The 2014 Cio Agenda

4 Executive summary

10 Welcome to the third era of enterprise IT

20 Create powerful digital leadership

26 Renovate the core

36 Build bimodal capability

42 Conclusion: Craft your digital legacy

44 A ppendix: Case studies, additional data, demographics

65 Further reading

2014 No. 1

Taming the Digital Dragon: The 2014 CIO Agenda

2014 No. 1

Gartner Executive Programs

Taming the D

igital Dragon: The 2014 C

IO A

genda

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1Taming the Digital Dragon: The 2014 CIO Agenda

Thousands of CIOs and IT executives worldwide receive

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AbOuT GArTnEr ExECuTIvE PrOGrAMs

2 Gartner Executive Programs

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.

FOrEwOrD


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:

The2,339CIOswhorespondedtothisyearssurvey,representingmorethan$300billioninCIOITbudgets in 77 countries.

Thecontributorstoourinterviewsandcasestudies:LuisUguina,BBVA(Spain);KevinGallagher,Channel4(U.K.);JohnHagel,DeloitteLLPCenterfortheEdge(U.S.);GeorgeLabelle,IPC(U.S.); LarryMatias,JollibeeFoods(Philippines);GianniLeone,MiroglioGroup(Italy);KrischaWinright,PriorityHealth(U.S.);Dr.HeeHwang,SeoulNationalUniversityBundangHospital(SouthKorea);MikeYorwerth,Tesco(U.K.);JosTam,UniversidadTecnologicodeMonterrey(Mexico);andBaronConcors, Yum brands (u.s.).

OtherGartnercolleagues:JohnAdey,HeminderAhluwalia,NickyBassett,MilitzaBasualdo,PeterBogaert,AllisonChaffee,TerickChiu,YounChoi,JeffreyCole,MarcoDelfino,EberhardElbs,JanEriksson,ArnoldGutmann,KimberlyHarris-Ferrante,RobHeselev,ChrisHoward,RenskeJansen,JimKamp,KasperKjaergaard,KazunariKonishi,JonKrause,CristinaLazaro,ThierryKupermanLeBihan,Poh-LingLee,IanMarriott,MarcMergen,RitsukoMiyamoto,HansMoonen,DavidNorton,PierluigiPiva,JohnRath-Wilson,JoseRuggero,DavidScemama,DavidMitchellSmith,CristianeTarricone,AlastairTipple,CristinaVila,KevinZhouandtheentireexecutiveclientmanagerteam.

OthermembersoftheCIO&executiveleadershipresearchgroup:HeatherColella,RichardHunter,JorgeLopez,LeighMcMullen,PatrickMeehanandAndrewRowsell-Jones.

Dave Aron Graham waller


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.

ThisisbothaCIOsdreamcometrueandacareer-changing

leadership challenge.

Welcome to the third era of enterprise IT2014 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 opposite). new capabilities must be developed. Fifty-one percent of CIOs are concernedthatthedigitaltorrentiscomingfasterthantheycancope,and42%dontfeeltheyhave the talent needed to face this future.


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).

Adapt Ideate

Create

EngageOffer

Monetize

Focus

IT craftsmanship

Technology

Programming, systems management

Isolated; disengaged internally and externally

Sporadic automation and innovation; frequent issues

IT industrialization

We are here

Processes

IT management, service management

Treat colleagues as customers; unengaged with external customers

Services and solutions; efficiency and effectiveness

Digitalization

Business models

Digital leadership

Treat colleagues as partners; engaged

with external customers

Digital business innovation; new types of value

Capabilities

Engagement

Outputs andoutcomes

We are entering the third era of enterprise IT


ExECuTIvE suMMArY

Create powerful digital leadershipMost 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,shouldbehighoneveryCIOsagendain2014.

but individual digital leaders are not enough all business leaders must become digital leaders. The 2014CIOSurveyfoundthattheCEOsdigitalsavvyisoneofthebestindicatorsofITandbusinessperformance. 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.

IT industrialization Digitalization

Create powerful digital leadership

Build bimodal capability

Renovatethe core

Clear digital roles Savvy digital executives Digital vision and digital legacy

Agile development Multidisciplinary teams Innovative partnerships New risk/speed trade-offs

Cloud/Web-scale infrastructure Information Talent Sourcing

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


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.

Postmodern ERP/apps

Hybridcloud

More-diversepartnerships

Next-generationinformationcapabilities

Increased adoption and integration of public and private IaaS, PaaS, SaaS and BPaaS

Volume/velocity/variety; in-memory databases; advanced analytics; unstructured and multimedia data

Use of SMBs/startups; new categories of partner(e.g., mobile, design, analytics)

More-federated ERP, multi-enterprise solutions, cloud components, mobile support, embedded analytics

Reimagine the core


ExECuTIvE suMMArY

Build bimodal capabilityThere 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 inastraightlinetoP&L/businessunitowners,withadottedlinetoITforarchitecturalgovernance.Teams are structured around products (not projects) and are multidisciplinary (see figure opposite).


CIO

IT craftsmanship IT industrialization Digitalization

CIO

OOCIO OOCIO

CIO CDO

CTO CTO

Functional/process silos Run D Run D

Grow/change

Multi-disciplinary

product teams

P&Lowners

OOCIO = office of the CIO, running IT as a business (strategy, governance, finance, security and risk, etc.)CTO = chief technology officer, acting as chief operating officer of ITCDO = chief digital officer, acting as digital change agentRun = every aspect of IT needed to keep the business runningD = demand management internal demand/relationship/account managers facing off to other parts of the businessGrow/change = every aspect of IT needed to execute on growth and change

Completing bimodal capability is necessary to compete in a digital world


1 WELCOMETOTHETHIRDERAOFENTERPRISEIT

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 digitalgame.Howevertheorganizationalmodelplaysout,therewillbeastrongpushforthe digital future.Gianni Leone, chief digital and information officer, Miroglio Group

Business as usual, with a shift to growthAs 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,agilityandgrowth/innovation).Intermsofbusinessleadersfocus,weobservedagradual but undeniable shift toward growth (see figure opposite).


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, thereispressureonITbudgets.TheglobalweightedaverageexpectedchangeinCIOsITbudgetsis 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.

15%

19%

16%

23% 23% 23%

27%

18%

14%

16%

28%

20090%

20%

10%

30%

40%

50%

60%

70%

80%

90%

100%

20%

Growth/innovation

Agility

Integrity

Effectiveness

Efficiency

15%

16%

27%

2013 2014

Note: Percentages for each year may not add up to 100% due to rounding.

Managements mood: A gradual but insistent shift to growth



Even more significant, CIOs report that a quarter of IT spending will happen outside the IT budget in 2014(seefigureopposite).Andthatisthespendingtheyknowabout;therealitymaybesignificantlyhigher. 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,thisspendingpatternshouldnotnecessarilybeseenasaproblem;itismoreanemergingdigital reality that should be managed with smart, lightweight and collaborative governance.

EMEA-2.4 %

2012->2013: +0.4%

APAC+0.9%

2012->2013: -1.1%

North America+1.8%

2012->2013: -1.0%

Latin America+7.3%

2012->2013: -1.6%

World*+0.2%

2012->2013: -0.5%

Sources: 2013 and 2014 Gartner CIO Surveys.

*The arrows signify the percentage of respondents whose budgets are increasing (up arrow), decreasing (down arrow) or remaining flat (horizontal arrow).

17%

45%

38%

A gradual shift to growth will supplement business as usual


In other 20%

In IT 74%In marketing 7%

Where IT spending will happen in 2014


The digital dragon is upon us, and most companies arent 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 thatcanhelppredictandoptimizeyieldsinnearrealtime;sportscompaniesthatblurtheboundarieswithhealthcareorganizations;logisticscompaniesthatcanpricefinancialriskinrealtimebetterthanbanks;andgovernmentsthatcangobeyondaskingwhatcitizenswant,observingandrespondingtotheir needs in real time.

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.


Definition

Gartner defines digital as all electronically tractable forms and uses of information and technology. ItisbiggerinscopethanthetypicalcompanydefinitionofITbecauseitincludestechnologyoutsideacompanyscontrol:smartmobiledevices(inthehandsofcustomers,citizensandemployees),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).


We are entering a third era of enterprise ITThe 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).

Adapt Ideate

Create

EngageOffer

Monetize

Focus

IT craftsmanship

Technology

Programming, systems management

Isolated; disengaged internally and externally

Sporadic automation and innovation; frequent issues

IT industrialization

We are here

Processes

IT management, service management

Treat colleagues as customers; unengaged with external customers

Services and solutions; efficiency and effectiveness

Digitalization

Business models

Digital leadership

Treat colleagues as partners; engaged

with external customers

Digital business innovation; new types of value

Capabilities

Engagement

Outputs andoutcomes

The third era of enterprise IT has arrived


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.

AllthiscametoasuddenendwiththeY2Kproblemandthedot-comboomandbust.Therewaslesstolerance 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,Prince2andPMBOK,andoftheITorganizationprofessionalizingandtreatingtherestofthe 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,inthelastfewyears,technologicalandsocietaltrendsaroundtechnologyhavebeenbuilding 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 consumerdevices,withenterpriseIT),3Dprinting,andnewcurrenciesandpaymentmechanisms.Technologysvoice,andthevoicesofindividualsempoweredbytechnology,wontbesilencedanylonger!

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.

TheY2Kcrisiswas,inpart,aresultofshortsightednessonthepartofthemadinventors.Thesame 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 potentialofnewtrends.ThinkingoftherestofthebusinessasITscustomers,andofITshighestgoalas 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.

Thisisnotaquantitativeimprovement;itisafundamentalchangeinthewayinformationandtechnology show up in the enterprise a rethinking of the role of the CIO and the IT organization, andtherestofthebusinesssexpectations,gettingunstuck,andshiftingtothethirderaofenterpriseIT. 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 thedragonisnttamed,businessesmightfailandtherelevanceoftheITorganizationwillalmostcertainly disappear.


Taming the digital dragon necessitates a three-part responseThe 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).


IT industrialization Digitalization

Create powerful digital leadership

Build bimodal capability

Renovatethe core

Clear digital roles Savvy digital executives Digital vision and digital legacy

Agile development Multidisciplinary teams Innovative partnerships New risk/speed trade-offs

Cloud/Web-scale infrastructure Information Talent Sourcing

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


1. Create powerful digital leadership. The transition to the third era starts with leadership. This means ensuringthatthebusinesssdigitalleadershipvacuumisfilledandthateverybusinessexecutivebecomes 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.


2 CREATEPOWERFULDIGITALLEADERSHIP

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.

IftheCEOasks,Whoownsdigital?andgetsmultiplenames,thenyouhavetowonder 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.Intimesofgreatchangeanduncertainty,leadershipcomestothefore;morespecifically,asBobJohansenattheInstituteoftheFuturehaspointedout,claritywillbedisproportionatelyrewarded.Leadersneedtobeveryclearaboutthefuturetheyaremaking,butflexibleabouthowitgetsmade.

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 leadershipIT 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 strategytoallowustosurviveandthrive?(LetsGetDigital:ATemplateforDigitalBusinessStrategyexplores 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:

Ensuringthatthebusinessisansweringthedigitalbusinessstrategyquestion

Ensuringthatthecompanyorpublic-sectoragencyispositioningitselftowininanincreasinglydigital world

Building,acquiringanddivestingthecompanyoragencysportfolioofbusinessunits(andtheproducts and brands in each)

Adaptingsourcesofcompetitiveadvantageandmarketingpositions

Buildingnewpartnerships

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 BundangHospitalandUniversidadTecnologicodeMonterrey(seetheAppendix)highlighthowmuchdigital technologies and trends can transform every aspect of an enterprise.

Understand the role of the chief digital officerIhavetoplayDr.JekyllandMr.HydeasImovebetweenthetworoles,makingsureIapply thecorrectsetofrulesdependingonthehatImwearingtraditionalITversusleadingdigitaltransformation.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. NowtheCDOrolehasbroadened;around7%ofenterpriseshaveaCDO,andtheyarespreadacrossall 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.



EvenmoreimportantthansheernumbersistheevolutionoftheCDOsrole.Nowonly42%ofCDOsare 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-twopercentofCDOsnowreporttotheCEO.Justunderaquarter(22%)reporttotheCMO,and16% to the CIO (the others varied). similarly, the resources available to the CDO are highly variable. Ninepercentareloneadvisorsandchangeagents,23%haveasmallteamofanalystsandevangelistsand/orabudgettorunpilots,27%haveasubstantialteamtodevelopdigitalservices,and26%areresourced to develop and run digital services separate from IT.

Acriticalquestionarises:Could/shouldtheCIOalsobe,orbecome,theCDO?Theshortansweris,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 skillsarekey.Asoftheendof2013,35%ofCDOshavecomeprimarilyfromabusinessstrategyormarketingbackground,19%haveanITbackground,and46%havemixed/otherbackgrounds.

APAC11%

North America5%

EMEA6%

Latin America7%

Industry % CDOs

Media 21

Communications 13

Services 11

Banking 10

Insurance 9

Retail 9

Healthcare providers 5

Government 5

Manufacturing/natural resources 5

Wholesale trade 3

Education 3

Transportation 4

Utilities 1

CDOs are everywhere


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 theCDOandCIO.Two-thirdsofenterprisesthathaveCDOsaresomewhatOKwithhowITandtheCDO integrate, but less than a third are very clear on this. Clarifying the coverage and scope of digital leadership,andintegrationwithenterpriseITleadership,shouldbehighoneveryCIOsagendain2014.

Build a digitally savvy C-suiteWebelieveitsimportanttoembeddigitalintheroleofeverykeyexecutive.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.

OfalltheCIOsurveydatawecollectedthisyear,thebestcorrelationswerebetweentheCEOslevelofIT/digitalsavvyandotherleadingandlaggingindicatorsofsuccess(seefigurebelow).Therewerestrong correlations between CEO digital savvy and business performance, IT performance and the CIOslevelofpowerandinfluence,eachrisingwiththeleveloftheCEOsdigitalsavvy.

Business performance

Operational effectiveness

CIO power

Growth focus

IT effectiveness

CIO reporting

Strategic effectiveness

Satisfaction with IT

ITs future readiness

Strong 7%

CEO IT/digital savvyEffects of higher levels of CEO digital savvy

Somewhat strong 16%

Slightly strong 19%

Fair 26%

Slightly weak 13%

Somewhat weak 11%

Very weak 8%

CEO digital savvy is critical



The table below contrasts CIO responses from businesses at either end of the spectrum. we asked CIOstoratetheirCEOsIT/digitalsavvyfromveryweaktostrong.Thetableshowsaverageanswersto other questions based on those who rated their CEO at either end of the scale (8% with very weak CEOdigitalsavvy;7%withstrongCEOdigitalsavvy).Notethestarkdifferencesbetweenthetwo.

SohowcanCIOsinfluencethelevelofIT/digitalsavvyofCEOsandotherexecutives?Alongwiththeperennially 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 thatwillprovidetherightamountofstretchchallenge.Dontautomaticallylookforthedigeratifrom 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.

Rated CEOs digital savvy as: Very weak Strong

Proportion 8% 7%

Report to CEO 15% 39%

CIO power and influence 2.5* 3.2*

Internal satisfaction with IT 4.4** 5.1**

ITs future readiness 3.5 4.8

Business performance 4.5 5.1

*On a scale of 1-4, with 1 = at risk, and 4 = trusted ally**On a scale of 1-7, with 1 = very dissatisfied, and 7 = very satisfiedOn a scale of 1-7, with 1 = strong disagreement, and 7 = strong agreement

On a scale of 1-7, with 1 = strongly underperforming compared to competitors, and 7 = strongly outperforming competitors

CIO responses to the CEOs digital savvy


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.

Weborrowedotherindustriesbestpracticesournationalsecurityagencysapproachtocloud, 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 CEMEXShiftproject.WhenIjoinedtheuniversity,IsawtheopportunityforShiftreloaded.Jos 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.


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.

3 RENOVATETHECORE

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 goalsThis 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 opposite).


Howdoweinterpretthis?Theclearsignalisthatthemajornewcategoriesofspendingaresplitbetween 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, velocityandvarietyofinformation(bigdata);theabilitytoengagecustomers,employeesandthecrowdinamorecompellingandcoordinatedmannerusingmobile,socialandotherchannels;and,moregenerally, to deeply innovate the business models based on these digital possibilities.

Ranking based on how many CIOs cited each as a top 3 new spending priority for 2014

Renovate the core

Exploit the new

BI/analytics 1

Infrastructure and data center 2

Mobile 3

ERP 4

Cloud 5

Networking, voice and data communications 6

Digitalization/digital marketing 7

Security 8

Industry-specific applications 9

Customer relationship management 10

Legacy modernization 11

Collaboration 12

Investment priority Rank

CIO technology priorities for 2014


3 RENOVATETHECORE

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;bettermetadata;andtheabilitytoexploitmultimedia,socialandotherunstructureddata, and data from outside the enterprise.

3. Deploythepubliccloudaspartofahybridenterpriseinfrastructure,applicationandserviceportfolio 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.

Postmodern ERP/apps

Hybridcloud

More-diversepartnerships

Next-generationinformationcapabilities

Increased adoption and integration of public and private IaaS, PaaS, SaaS and BPaaS

Volume/velocity/variety; in-memory databases; advanced analytics; unstructured and multimedia data

Use of SMBs/startups; new categories of partner(e.g., mobile, design, analytics)

More-federated ERP, multi-enterprise solutions, cloud components, mobile support, embedded analytics

Reimagine the core


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.

Whenweaskedthoseinvolvedwithagilewhethertheyhadtherightagileskills,18%saidyes,43%saidimprovementswereneeded,and39%saidtheITorganizationneededamajortalentoverhaul. 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.Specificcapabilitieshereincludetheabilitytoanalyzeunstructured,multimediaandnoisy/imperfectdata;andvisualization,simulationandadvancedmodelingtechniques.

Digital anthropology. unknown to most enterprises until recently, the discipline of understanding human behavior, customs, rituals, and economic and political organization increasingly important asdigitalpermeatesallaspectsofourclients,employeesandcitizenspersonalandprivatelives.

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 page32.

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 thepatientsjourney.Dr. Hee Hwang, CIO and chief medical officer, Seoul National University Bundang Hospital


3 RENOVATETHECORE

Deploy the public cloud to support agilitywe 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.

JollibeeFoods,afast-foodchainbasedinthePhilippines,isrelyingonpublic-cloudinfrastructureand 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(untilthecompanysownERPtemplatesaredeployed).(SeetheBBVAandJollibeeFoodscase 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 infrastructureasaservice(IaaS),43%inplatformasaservice(PaaS)and17%inbusinessprocessas 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. Whateveryourplans,testpubliccloudquicklyandsafelytodispelmythsandelevateexecutivesandITstaffsunderstanding,andtopromoteinternaldialogue.

2. Manage internal and external expectations and concerns, focusing on issues and concerns around performance, control and innovation.

3. Understandandcommunicateyourprimarygoal:Isitinnovation,agility,costorsomethingelse?

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. Planforahybridarchitecturebasedoneconomics,performance/agilityneedsandregulatory/security/privacyconsiderations.

6. Dontgetstuckwithwebsitesonly,anddontdiscountputtingmission-criticalsystemsonthepublic 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. Inthe2011survey,andagaininthisyearssurvey,weaskedCIOshowsooninthefuturetheyexpectmore than half of their business to run on public-cloud infrastructure and saas (see figure below).

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 arent working for you IT sourcing strategies must be structured to enhance IT agility and address the needs of digital businesses.Organizationsthatdontadapttheirstrategies,andthecompetenciesrequiredto execute them effectively, will fail to achieve the value opportunities presented by a highly digitalized future.Ian Marriott, research vice president, Gartner

3 RENOVATETHECORE

When will more than half of your business run on public* cloud infrastructure and SaaS?

2011: n = 1,993 respondents; 2014: n = 2,252 respondents*2011 survey asked about cloud; 2014 survey specified public cloud

2011

Half t

he b

usine

ss

alrea

dy o

n clo

ud 2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

0%

25%

50%

75%

100%

% of 2014 survey respondents

% of 2011 survey respondents

(23% said never in both 2011 and 2014)

The future still looks increasingly cloudy


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 figurebelow(derivedfromthe2013GartnerCIOSurvey)shows,mostCIOsdontfeelthatthebiggestIT 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.

Which technology company has been mostinfluential over the last 10 years?Which will be in the next 10 years?

Last 10 years

Next 10 years

23%

37%

28%

32%

14%15%

20%

15%

1%

1%

3%

1%

5%

2%

5%

2%

3%

1%

5%

3%

5%

4%

IntelVMware

SAP OracleAmazon

Cisco IBM

Mic

roso

ft

Ap

ple

Go

og

le

Oth

er

Percentage of respondents mentioning each company

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

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


3 RENOVATETHECORE

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 becomesvanilla.Innovationfrombigvendorsdoesnthelpdifferentiateyoufromyourcompetitors.

Is this just idle talk and negativity, or do CIOs intend to change? There is no sign that outsourcing willstop59%ofCIOsintendtooutsourcemoreinthenexttwotothreeyears,andonly13%willoutsourceless.However,morethantwo-thirds(70%)reportthattheywillchangetheirtechnologyandservice 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, includingstartups,toreapthebenefitsofinnovationanddifferentiation.Almostathird(29%)ofCIOssay they will diversify their partner portfolio in the next two to three years to include more small organizations.Atthe2013GartnerEMEASourcingSummit,MarkHall,thenCIOoftheU.K.revenueand customs agency, spoke of bringing in startups from unusual areas like gaming to drive more innovation.

KevinGallagher,CIOofU.K.TVbroadcasterChannel4,hasbeenusingstartupandsmall-enterprisepartners for some time, mainly out of necessity due to the nature of the film and Tv broadcast business. Hetoldushehasseenthevalue,thechallengeandtheneedtoapproachpartnershipswithsmallandyoung 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. Designtherelationshipforwin-win;donttrytoholdsmallercompaniestominimumprice/maximumdelivery they might say yes because they want to work with you, but by the time you finish with them, they may be dead!

4. Keeplegalissueslightandfocusedonintellectualproperty.Dontfocusontheliabilitiesshouldapartner fail, because they might not be able to pay them (assuming they are still around).

5. Expecttoputaprojectmanagement/deliverywrapperaroundsmallpartners.Letthemfocusonand provide what they are good at.

6. Thinkaboutthepartnerscashflow,aswellastheirprofit.Youmayneedtoadaptyourpaymentprocesses (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. Donttrytolocksmallpartnersintoonlyworkingwithyou.Manageintellectualpropertyissuesinconventional 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 BusinessValueServicesinFurtherReading).Notethatstickingwiththeusualsuspectsand/orinflexible contracts may represent even higher risks to your business.


4 BUILDBIMODALCAPABILITY

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 enoughThere 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:

Theneedtoabsorbdisruptivenewbusinessmodels,enabledbynewdigitaltechnologies

TheneedtoscaleupanddowninInternettime

Theneedtoreactfasttocapturebusinessmoments

Theneedtoflexpainlesslytosupportbusinessmodelinnovations

Theneedtoexploreandevolvesolutionsthataresurroundedbyuncertainty


Agile software development is helpful but not enoughIn the process of transitioning to the second era, there has been a general trend to restructure and professionalize IT. This has included the following:

SeparatingITintotwobigchunks:run-the-businessIT,andgrow-and-change-the-businessIT.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.

Thebuild-outofanofficeoftheCIOwithtransversalfunctions,suchasstrategy,governance,securityandriskmanagement,ITfinance,procurementandHR.

Thecreationofademand/relationshipmanagementfunctiontointerfacewithinternalcustomers/business units.

Insomecases,theadditionofachieftechnologyofficer(CTO)ineffect,thechiefoperatingofficer 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).

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.

ConventionalITdoesntdowellundersuchconditions.Infact,tryingtocapturetheseneedswithone 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: whenthereisaneedforlowlatencyand/orhighlyaccelerateddevelopment

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



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 usingiterativeandagilemethodologiesandtools,suchasScrum(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.

CIOGeorgeLabelleofIPChasmadeextensiveuseofagilemethodologiestocreategreaterbusinessvalue. 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,itisimportanttorealizethatfasterandmoreagilesoftwaredevelopmentisapartialsolution;wealsoneedacompletesecondmodeofITthatcreatesagilityfromtoptobottom(allaspectsof management and execution) and from cradle to grave (the entire life cycle of all assets and capabilities).

CIO


CIO

OOCIO AgileCTO

Functional/process silos Run D

Grow/change


Many business have developed agile capabilities


Competing in a digital world requires completing your bimodal capabilityThose 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 straightlinetoP&L/businessunitowners,withadottedlinetoITforarchitecturalgovernance.Teamsarestructured around products (not projects) and are multidisciplinary, including technical staff, design staff, marketing staff, engineering staff, etc. (see figure below).

CIO


CIO

OOCIO OOCIO

CIO CDO

CTO CTO

Functional/process silos Run D Run D

Grow/change

Multi-disciplinary

product teams

P&Lowners


The structure of IT is evolving toward bimodal

Mythbuster

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



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:

Aseparatenonlinearteam(47%ofthoseusingagilehaveasecondteamatpresent).Thisteamshould be multidisciplinary and probably report outside IT.

Lightweightgovernanceandmetricsthatallowthesecondmodetobehighlyadaptiveandtakemore calculated risk. (see the discussion of layered governance following these bullet points.)

Theadditionofthedifferentdigital-relatedskillsetsmentionedearlier(seepage29),includingagiledevelopment, 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%needadditions,39%amajoroverhaul.)

Asidefromconventionalsourcingmodels,considerradicalalternativessuchascrowdsourcing,microsourcing, hackathons and working with small enterprises and startups.

Theabilitytomovesystemsandservicesbetweenmodes.Thisoftenmeansrefactoringnonlinear-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.Inthisregard,GeorgeLabelleofIPCmentionedbringingapoint-of-salesystembackin-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).

GartnersPace-LayeredApplicationStrategyTM 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. Lightweightarchitecturalgovernanceiscritical,soensurethatnonlinear-modeinitiativesdontmakeamess;butalso,dontslowthemdown.

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.

Refactoringisthehiddengotchaofagile.Ifyoudontgetthisright,architectureandcode 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

5. Consider skills (e.g., in the customer experience, digital design, digital anthropology, data science, startupandagile)andculturalaptitude(e.g.,neophiliaandtoleranceforrisk/uncertainty)whenstaffing the nonlinear-mode organization.

6. Faceuptotheneedfornewpeople,skillsandcultureinthenonlinearmode.Dontsetyourselfupfor failure with the wrong people.

7. Dontrewardyourbeststaffmembersbyplacingtheminthenonlinear-modeorganization.Theymay not be the right cultural fit.

8. Manage communications so that both conventional- and nonlinear-mode IT are seen as important and exciting places to work.

9. Managetheculturaldistanceofthenonlinear-modeteamfromthecoreofthecompanynottoonear,nottoofar(seeMastersofInnovation:WhatCIOsCanLearnFromtheWorldsBestInnovators in Further reading).


5 CONCLUSION:CRAFTYOURDIGITALLEGACY

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: Itsallgoingtobedifferent.Youneedtoreinventyourself,yourITdepartment,yourtechnologiesandyour 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, theirpublic-sectoragencies,theirITorganizationsandthemselves.Dontletthepastpersuadeyoutoignore 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.

Cut out and keep

When I leave my current company/position, the digital legacy that I will leave is:

Signed: Date:

Your digital legacy


For inspiration, the figure below offers selections from the 874 responses to our 2014 CIO survey. Dontletyourdigitallegacybelikeonesurveyresponsewereceived:Illgetbacktoyouonthat.

I will transform education from paper- based with siloed data, to digital information provided in real time that impacts students, teachers, parents and administrators.

IT generates revenue.

Increased patient empowerment through digital health solutions.

Cloud infrastructure with digital services.

Using digital technologies to personalize content and create better engagement opportunities.

Collaborative digital leadership.

The people I have trained and mentored, wherever they may apply themselves.

Solutions for our country that our citizens need: payment system, digital signature system, economic solutions systems.

Enabling a workforce for the next generation that sees business for the first time via a digital lens and has the tools to operate borderless.

IT will be the experts, but technology will be everyones job.

Selected digital legacies from 2014 survey respondents


BBVA implements a sophisticated multicloud vision HeadquarteredinSpainandoperatingin31countries,BBVAisabankwith50millioncustomers,nearly20,000ATMsand8,000branches.Thecompanyhas113,000employeeswithmorethan 600billion(US$825.5billion)intotalassets.

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.

Sincethen,BBVAhasmovedforwardwithcloudarchitectures.AccordingtoLuisUguina,globalhead 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.

ThisperspectivehasledBBVAtodevelopLiberty,acloudwrapperthatprovidesaccessaroundmainframe 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.

ThevisionhasledtoHydra(seefigureoppositeandhttp://innotech.github.io/hydra/),asophisticatedmulticloud approach designed to run and load-balance across multiple private and public clouds to achieveefficientscaleandprovider-proofextremeresilience.ComponentsofHydrawillrolloutinearly2014, with its first practical use including the ability to deliver millions of notifications on user app status to the real-time performance-monitoring system.

APPENDIX:CASESTUDIES,ADDITIONALDATA,DEMOGRAPHICS


The multicloud vision is needed to avoid vendor dependencies and increase our resilience, says Uguina.Thereisgenuineinnovationinourarchitecture,butwearedevelopingHydraopensource.Wewant to share it with the world and hope to inspire a passionate crowd of enhancers for free!

Headdsthat,asthejourneytothecloudbegins,talenthasemergedasamajorfactor.Skillsarearealchallenge,heexplains,butthesolutionisnttogetridofeverybodyandhireanewbatchofpeople.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.

Service A

Srv-01Srv-02Srv-03

Service B

Srv-21Srv-22Srv-23

Service HHydra 91

Need Service A

Use Srv-13

Service A

Srv-11Srv-12Srv-13

Service B

Srv-31Srv-32Srv-33

Service HHydra 92

Service C

Srv-41Srv-42Srv-43

Service HHydra 93

Status

Source: BBVA.

Sync

1 2 Amazon

BBVA@mx

Google

Multicloud brokeringClient-side balancing

3

Hydra, the hybrid-cloud approach of BBVA


Channel 4 is working with small partners to drive innovationLaunchedin1982andbasedintheU.K.,Channel4isapubliclyowned,commerciallyfundedTVbroadcasterfocusingoninnovativecontent,withrevenueof941million(US$1.54billion)anda staff of 800.

CIOKevinGallagherexplainsthattheTVbusinessisagilebynature,sinceitmustmeettightnon-negotiable deadlines, use a wide variety of conventional IT and operational technology, and partner with smallspecialistorganizations.Thecompanysfocusoninnovationincreasesthesedemands.

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 beavailable24/7.Thecompanyusesagilemethodssuchasshortsprints(mini-projectswithadeliverable 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 thirdparties.Wedotechnicalduediligenceandsecurity/dataprotectionreviews,saysGallagher,butwedontimposeoursystemsorprocessesonthem.Headdsthathavingrunonthecloudsince2008helps greatly in these areas.



Managing small partners requires a different approach

WhatcanotherCIOsgleanfromGallaghersexperiencewithsmallenterprises?Heoffersthesetipsondeveloping 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 uniqueskillsandintellectualproperty.Dontexpectthemtobematurebusinessesgoodatprojectmanagement 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. Payingpartnersregularlyhelpsthemmanagetheircashflow.Dontoverburden 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 thingsgowrong,saysGallagher.Evenifyoudid,suchpartnersoftendonthavethefinancialmeans to address liabilities.

Be pragmatic about risk. Getcomfortablewithriskbutneverwithfailure.Gallaghersteamisgoodat 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 agileIPC, a u.s.-based purchasing cooperative owned by north American subway franchisees, provides procurement,ITandotherservicesto30,000restaurantsintheU.S.andCanada.Thecompanysmission 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

CIOGeorgeLabellehasbeenwithIPCsince1999.Priortoagile,wehadalotofunhappystake-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 thensay,Whattheheckisthis?Itlooksnothinglikewhatweaskedforsixmonthsago.

Asfrustrationgrew,Labellelearnedaboutagileandbecameveryenthusiasticaboutitasasolution.but I initially approached it very naively, he explains, getting everyone to read the books, running two-weekdevelopmentsessionsandmeetingdailywithbusinessusers.Wewerescrambling.Labellesoonrealized 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 wasabigchurn.Youhavetobepreparedforsomeofyourstaffleavingbecausetheycantmakethetransition.Inourcase,about15%couldntordidntwanttomakethechange,sotheyleftorweaskedthem to leave.

AccordingtoLabelle,IPCisnow100%committedtoleanagiledevelopment,usingmethodologiesandtoolslikeScrumandKanban.Oncepeopleunderstandthevalueofagile,theybecomesoexcitedaboutittheresnogoingback,hesays.Thosemostpassionateaboutagilebecomecoachesandmentors.

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 ourprocessingvendorswerentgoingwell,explainsLabelle.Wewerepayingalotbutnotgettingwhatwewanted.Andonceyougetinbedwiththem,itsveryhardtogetout.

Labellecitessomeimpressiveresults:Webuiltapayment-processingplatformandsavedourfranchisees$20millionalmost$1,000peryearperfranchisee.Itwasriskybecausemanyrestaurantsare24/7,withmorethan50%ofpaymentsonplastic,sothesystemcantgodown. It took two years to develop, but we had the credibility to convince leadership that we could do it.

IPCalsosettoworkonaplatformthatwouldntbesetinstoneforyears.Thenimblesystemhasresulted in weekly software releases, and it processes 2 million transactions per day. Yet it has been downlessthan60minutesinthelast4.5years(duetoaDNSproblem).Plus,Labellereportsthatthe



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,themovetoagilehasfiredupLabellesstaff.AgrouppreviouslyuninvolvedinthePOSsolution suddenly became interested. Meeting on weekends, these four built a POs solution that worksandcantakepaymentsonaniPad,saysLabelle.Theycametomyoffice,pulledoutaniPadand showed me the fully functioning solution. soon we will test it with a subway mobile seller at Florida Atlantic university. It blows my mind!

ForLabelle,anotherimportantindicatorofsuccessishowpurchasing,supplychain,distributionmanagement and other IPC business units have adopted agile approaches they have seen in IT. Theyespeciallylikethedailystand-upsessions(wherepeoplehuddletosolidifythedaysgameplan,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 approachFoundedin1975,JollibeeFoodsCorporation(JFC)has2,100fast-foodstoresinitshomebaseofthePhilippinesand500additionalstoresinChina,Vietnam,Brunei,HongKong,theMiddleEast,IndonesiaandtheU.S.JFChas8,000employeesandhad2012systemwidesalesofPHP92.27billion(US$2.07billion).

Beforejoiningthecompany,CIOLarryMatiasledamobile-bankinginitiativeinIndonesiathatrequiredthe 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

Matiashasledthedeploymentofcloud-basedservicesatJollibeeforthelasttwoyears,startingwithWebportalsandthenbuildinginternalcloudcompetencies.TodayJFChasseveralmission-criticalapplicationsonAmazonWebServices(AWS)infrastructureasaservice,suchasmaterialrequirementsplanning(MRP)andthecompanysWebandphonefooddeliveryservices.

Moving to the cloud has improved handling of peak loads, with 20 on-premise servers augmented byaccesstotheequivalentof150servers,withoutabudgetincrease.JFCcurrentlyspendsabout$30,000permonthonAWS.Newcapacitycanbedeployedinacoupleofhours;formerlyittookmonths to properly size, select, procure, receive and deploy new servers.

Itismuchbetterthanvirtualization,saysMatias.Youcantreallyreduceyourdatacentersairconditioning 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

UntilJFCsglobalERPtemplatesaredeployed,MatiasisusingSaaSERPforcountriesoutsidethePhilippines. Iaas is a good long-term business case for us, he says, but saas is better in the interim, sincechargingisbyseat,asopposedtoon/off.

Matiasbelievesincontinuingahybridofon-premiseandcloudcapabilities.Forexample,withJFCslargest 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.

MatiasandhisteamrelyheavilyonAmazonscloudmanagementtools,suchasDynamicDNS,Route53andStorageGateway.Theyalsousethecloudtosizeon-siteinfrast

The 2014 Cio Agenda

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