What CEOs Want Their CIOs To Be Thinking
November 15, 2018
By Bret Moffett,
President and CEO of POWER Engineers
From CIO to CEO
Prior to becoming CEO, I was POWER Engineers’ Chief Administrative Officer, which entailed, among other things, managing our Information Technology department. In fact, when I started the CAO job I wore several hats including those of CFO and CIO.
Which was not too much of a stretch because I am, in fact, an IT professional. I graduated from New Mexico Institute of Mining and Technology with a bachelor of science in computer science in 1986. And for many years I worked as a software engineer.
I would say that I’ve written well over a million lines of code, most of it in the C programming language. I only bring this up to give you some insight into my qualifications, and how I hope to provide a unique perspective on the role of the CIO at today’s engineering and consulting firms.
Background to Strategy: Moore’s Law
I have seen quite a few changes in computing in the last 30 years. And these changes have had a profound impact on our society, our culture and the consulting industry.
Underlying these changes is Moore’s Law, which predicts that the number of transistors on an integrated circuit would double every two years, and in fact, this has pretty much occurred unabated since 1965. Roughly speaking, this means that a single Apple iPhone 5 has almost three times the processing power of the Cray-2 supercomputer, which was the fastest computer in the world about the time I graduated from college. This is a one trillion-fold increase in performance in six decades.
Here are a couple of examples of just how astounding Moore’s Law really is: In our primary market, the Energy market, in 1965, the efficiency of a photovoltaic solar cell was about 14 percent. Today, it is about double that at 29.8 percent. Likewise, the energy density of a chemical battery was around 50 Watt Hours per Kg. Today, it is about four times more, or around 200 Watt Hours per Kg.
And these changes in photovoltaic efficiency and battery energy density are considered astounding! But they pale in comparison to the changes in computing power over the same time period.
Imagine for a moment that solar cells and batteries had actually followed anything remotely resembling Moore’s Law. Solar cells would be miniature devices with near perfect efficiency and batteries would be equally small and capable of storing vast amounts of energy. In short, our climate change problem would have been solved! The world could run on sunlight during the day and battery power at night with little to no CO2 discharge.
But speaking as the CEO of POWER Engineers, I guess I’m glad this didn’t happen—we might be out of business!
I believe the growth in computing power is truly astounding and maybe quite unique. But what kind of a world has it created for CIOs and CEOs?
For CIOs, isn’t this great? More powerful computing—it’s a CIO’s dream, right?
And for CEOs, doesn’t this mean a world where they can now make better decisions, faster, and earn more money more productively?
But is it possible that Moore’s Law is really Moore’s Curse? Sometimes, I think it is.
Implications of Moore’s Law: Rapid Obsolescence
First of all, Moore’s Law virtually guarantees that the cycle of obsolescence in IT is rapidly accelerating. Today’s killer app will simply be tomorrow’s dead app. And that dead app is likely to be an albatross around your neck that you wish you could get rid of. We are all familiar with those legacy apps that we just can’t eliminate.
Implications of Moore’s Law: Commoditization
Another aspect is that the use of new technology will become standardized very quickly, meaning, of course, it will become a commodity very quickly. Any momentary advantage to adoption of a new technology is quickly made obsolete as those best practices are incorporated into subsequent versions that are available to all. It is extremely easy to get stuck in this trap, too.
Implications of Moore’s Law: Rapid Price Deflation
And finally, Moore’s Law is also an economic law that drives rapid price deflation of IT products and services. The price of acquiring new IT can be daunting but technological acceleration very quickly ensures in a short time that same technology will be much cheaper. The barriers to entry drop fast and you risk spending way too much if you are an early adopter.
In short, Moore’s Law really feels like Moore’s Curse at times. Don’t we all feel like Sisyphus? Pushing the IT boulder up the hill only to have it roll down again?
Strategic Focus Areas for CIOs
Obsolescence, standardization, and price deflation all tell us something about what it means to be strategic with IT.
So how have companies fared under these conditions?
I wondered about that. So I asked the great researchers at EFCG to take a look at something for me about seven or eight years ago.
I wanted to know the relationship between IT spending and profitability. They came back with this graph.
On the face of it, as you can see, there is no correlation between IT spending and profitability. None.
So, is it really true that, as Nicolas Carr hypothesized a decade ago, IT doesn’t matter? Or is something else going on here? I think Nicolas Carr was wrong. I think this graph shows something else. I decided to divide the graph into quadrants and label them:
Penny Pinchers—These are companies that don’t make the investments required to effectively deliver their services. They are lagging behind everyone else at the game and probably aren’t providing the basic services their business needs.
Spendthrifts—These companies, on the other hand, spend extravagantly on IT projects that don’t deliver value to the business or, even worse, they hurt it. We are all familiar with the bloated, overrun IT projects that characterize this quadrant.
Cash Cows—These are companies that understand their business strategy is to be a low-cost provider. Consequently, they control IT costs within that framework of being the lowest cost to their clients.
Visionaries—They understand IT is necessary to provide them a differentiated and premium-priced service. They make smart IT investments that support that strategy and even though it costs more, they also make more on the premium service.
If you are willing to accept my hypotheses on what this graph says, follow me a little further:
I believe there are five related strategic areas that a CIO must concentrate on in order to be successful in helping the CEO achieve his or her strategic objectives. These five areas are the ones that we have found are the most important to our successful deployment of IT at POWER.
#1. Control IT Costs
To begin with, the CIO must control IT costs. We are all familiar with bloated budgets, cost overruns, and scope creep associated with many, if not most, IT projects. And so at POWER, we require all significant IT projects to have an assigned IT project manager to manage our projects just as well as we do our production projects for our clients.
In addition, we use “smart outsourcing” to “lease” skills, capabilities, and technology instead of building it organically. It is wise to procure generic and commodity services from those providers that have massive economies of scale to deliver products and services at a fraction of the cost we can do it internally. Likewise, it is smart to procure some unique and expensive skills on an as-needed basis rather than employ them permanently.
Cloud computing is a good example of what I’m talking about. The cloud provides an enormous delivery platform for core services like data storage but also opens the door to leveraging the unique—and expensive—capabilities of emerging technologies like AI and business intelligence that would be cost prohibitive for most of us to build on our own.
One of my biggest mistakes as the head of IT was approving the design and development of two data centers at our offices in Idaho. Not only were they expensive, but quite frankly, we could not operate them as well as someone like say Amazon or Google. In the end, we moved most of our computing resources to the cloud and now our data centers are not much more than wasted floor space.
Another important point about cost control: be very wary of being an early adopter of technology. Our strategy at POWER has always been to be “one year behind.” Being one year behind is just a memorable way of saying wait for someone else to use the first version of a new technology and go through the pain and suffering and expense of working out all the bugs and problems.
#2. Purchasing and Procurement
Hand in hand with cost control, the CIO must have excellent purchasing and procurement expertise. It is very important at POWER that we get the best deals we can on licensing, contract terms and upgrades. This does not always mean buying the lowest cost to us, but rather partnering with key vendors to have long term, mutually successful relationships. We now have a purchasing department that works on this every day for us.
#3. Manage Risk
Risk Management is another key element of the CIO’s job. The CIO must ensure the core infrastructure—data storage, data processing, and data transmission—remain operational 99.9 percent of the time at POWER. At POWER, we don’t want a bug, service outage or security breach to negatively impact our ability to perform our work. Moore’s Law means there are more software tools and more opportunities for failure: think Space Shuttle reliability. Not only does a disruption to our production work have a short-term negative impact on our earnings, but it also damages our reputation as a reliable and timely partner with our clients.
Along the same lines, business continuity and disaster recovery plans are necessary to deal with the inevitable problems. With 50 offices spread across the U.S. and abroad, we are subject to severe weather, accidents, theft and other problems on an occasional basis. It is important for us to have contingency plans in place that allow us to mitigate these problems and get people safely back to work as quickly as possible.
The areas I just mentioned have been the keys to our success at POWER. They are not necessarily sexy, nor are they what we might ordinarily think of as strategic. However, they form the daily foundation for a successful business and doing them well is the hallmark of a mature IT department. These are pre-requisites to the next focus area: Envisioning.
I see several important dimensions to Envisioning. First, it means anticipating the future of the market and seizing opportunities before others do. I warned earlier that this is hard to do and failures can be severely punished; however, it is also true that being the first to do something new can be very powerful, and the rapid changes in IT means there are always opportunities to be evaluated. Caution is warranted.
On the other hand, you don’t want to be left behind either (for example, consider Kodak losing out to digital camera technology). Not harnessing a new technology or not seizing a new opportunity can be just as deadly. You really don’t want to be the only firm that doesn’t have a new and necessary factor of production. Websites are a good example. Years ago, websites were new and novel and it didn’t matter much if you didn’t have one. Today, everyone has them but they confer little, if any, competitive advantage. You are hurt more by not having one than you can ever gain by having a really good one.
Another area where IT can help gain a competitive advantage is through the development of proprietary technologies. Again, this is particularly risky, but the rewards can be tremendous. In evaluating new technologies it is important to determine if the new technology will create differentiation, barriers to entry, and/or customer loyalty.
We have developed a few of these proprietary solutions over the years such as our program management software called POWER360. POWER360 differentiates us from the competition by codifying our unique capabilities in linear transmission projects, creating strong barriers to entry for newcomers, and keeping us connected with our clients who become dependent on the tool for their own successful strategies.
As a final word, Envisioning is often what is thought of as strategic. And it is. But I urge you not to focus on it at the expense of cost control, procurement and risk management. It is easy to be seduced by the siren song of technology. Caveat emptor.
And this brings me to the final focus area: Alignment.
Of course, all of these things—cost control, procurement, risk management and envisioning—must be in alignment with the overall business strategy. Everyone must be pulling in the same direction. There are two ways that we have been successful in achieving this alignment at POWER.
To begin with, we try to involve the production team as much as possible in activities that have a direct impact on them. This means we form cross-divisional teams with a variety of diverse perspectives whenever we take on new projects. Having team members from production has proved to be an excellent way for us to make sure our IT teams really understand the business requirements.
And we sometimes take this a step further: we transfer people back and forth between divisions to expose them firsthand to what is really going on. Of course, you can’t do this for every type of position. You can’t take a computer scientist like me and make them an engineer. But you can darn sure bring in a CAD designer to your IT department and infuse a whole new level of understanding into how you support CAD across the company. We have successfully done this on many occasions at POWER, and I think it’s one of the reasons we have done very well with the evolution of IT over the years.
Questions Your CIO Should Ask
I would like to say a little about how POWER is looking at some IT technologies that are affecting our industry. Some of these are already playing a decisive role in our business while a few others are only just emerging. The things we are paying close attention to today are: cybersecurity, mobility, cloud computing, the Internet of Things, Big Data, and Artificial Intelligence. No surprises there.
And while I will not go into the technical details about any of these technologies, I do invite readers to take a look at each in light of these five strategy lenses: cost control, procurement and purchasing, risk management, envisioning, and alignment.
I believe these five strategic focus areas can help you develop your own successful strategies when it comes to some of the technologies that are impacting or are poised to impact all of us.
Which brings me to what every CEO wants their CIO to be thinking:
- How much can we afford to spend and in what areas?
- What is the best way for me to procure this technology? Should I build it internally or source it from another party?
- What is our appetite for risk—a lot or a little? How do we mitigate those risks in order to ensure seamless provision of services? Do the benefits outweigh the risks?
- What are the possibilities of the technology? Is there something no one else is seeing that can give us a first-mover advantage or should we wait and see? What do we risk if we fall behind in an area?
- Are we aligned with the business’s overall strategic objectives? Can we point to something in our strategic plan that supports what we are doing? Or does our strategic plan have gaps that need to be addressed?
There are no easy answers to these questions. And we can blame Moore’s Law again. It has created an IT landscape of incredible complexity—it’s at once super cool and super frightening! How we respond to it determines whether we’re Spendthrifts or Visionaries, Penny Pinchers or Cash Cows.
So which quadrant are you in? Cash Cow, Visionary, Penny Pincher, or Spendthrift? Which one SHOULD you be in?
The best we can do is ask ourselves these questions over and over. The answers will provide insight into how best we can conduct our IT departments and our business overall.
I know these will be the questions we will be—and are—asking ourselves at POWER.