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IT Management Issues: The CIO Conundrum

The challenges faced by your CIO have a direct impact on your job today, and your future as an IT and business professional.

Ernest von Simson

The job of CIO is as challenging as it is multifaceted. It’s part salesman, representing IT innovation to your company’s executives; part global project manager, weaving the wares of multiple vendors into a reliable and cost-effective infrastructure; and part prognosticator on the success or failure of seemingly stable vendors in an industry where waves of change regularly swamp unwary incumbents. Consider the fates of companies such as Compaq, Data General, Digital Equipment, Wang and many others. Every decade or so, a new crowd of entrepreneurs overwhelms the incumbents. Can CIOs really distinguish winners from losers in a timely manner?

In the first half of 2010, CIOs reported their IT spending remained consistent with their IT budget plans from the end of 2009, according to a global survey of more than 500 CIOs conducted by Gartner Executive Programs. Remaining on budget during the current economic conditions adds yet another factor into the already difficult job of the CIO. The CIO faces a conundrum every day managing this delicate balance. There are several critical success factors evident among those who get it right.

Change Warriors

The most successful CIO can smoothly navigate complete change in the company’s technology and business model. That’s a difficult task in the best of situations. It’s even more challenging when the company has previously been successful, but is now confronting sweeping industry-wide reform. IBM Corp. made three such transitions under three different top executives: Tom Watson Jr., Frank Cary and Lou Gerstner. Apple Inc. has navigated three equally impressive transitions under founder Steve Jobs. So, too, has Oracle Corp., under founder Larry Ellison. The CIO and IT infrastructure must help facilitate and support these types of sweeping changes.

Risk Assessment

Choosing the precise moment to make that daring leap from a platform of stable success to new ground and a new competitive landscape requires the timing and acumen of a trapeze artist. The more stable the old business model, the weaker the new model will seem. “Wait and see” often feels like the much safer choice, and prior success can be a millstone once the wheels of change begin to turn. Many years ago, I asked Steve Jobs how Apple could survive the early success of the Mac. “Burn it down!” was his succinct response.

First Mover Advantage

The first entrants into new markets created by a disruptive technology reap the lion’s share of the benefits in terms of customers, markets and profits. Too often, though, the new entrants try to mold new technology around old business models, with disastrous results. The PC market leaders in 1979 were Apple, Commodore and Tandy. All three eventually tried to shoehorn microprocessors into older and inappropriate models:

  • Apple emulated the proprietary workstation model (albeit at much lower prices) and was consequently trapped into a minority market share for nearly 30 years
  • Tandy offered a minicomputer model integrated from OS to applications to distribution, and eventually left the field
  • Commodore failed by mistakenly accepting the business model of the home entertainment center, with $600 prices and minimal support

Today’s PC market is led by latecomer Dell Inc. and traditionalist Hewlett-Packard Co. Comparatively, the Linux market draws major support from newcomer Red Hat Inc. and late movers Oracle and IBM.

Cultural Momentum

A company’s organizational structure can be a strategic battering ram one year and a dead weight the next. Tom Watson Jr. built IBM as a highly centralized organization to unify the company around the revolutionary System/360. The goal was to annihilate the other mainframe companies. Then the times changed and the centralized organization couldn’t operate nimbly enough to counter the plug-compatible mainframe and peripheral companies born to exploit System/360 market dominance.

After that, IBM was sharply and decisively decentralized by Frank Cary, but not without unexpected consequences. Cary’s decentralized business units inevitably developed duplicative server families and OSes. These were belatedly uprooted by Lou Gerstner, but too late to prevent major market share losses to HP and Sun.

Sales Alignment

A sales force can certainly be a company’s most potent and productive asset. Properly trained and motivated, a great team of reps can push a mediocre product far beyond its expected trajectory. They can also ease the company through major product delays, as did the HP sales force in the 1990s.

However, the field sales force has a dark side in times of radical change. Flexibility is not a typical characteristic of successful field sales organizations. Sales executives will sometimes block new products and distribution models, even while new entrants chip away at gross margins. The failure to increase sales productivity during massive market shifts can be disastrous, as it was for Digital Equipment and IBM.

Remodeled Business Models

During times of rapid change, legacy assets can quickly become liabilities. Before the advent of the microprocessor, the leading suppliers of electromechanical calculators fielded extensive customer training and support organizations for their $2,000 products. When microprocessors became widely available and calculator prices plummeted to $200, those elaborate organizations were no longer assets. Customers could now justify the purchase for just two or three functions, and when a calculator broke, they could mail it back to the factory or just throw it away.

Similarly, Sun enjoyed several advantages entering the market against Digital Equipment, the Goliath at that time. Sun was on the cusp of two technological waves its rival missed: reduced instruction set computing, or RISC, hardware and Unix software. The commission-hungry Sun sales force overran the salaried engineers Digital retained. The Sun cost structure also provided an unassailable competitive advantage given Digital’s legacy burdens. Successful business models are broad, complex and rooted in current reality.

What’s Next?

Some newcomers will follow the old path, inadvertently conceding the market to the traditionalists. Expect a round of Software as a Service vendors with their heads firmly stuck in old licensing business models. And don’t be surprised by new device makers entering the market with uncompetitive perceptions of customer support, or by old vendors of “open” systems who fail to understand the new stresses posed by cybercrime on their unspoken architectural assumptions.

The best companies and the best CIOs will navigate this changing marketplace and business landscape with alacrity. How does your CIO and your IT organization measure up? In the interrelated world of global IT, no hiccup goes unfelt.

Ernest von Simson
Ernest von Simson is a senior partner of Ostriker von Simson, a consultancy assisting worldwide enterprises in the selection and deployment of advanced technologies. He’s also co-director of the CIO Strategy Exchange, a private sector think tank serving top CIOs. He serves on the Board of Directors of Arcsight, Levanta and Optaros. Author of the recently released “The Limits of Strategy: Lessons in Leadership from the Computer Industry” (iUniverse, 2010), von Simson teaches a seminar on entrepreneurship at Pace University and is a trustee of the New York Studio School, the New York Landmarks Conservancy and Landmarks West. For more information, visit  LimitsofStrategy.com.

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