Current Economic Climate and Changes

General IT Climate 2003–2004

This is an era of change. I recently opened a conference in New York for CTO and CIOs, and declared that we are going through a massive change and transformation. As discussed in earlier chapters, Technology led the world into a period of unprecedented growth in 1980's and 1990's. Technologists and engineers were instantly elevated to star status. They were given virtual carte blanche in the quest to create the newest and latest of everything imaginable. Within corporations, techies were considered a separate and distinct group from the rest of the organization. Elevated by their status, huge salaries, signing bonuses and stock options were offered as incentives for company loyalty. And, as prescribed by their own sub-culture, techies played the role of the "geek"—introverted, analytical, quiet perfectionists who made up in talent what they lacked in management acumen.

Today our economic and business landscape has changed. Investors are no longer impressed with technology and gadgets. Companies are looking to get the most out of what they already have. This means that technologists need to not only understand technology but also how it integrates with the aspects of their business. They need to interact and communicate effectively with people from throughout the organization. Are there IT people in your organization who have great technical ability but lack the people skills required for management? Do you currently have people in place who undermine your goals because of poor management skills? Supervisors who don't interact well with their staffs and can't communicate effectively? Managers who "micromanage" and fail to offer their people the room they need to grow? Leaders who disrespect others and demonstrate a lack of concern for employees?

There is no denying that the nature of the business is changing. The software engineer who enjoyed the craft work of designing a fix and then writing the code is becoming an endangered species, replaced by the more automated process of moving a project through an assembly line of workers who function like cogs in a machine. We are also seeing the concept of Autonomic computing. It is defined as self-healing software and hardware, root-cause discovery, and correction and IT service provisioning. As stated in CIO Insight, according to a new study from Gartner Inc., within the next ten years we will likely see autonomics applied to general purpose grid computing, service billing and service policy managing systems that enable companies to shift IT resources to meet their changing business needs at the lowest cost. (89)

An IT field is involved with massive change. It must distinguish itself with advanced knowledge and the ability to continuously innovate in order to keep up. Leading thought leaders in the IT world such as Bill Gates and Carly Fiorina have recently stated that innovation and growth will come from "workflow, collaboration, real-time communication" and technologies that "weave systems together." (95)

With the weak economy, global unrest, and lingering skepticism by buyers, tech spending will probably recover to a modest 6 percent or so next year, and just shy of its 10 percent historical average in 2005. Will technology rebound? I believe the answer is yes. At the same time, I must say that IT Leaders should continue their quest for innovation by applying their knowledge to building technology solutions that add value to firm's customers and shareholders. On the opposite scale, I hear others say that the information-technology revolution is finished. The industry that has driven the economy and captured our imaginations for years has peaked for good. It's true that after four decades of 10 percent annual growth, more than twice the growth rate of the gross domestic product, tech spending has dropped for two straight years. Some corporate buyers point to many broken promises in the past. And now, some experts say that IT can no longer provide corporations any more competitive advantage -- or growth. "A lot of the core things that businesses do have already been automated," says Nicholas G. Carr, who ignited a firestorm with an article in the May Harvard Business Review entitled "IT Doesn't Matter." (96)

A mere five years ago, demand for IT skills was so strong that many CTOs demanded six-figure salaries, stock options and other perks. But now, IT workers are being compared to the displaced autoworkers of the 1970s. During my correspondence, some people say that high technology today is what the garment industry was in the 1940s and 1950s.

When you look at the numbers for the last few years, technology finance infrastructure remains a mess, with venture capitalists very slow on investing in new ideas. Just 15 percent of venture capital has gone to early-stage companies this year, compared with 35 percent in 1995. Corporate customers are wary of buying technology from startups that may not survive. There are also many legal and regulatory issues. "Steam engines and electricity went through one big wave of improvement -- and not even one as big as the one for IT," says economist Eric Brynjolfsson of Massachusetts Institute of Technology. (46) Many economists believe IT's productivity benefits fueled much of the prosperity of the 1990s, so it's crucial that advances keep coming for our standard of living to improve. Many IT buyers refuse to purchase anything that won't guarantee a return in six months. "There's a big backlash against technology and a lot of skepticism about what it can do," says technology consultant and author John Hagel III. (46)

In the information industry, technological advancement has radically changed the way we conduct businesses. The change is so drastic that it really needs fewer systems administrators, or complete ubiquity of common platforms that can be tended to in India as easily as in San Francisco or New York. John Scully, a former executive at Apple, states:

"What's happening is that we're going through the commoditization of virtually everything. It started with hardware. It's moved to software. And now it's moving to services. Companies have to find the least-cost way of delivering their products and services," What it means for workers in the U.S. is that they need to keep refreshing and improving their skills. More and more, we're moving toward a system of certified IT workers. Certified in terms of knowing that when you hire somebody, they will be able to do the job you need them to do." (89)

I actually believe blaming the current job market conditions on the structural element of outsourcing job operations and singling out China, Russia, and India isn't entirely fair. Many companies in the U.S. have outsourced their labor forces for the past 20 years. I believe that the reason why the job market is tight is more straightforward. The problem resides in what I call "irresponsible optimism." From the managerial side, poor business planning and over-investing -- and from the consumption side, adhering to a false sense of security based on low short-term interest rates, ultimately allowing increasing levels of debt.

The process is picking up speed as companies start to outsource basic design and programming tasks as well to lower-paid workers in India, China and Russia. We will discuss this late in an outsourcing chapter.

Having said the above, we also must agree that technology days are far from over. Its days of maturity may be decades away. The IT revolution that shares similarities with manufacturing and other industries is also different because technologies are constantly accelerating.

An interesting statistic is that the economy depends on the technology industry moving its growth machine. In fact, up to 10 percent of the gross domestic product comes from tech, which accounts for nearly 50 percent of all capital spending

Says Intel Corp. Chairman Andrew S. Grove, who has worked in tech for more than 40 years: "The rate of change in technology is as much today as any time in my experience." (46). Technology will remain an important component of our economy.

New Generation and Digital Revolution

We are also experiencing something very interesting. We are seeing the growth of a new generation. It is literarily a new generation of young IT professionals and managers. We hope that this book will be a guide for this next generation group. This next generation group is the first one to be born in an all-digital world. It is developing its own culture and is just starting to impose it on the workplace. This force is formidable because of their attitude toward authority. It will demand some big changes in the way our society, business and individuals interact.

CIO Insight Executive Editor Marcia Stepanek convened a roundtable on youth and the future of the workplace at the magazine. Most agreed the N-generation will change the balance of power on how employees and management will work. (84) It will force today's leaders to forge new partnerships with employees with a focus on the abilities of people and experience to promote change and harness emerging technologies in the service of business goals. CIOs will be at the center of those profound changes, providing fresh opportunities to integrate new ideas and technologies into the values based organizations (discussed in later chapters). This young generation will be a real force to make an impact in our society.

Women as CIO/CTOs

Women CIOs and CTOs are a growing and emerging trend. They may be few in numbers but their influence and achievements are growing. The most prominent women are Carly Fiorina of Hewlett-Packard, Meg Whitman of eBay, Anne Mulcahy of Xerox, Linda Sanford, IBM. All are leaders in high-technology corporations. Based on a business week article, according to Catalyst, just 11 percent of corporate officers at America's 500 top technology companies are women vs. 15.7 percent at the largest 500 companies overall. And women lag behind in the competition for seats on corporate boards, holding 9.3 percent at tech companies vs. 12 percent-plus for the 500 largest corporations. From 1996 to 2002, the Information Technology Association reports, the percentage of women among IT professionals barely increased, inching from 25 percent to 25.3 percent. (11)

Women such as the Carly Fiorinas and the Meg Whitmans demonstrate the importance that women bring to this profession. They also open the minds of girls who could be the next generation of women business leaders. "At the end of the day, it's about individuals," says David Nosal, head of Korn Ferry's global CEO practice in Silicon Valley. At the end of the day, it is who has the ability and track record to build value. In technology, the women on our list have proven that they're up to the job. (11)

Furthermore, the special culture in Silicon Valley has helped women to break through major challenges. Parker, founder and CEO of executive search firm DP Parker & Associates in Wellesley, Mass. said that

"That's why you're more likely to see women and minorities in senior positions in technology than in old-line, entrenched industries such as insurance, banks, steel, or manufacturing." High tech company's development cycles and cutthroat cultures have helped women succeed. In a pressure-cooker environment, executives are judged on whether they meet sales and marketing goals, or on whether a project is finished on time, not on who their golf buddies are. Having that kind of systemic approach is a benefit to women." (11)

Are CIOs in Decline?

Chief information officers of large companies are in for some discouraging news:

CIO -CTO Environment and Conditions

There is something in the air. Something unusual is happening in New York and cities all over the United States. People are saying that Chief Information Officers have declined in the role. Their budgets have been cut, their work has been outsourced, their staff has been downsized, and they've been pushed off the executive team. Their status within the enterprise has suffered. We will discuss the role of CIOs and CTOs in the next few chapters. Meanwhile, some CEOs are outsourcing CTO and CIO functions and creating organizations such as Tatum CIO Partners. I recently had a discussion with George Wing, a Regional Director who has enlisted some of the top CIOs to work as CIO on the hire.

Consequently, CEOs and CFOs are questioning why they need a pricey CIO position heading a business function that's been effectively outpaced. Some are very harsh and suggest getting rid of the function and ditching the function head. Some are suggesting that vendor contracts return to CFO, or install a relatively cheap IT project manager to manage vendors. An easy way to end a problem or is this a solution?

What we're seeing, I think, is another iteration of a cyclical phenomenon where enterprises are losing faith in IT as a strategic entity, and therefore assume they can do without a strategic IT leader. The CIO role is in real danger of being diminished. CEOs and their boards are grappling to understand if the location and size of an IT workforce determines the need for a highly skilled CIO. Globalization is also a major factor here. In an ideal situation, CIOs could command a global IT workforce, even if some or most of that workforce is employed by an outsourcer. As Paul Saffo, director at the Institute for the Future, said at the CIO 100 Symposium in August, IT staff will come from everywhere, and so will the CIO. (71)

A very important article came out in CIO Magazine on October 15. Stephanie Overby did an amazing job in documenting a major developing story. According to the story, titled "An Incredible Shrinking CIO," there's a pretty good chance that many CIOs of large companies are already aware of their shrinking status because it's neatly reflected in their salaries, which dropped 16 percent since 2001. (71)

Overby sites plenty of evidence that CIOs' corporate ascent has hit a wall. There's a 2003 survey that found that 22 percent of CIOs now report to CFOs—exactly twice the percentage of CIOs that reported to CFOs in a study conducted one year earlier. And there's the dishearteningly horizontal line illustrating the change in IT budgets over the past year. There is also an accelerating industry-wide movement to outsource IT functions to faraway places, and there's the overwhelming majority of CIOs who report that their IT function is considered a cost center.

It may be one of the great and tragic ironies of 21st-century business that as technology plays an increasingly more important role in business, technology people play a less important role. Overby tells us that in many companies, IT strategy decisions that used to be made by CIOs now go to other executive and leaders who will have a final say. So is it over?

The article that CIO magazine prompts goes into the soul of our profession. Technology is at its best when it is invisible. If that is true, perhaps it's also true that technology professionals are at their best when they are completely invisible. Are CIOs going away? Can the role of the CIO be granted to people with non-technical backgrounds? Does it signal a decline? Some believe that running IT would be easy, and they rely upon IT and Management consultants for strategy and implementation. Can the CFOs and other leaders who focus on profits and bottom line run a creative and innovative group in our companies?

However, I do not believe this is the end and that all is lost. CTOs and CIOs have more to play but perhaps a different role. The role and importance has to be emphasized in terms of value to customers, transformation, and change. Most of the CTOs have been observed into CIOs and that is why we position this book to focus on both. There is also growing demand for new IT capabilities and high expectations for payoff but with greatly constrained resources. The threat to CIO exists. CIO have to respond, and lobby their case for value, alignment, a transformational role in a new economy.

I have read and reviewed many books and journals on strategic alignment and strategic planning. This type of planning and alignment is a recipe for disaster for CIOs today. When IT tries to please each and every business unit leader, each and every function head, and those people have competing priorities, there's no way to win. CIOs need to demonstrate value, and fast.

We all know that the only way to be successful when the number of high-value business initiatives greatly exceeds the resources available to deliver them is to get all the business stakeholders to agree on what is most important, and then to agree on how things should be prioritized. This effort must be brought in with substantial customer and shareholder value, and some very sophisticated, well-running governance mechanisms.

In reality, CIO carries a special significance. They really control and focus the innovation in the organization. They also have an ability to identify the problem/solution which goes up the value chain to prioritize, define and communicate goals for the entire enterprise—not just for any one business unit or function, and not just for IT. Second only to the CEO, CIOs are uniquely positioned to view the business in this cross-functional, process-oriented, holistic way. Finally, they are uniquely positioned to think about and lead discussions on IT-enabled strategy and process change.

Overby states that a 25-year Veteran who was a CIO states, "I don't know why anyone would want the CIO job today." (71) This is a powerful statement to make. The same article also indicates that Phil Schneidermeyer, CIO practice leader for executive recruiting company Highland Partners, says that "CIO is no longer the same level of position." He continues to say that

"Companies are stepping back and saying the job isn't that big anyway. We're making less investment in IT. We have a smaller headcount. We're not going global and doing any mergers. We're done with ERP. We're sending it all offshore. Therefore we don't need the caliber of CIO we may have had in the past." (71)

Another CIO in the article states the following:

"Companies no longer view IT as a profession. It's a no-win situation." And if things don't change, the list of potential losers is long: CIOs, their users and staffs, their companies, and possibly the future of American IT. (71) "As a leadership position, the CIO role had little or no credibility left, and we deserved every bit of it," says Malcolm Fields, CIO of office furniture and fireplace manufacturer Hon Industries in the same article. (71)

The percentage of CIOs reporting to CFOs doubled this year from last year, according to CIO's "The State of the CIO 2003" survey. Yet, reporting to the CFO rather than the CEO or COO is almost always a sign of diminished clout. Recruiters report that companies are looking for low-cost techies and, surprisingly, junior employees to fill the role of CIO. In addition, in 2001, compensation for CIOs at large companies decreased for the first time since 1985 and has slid 16 percent—from $434,000 in 2001 to $363,000 in 2003, according to IT management consultancy Janco Associates. The increased interest in outsourcing and shrink-wrapped technology strategies have resulted in a diminishing CIO stature. (71)

Furthermore, according to the "2003 State of the CIO" survey, 84 percent of CIOs said their IT function is currently being budgeted as a cost center that generates expenses rather than an investment center that generates new business capabilities. And as corporations continue to cut technology spending, more and more companies are going for an off-the-shelf IT strategy.

"Put yourself in the shoes of a CEO," suggests Fields. "They're asking, do I really need a CIO, and if I do, why not report it lower in the organization and let the CFO handle it as a cost matter?" (71)

CIO's Responding

Hello World! CIOs and CTOs need to respond. Analysts are saying that CIOs haven't helped matters in the way they're responding to the current crisis in their corporate status. Most of the CIOs and CTOs are either running away, hiding or making excuses. Few lucky ones are holding on for a dear life. In fact, Infoworld Magazine has cancelled a CTO Section due to lack of demand in this market. The attendance at the 2003 Infoworld and SIM events was very light compared to other years. CIOs are in survival mode.

While some CIOs are withdrawing, others are fighting back. CIO Magazine has some suggestions for CTOs and CIOs to improve their image and finally respond.

So, what could CIOs do to improve the image? CIO Magazine believes that they could focus on the following: (71):

• Run IT like any other business unit.

• Put fiscal controls in place.

• Surround yourself with people who have business backgrounds.

• Get out of your office.

• Teach your staff to be businesspeople.

• Make the numbers tell the story you want.

• Work those relationships.

  • CEO Relationship

  • CIOs need to proactively push their value.

    • Business value and competitive advantage with a comprehensive global strategy

    • CFOs think in terms of quarterly earnings. IT is best managed as a long-term investment.

    • Vendor management is one of the CIO's core competencies.

    • Information is the most important asset in a company. CIO has experience to deal with information.

Technology has to be leveraged for competitive advantage. A good IT organization with a sound CIO can be part of a company's competitive advantage if they're closely tied to the business and help it improve processes faster than their competitors. In fact, most competitive advantages have an IT component today.

The article points out that CIOs are incredible resources to mange and minimize amount of business risk. (71)

Finally, outsourcing makes CIO a core requirement since CIO is key to global vendor management and understands key risks in vendor transactions.

Changing Environment in Context

I would like to end this section to describe the changes in holistic terms. I believe that a new individual in this new world is a mix of old CIO, Emerging Technologist and a Prophet of Change. Clearly, we are dealing with a changing environment. America is experiencing a major disconnection with corporate management, the interests of individual customers, shareholders and employees. The corporations rely on the old notion of managerial capitalism. It was a right model for a different time. Success was always what's best for the organization, which often also means what's best for senior managers—whatever makes them money or enhances their careers and reputations. The new world order depends on consumption and employment of a new society of individuals, but corporations and organizations continue to operate according to the notion of managerial capitalism, invented a century ago for different people, different markets, and different needs. (94)

In general, it creates a major misalignment between individuals and organizations that is marked by frustration, mistrust, disappointment, and even rage. There is also an opportunity to leverage the tools, techniques, processes, and models for the creation of the new way of capitalism. I believe that a new CTO will play a crucial role in this. CTOs will play a role in creating a new era of wealth.

Let's review this new individual. The new individual will have plenty of things. As consumers, they ask for treatment and support that will enable them their dream lives. People now have unique visions, desires, needs and wants, but corporations have remained distant and indifferent to the true nature of this change. Our business environment is malignant in that people are chronically disappointed and frustrated by their experiences as consumers and employees. Americans have lost the trust in large brand organization to serve their unique needs. Even at the CTO level, it is clear that we are experiencing a divisive "us vs. them" mentality. Now, after decades of challenges and corporate indifference, individual consumers are making their value known in individual consumption. One of the unique individuals are CTOs who are pushing us toward the next leap forward in wealth creation that Shoshana Zuboff names "support economy." (94)

Once you shift the source of value in the individual and not in the corporation, everything changes. The entire way we think about wealth creation, ownership, and control changes. We compare this shift in thinking to the great political and social revolutions of the 18th century, when people went from being merely subjects to becoming full citizens. We see this as the same kind of revolution—the consumer will no longer be a corporate subject. In this new vision, the individual is now the source of all value and all cash. This distribution of value also means the end of the corporation and industrial sectors, as we know them. It leads to what we call the distributed imperative, as it necessitates new ways of distributing ownership and control across what we call federated support networks that are fundamentally aligned with the interests of the individual end consumer. (94)

We as CTOs view the fundamental shifts in the nature of capitalism. There is a major convergence of three forces: new markets, new technologies, and new enterprise logic. (57). There is evidence that those forces are coming together as I am putting together this book in December of 2004. This new highly educated, sophisticated knowledge population is pushing very hard for the rise of new markets for deep support. In fact, we now have a new digital medium uniquely capable of meeting the demand associated with these new markets. Finally, many people including senior management and technology executives today sense that there must be alternative attention to the orientation, purpose, and economics of transactions. Very soon, new value based commercial entities will figure out how to realize the value in the new markets for deep support—everyone who wants a share of the new wealth will follow. Then, we will experience a different world for our customers and ourselves as CTOs. (94)

When we get to the support economy and value based organization, it will transform us to a new world. We will start exploring where we are less certain because we may not have the necessary techniques, processes and tools. History suggests that it is important not to underestimate the changes. The hope of our civilization really exists in a better understanding of cultural dynamics and interpersonal relations. We will see advances in "spiritual" disciplines that provide future generations with a solid awareness of the process of change. In a few years, our society could emerge into a period of rapid, sustainable, and evolutionary growth. New technologies will come into our horizon at breathtaking speed, but they will not have the same chaotic, transformational effects as earlier technologies. Our support model with distributed capitalism and value based organizations will allow us to handle those technologies at a different level. As a caution, a number of events could hinder this progress: a global war, a major plague, a religious upheaval, an asteroid strike or other environmental catastrophe. However, assuming these things do not take place, humankind could enter into a new transformation. (44)