any part of our business, it’s hard to separate out the business piece and the technology piece.”

While UPS had to find ways of realigning their IT function to fit in with a traditional business structure, Betfair, founded in 1999, operates on a new business model based entirely on its use of IT. Betfair allows people to bet against each other on its website, without the intermediary of a bookmaker. A measure of technology’s importance to Betfair is that nearly a third of its staff work in the IT function.

The company is organised into product units, and each unit includes both product owners and IT staff. CTO Mr Devine also sits on an executive committee, chaired by the CEO, which meets every week to address high-level issues facing the company. Mr Devine holds that this integration of IT into the business provides the agility necessary to adapt quickly: “Our IT systems change on average every six months. The load on the site doubles every year, so we’re constantly upgrading, renewing and refreshing.”

Which of the following measures would be most effective in enabling IT at your company to engage in more innovative, revenue-generating activities?(% respondents)

Integrating IT staff within business units

Including IT staff in product development teams

Outsourcing a larger number of non-core IT functions

Hiring more IT staff with business experience26

3417

27

3424

27

2732

29

3121



9



How much integration?

Integrating IT staff into business units is one thing, but some advocate a more far-reaching step—the decentralisation of IT altogether. Looking ahead five years, 17% of respondents to our survey (and 26% of CEOs) foresee all or most IT services being performed by IT functions decentralised into the business units. Few IT executives believe it will go this far, but 42% of these (and 39% of overall respondents) believe at least some services will be decentralised.

The AA’s Mr Didcock believes that CEOs frequently try through decentralisation to achieve true accountability of the IT function and a feeling of ownership by the business units. “This pitches closer ownership by business units against efficiencies that can be gained through centralisation. CEOs would generally prefer the best of both worlds,” he says, “and achieve this through a customer-focused centrally managed IT team.”

Overall, the majority of global respondents draw a picture of a different IT structure than exists today; in future, some services will be delivered by a central IT department, some by outsourcing partners and some will be performed within the business units. The likeliest candidates for decentralisation are custom application development (cited by 32% of

respondents) and application testing (30%).One thing is certain: the profile of IT staff will

change. All surveyed executives agree that the hiring of senior IT managers with both business and IT experience will be a priority. It may go further: the largest portion of respondents maintain that, in three years, the majority of their IT employees will have had previous experience in business functions.

The CIO will naturally be influential in helping to bridge the divide. Consequently, many expect the CIO to rise in the corporate pecking order, in some firms to board level. “There are going to be growing pains,” says Mr Comès. “But I see the CIO as the glue—the translator—between the business guys and the techies.”

Closing the gapWhile the expectations gap yawns wide between CEOs and technology executives on the importance of IT’s revenue-generation mission, there is more agreement on the practical steps companies can take to help IT fulfil this mandate. Both groups broadly agree, for example, on the importance of focusing key performance metrics on revenue growth, of assigning IT staff to business units and of hiring IT employees with business experience. And neither doubt that IT

The volume of IT services that, in five years’ time, respondents believe will be delivered by IT functions decentralised into business units(% respondents)

All or most services 17

Some services 38

Few or no services 39

Don’t know 6


In order to foster closer understanding between the senior business leaders and senior IT executives, which of the following initiatives would be most effective?(% respondents)

Educating business executives on how IT can contribute to revenue generation

Hiring senior executives with both business and IT management experience

Encouraging greater IT literacy on the part of senior business leaders

Ensuring the CIO position is a board appointment

44

3951

38

3934

33

3738

22

3210



10



can focus on revenue growth while continuing to fulfil its traditional cost-cutting role.

The gap remains in other areas, however. IT executives believe that outsourcing non-core processes will have a big impact on IT’s ability to innovate in revenue generation; CEOs are not so sure. The latter, meanwhile appear to have somewhat higher expectations of new technologies, such as SOA, to achieve the optimal IT structure than do IT executives.

Even when it comes to means of improving understanding between them, the two groups of executives diverge. IT executives believe strongly that ensuring inclusion of the firm’s CIO on the board will help achieve this, a view that few CEOs and board members in our survey hold. But both groups agree that the firm’s business managers must become much more informed on how IT can assist revenue generation in practical terms, and that greater IT knowledge on the part of senior business executives will also help. More confirmation, it seems, that alignment of IT and the business must begin in the executive suite before it can permeate the organisation.

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Appendix 1 A new mandate for IT

Appendix 1

In May 2006, the Economist Intelligence Unit conducted a survey of 288 executives from 58 countries across Europe, Asia-Pacific and the Americas. Our sincere thanks go to all who took part in the survey. Please note that not all answers add up to 100%, because of rounding or because respondents were able to provide multiple answers to some questions.

In which region are you personally based? (% respondents)

Western Europe 34

North America 27

Asia-Pacific 26

Eastern Europe 5

Middle East & Africa 5

Latin America 3

Which of the following best describes your title? (% respondents)

CEO/President/Managing director

Manager

CIO/Technology director

SVP/VP/Director

Head of Department

CFO/Treasurer/Comptroller

Other C-level executive

Head of Business Unit

Board member

Other

17

20

13

11

4

9

6

6

9

6

In what type of business do you work?(% respondents)

Financial services

Professional services

IT and Technology

Manufacturing

Government/Public sector

Telecoms

Healthcare, pharmaceuticals and biotechnology

Consumer goods

Education

Transportation, travel and tourism

Chemicals

Entertainment, media and publishing

Energy and natural resources

Automotive

Construction and real estate

Logistics and distribution

Retailing

18

13

13

10

7

5

5

4

2

2

2

1

1

4

4

4

6

12



What are your main functional roles? (% respondents)

IT

Strategy and business development

General management

Finance

Marketing and sales

Information and research

Operations and production

Risk

Customer service

R&D

Supply-chain management

Human resources

Legal

Procurement

Other

43

35

34

19

16

13

12

11

4

2

3

5

4

7

14

What are your organisation’s global annual revenues in US dollars? (% respondents)

Under $100m 37

$100m to $500m 16

$500m to $1bn 11

$1bn to $5bn 17

$5bn to $10bn 5

$10bn or more 14

Which of the following initiatives will be most important over the next three years in ensuring that your company’s IT capabilities enable the achievement of its business objectives? (% respondents)

Acquiring new technology

Assigning joint responsibility for technology projects to IT and business managers

Promoting cross-functional teams to broaden IT staff’s exposure to other parts of the business

Hiring senior managers with both business and IT management experience

Adopting a portfolio management approach for monitoring IT projects

Ensuring regular review of IT projects by the CEO and CFO

Encouraging appointment of the CIO to the board

Other

41

38

37

25

20

8

3

18

In your view, what is IT’s predominant role today in helping your company to achieve its strategy goals, and what will it be in three years? (% respondents)

Today:



In 3 years:



13



To what extent is your company capable of adapting to the likely features of tomorrow’s global business environment listed below? (% of respondents)

1 Incapable 2 3 Somewhat capable 4 5 Entirely capable 6 Not applicable/Don’t know

Greater customer power 1 8 37 38 13 2

Globalisation of supply and sourcing 1 14 27 31 21 6

Extensive collaboration with partners 2 10 34 36 18 0

Rapid technology change 2 17 32 31 17 1

Fluidity of business models 2 23 35 27 11 2

Continuous innovation 2 19 31 33 14 0

Scarcity of talented staff 2 25 38 26 7 3

Heightened demands for regulatory compliance and transparency 1 8 35 33 17 6

Source: Economist Intelligence Unit survey.

How important has IT been in your company’s success in executing its strategic initiatives?(% of respondents)

1 (Not at all important) 2 3 (Somewhat important) 4 5 (Critical) Don’t know

2 11 33 36 18 1


On the whole, how successful is your company in executing its strategic initiatives?(% of respondents)

1 (Not at all successful) 2 3 (Somewhat successful) 4 5 (Very successful) Don’t know

1 7 42 39 11 0


14



To what extent do you believe that your company’s IT capabilities (applications, hardware, IT staff and organisation) currently enable the achievement of its key business objectives? (% of respondents)

1 Not at all 2 3 Somewhat 4 5 To a great extent 6 Not applicable/Don’t know

Expand into new geographic markets 7 9 32 25 21 7

Increase customer loyalty 5 14 34 30 15 2

Respond quickly to market changes 2 18 31 35 13 1

Expand / deepen interaction with partners 1 11 33 39 15 1

Drive down operational costs 3 9 37 34 16 0

Improve supply chain efficiency 5 9 30 31 13 13

Accelerate introduction of new products / services 3 14 31 34 15 3

Improve the company's use of knowledge 2 13 32 29 23 1

Execute on new business models 4 17 35 25 14 4


In three years, to what extent do you expect that your company’s IT capabilities (applications, hardware, IT staff and organisation) will enable the achievement of its key business objectives? (% of respondents)

1 Not at all 2 3 Somewhat 4 5 To a great extent 6 Not applicable/Don’t know

Expand into new geographic markets 4 6 26 28 30 6

Increase customer loyalty 1 9 24 39 25 2

Respond quickly to market changes 1 6 27 42 24 1

Expand / deepen interaction with partners 5 21 45 28 1

Drive down operational costs 1 9 26 35 28 1

Improve supply chain efficiency 2 7 20 35 24 12

Accelerate introduction of new products / services 1 8 22 40 27 2

Improve the company’s use of knowledge 1 5 19 36 38 1

Execute on new business models 3 9 24 38 23 4

Source: Economist Intelligence Unit survey.15



To what extent do you believe that your company’s IT capabilities will, over the next three years, enable new business models based on the following attributes? (% of respondents)

1 Not at all 2 3 To some extent 4 5 Substantially 6 Not applicable/Don’t know

Systematic and wide-ranging interaction with customers 3 8 30 31 27 2

Systematic and wide-ranging interaction with partners 1 7 33 32 26 1

Systematic and wide-ranging interaction with suppliers 2 7 31 29 21 10

Ability to tailor products and services to customer demands quickly and frequently 1 10 26 33 28 1

Ability to shift or tap resources across borders frequently and quickly 3 14 24 26 23 9

Ability of employees to work anywhere, anytime 2 9 18 29 40 1


Please indicate whether you agree or disagree with the following statements. (% of respondents)

Agree Disagree Don’t know

In three years, the CIO will be a member of the board in our company 35 46 19

In five years, a stand-alone IT department will no longer exist in our company 34 56 10

In three years, the majority of IT staff in our company will have had previous experience in business functions 44 39 18


When making decisions on allocating IT budget over the next three years, IT support for which of the following business objectives will have the highest priority? (% respondents)

Improving the use of knowledge throughout the company

Driving down operational costs

Responding quickly to market changes

Accelerating introduction of new products/services

Increasing spend from existing customers

Expanding/deepening interaction with partners

Expanding into new geographic markets

Executing on new business models

Improving supply chain efficiency

Other

49

47

35

34

26

24

22

21

1

25

Over the next three years, what will be the chief obstacles to your company’s ability to align the IT infrastructure with its business objectives? (% respondents)

Lack of understanding from senior management of how IT should support business objectives

Insufficient IT investment

Lack of collaboration across functions

Employee resistance to change

Shortcomings in existing technology (hardware and applications)

Lack of understanding from the IT department of the company’s business objectives

Insufficient IT skills and knowledge

Narrow outlook of IT managers and staff

Poor project implementation by IT staff

Other

33

31

27

22

21

16

14

10

2

21

16



Appendix 2In November-December 2006, the Economist Intelligence Unit conducted a survey of 293 executives from 40 countries across Europe, Asia-Pacific and the Americas. Our sincere thanks go to all who took part in the survey. Please note that not all answers add up to 100%, because of rounding or because respondents were able to provide multiple answers to some questions.

In which region are you personally based? (% respondents)

Western Europe 35

North America 29

Asia-Pacific 26

Eastern Europe 5

Middle East & Africa 3

Latin America 2

Which of the following best describes your title? (% respondents)

CEO/President/Managing director

Manager

CIO/Technology director

Senior IT manager/director

Head of Department

SVP/VP/Director

CFO/Treasurer/Comptroller

Other C-level executive

Board member

Other

19

23

12

11

2

9

7

4

6

7

What type of business do you work in?(% respondents)

Financial services

IT and technology

Professional services

Manufacturing

Healthcare, pharmaceuticals and biotechnology

Government/Public sector

Telecommunications

Transportation, travel and tourism

Entertainment, media and publishing

Construction and real estate

Consumer goods

Retailing

Automotive

Energy and natural resources

Logistics and distribution

Chemicals

Aerospace/Defence

Agriculture and agribusiness

Education

18

16

12

8

7

5

5

4

2

2

2

1

1

1

1

3

2

3

5

17



What are your company’s global annual revenues in US dollars? (% respondents)

Under $100m 36

$100m to $500m 13

$500m to $1bn 12

$1bn to $5bn 19

$5bn to $10bn 5

$10bn or more 14

What are your main functional roles? Please choose no more than three functions. (% respondents)

IT

General management

Strategy and business development

Finance

Marketing and sales

Information and research

Customer service

Operations and production

Risk

R&D

Human resources

Procurement

Legal

Supply-chain management

Other

49

39

30

20

16

10

9

8

3

2

2

6

4

6

11

What is the most important measure of return on investment in IT at your company today? (% respondents)

Contribution to the revenue growth of the business

Contribution to the firm’s agility—its ability to adapt to a changing environment

Contribution to the firm’s ability to innovate and collaborate

Contribution to the firm’s ability to get close to its customers

Contribution to the firm’s ability to control or cut costs

The IT department is measured purely as a cost centre

Systems uptime

Don’t know

Other

21

18

14

14

10

10

1

2

10

Do you believe IT capabilities in your company can be structured in a way that supports both revenue generation and cost cutting, according to changing business priorities? (% respondents)

Yes 91

No 7

Don’t know 2

In your view, what should be the key elements of an IT structure that supports both revenue generation and cost cutting? Select up to two options.(% respondents)

Applying Service Oriented Architecture—building IT services according to internal or external needs

Developing performance metrics that emphasise both revenue generation and cost cutting targets

Outsourcing non-core functions, keeping internal IT focused on revenue generation

Pursuing new technologies that provide more functions at lower cost

Decentralising revenue-generating IT activities to business units

Don’t know

Other

44

40

37

32

15

2

1

18



20 40 60 80 100

How important has IT been to your company’s success in executing on its strategic initiatives?(% of respondents)

1 (Not important) 2 3 (Somewhat important) 4 5 (Critical)

2 13 29 56 0 0


20 40 60 80 100

To what extent does IT currently enhance your company’s revenue-generating capabilities?(% of respondents)

1 (Not at all) 2 3 (To some extent) 4 5 (To a great extent) Don’t know

3 8 35 26 27 1


In which of the following areas is IT at your company most innovative in revenue generation today? Select up to two options.(% respondents)




Improving the quality/flow of business intelligence

Improving knowledge management

Enabling rapid response to emerging revenue opportunities

Supporting collaboration with partners


Don’t know

Other

38

31

28

26

19

14

9

2

1

18

In which areas is it most important for IT at your company to be innovative in revenue generation over the next three years? Select up to two options. (% respondents)




Improving the quality/flow of business intelligence

Enabling rapid response to emerging revenue opportunities

Supporting collaboration with partners

Improving knowledge management


Other

33

33

28

24

23

19

8

1

22

Which of the following measures would be most effective in enabling IT at your company to engage in more innovative, revenue-generating activities? Select up to two options. (% respondents)

Integrating IT staff within business units

Including IT staff in product development teams

Outsourcing a larger number of non-core IT functions

Hiring more IT staff with business experience

Enabling IT end-users to innovate

Expanding IT staff exposure to customers

Decentralising responsibility for certain IT functions to business units

Don’t know

Other

29

27

27

26

25

14

4

3

21

In order to foster closer understanding between your company’s senior business leaders and senior IT executives, which of the following initiatives would be most effective?Select up to two options. (% respondents)

Educating business executives on the abilities of IT to contribute to revenue generation

Hiring senior executives with both business and IT management experience

Encouraging greater IT literacy on the part of senior business leaders

Ensuring the CIO position is a board appointment

Training senior IT leaders in business case analysis and presentation

Revising IT metrics for success

Don’t know

Other

44

38

33

22

20

2

1

19

19



0 20 40 60 80 100 120

How do you think IT services will be delivered in your company in five years’ time? Select one response in each row.(% of respondents)

All or most services Some services Few or no services Don’t know

By outsourcing partners 15 61 22 2

In-house, by a centralised IT department 31 51 16 2

In-house, by IT functions decentralised into business units 17 38 39 6


In five years’ time, which of the following IT services or functions in your company are likely to be decentralised—performed within business units? Select all that apply.(% respondents)

Custom application development

Application testing

IT-enabled back-office processes

Applications and desktop management

Business continuity (eg, back-up and disaster-recovery systems)

IT helpdesk

IT infrastructure management

Web 2.0 development and management

Don’t know

Other

32

30

24

22

22

19

19

4

22

19

In five years’ time, which of the following IT services or functions in your company are likely to be performed primarily by outsourcing partners? Select all that apply.(% respondents)

IT helpdesk

IT infrastructure management

Custom application development

Applications and desktop management

Business continuity (eg, back-up and disaster-recovery systems)

IT-enabled back-office processes

Web 2.0 development and management

Application testing

Don’t know

Other

47

43

34

32

31

22

20

7

10

26

Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsor of this report can accept any respon-sibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in the white paper.

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