Podcast Episode

CIO Speaks – Episode 1: A Conversation with Dion Hinchcliffe

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In this episode Steve Ginsberg speaks with Dion Hinchcliffe about digital transformation and some of the changes facing the industry today.

Todays Leading CIO minds talks with host Steve Ginsberg

Guest

Dion Hinchcliffe is Vice President and Principal Analyst at Constellation Research. He covers leadership strategies for The New C-Suite, Digital Workplace, and Internet of Things (IoT). Hinchcliffe is an internationally recognized business strategist, bestselling author, enterprise architect, industry analyst, and noted keynote speaker. He is widely regarded as one of the most influential figures in digital strategy, the future of work, and enterprise IT.

At Constellation, Hinchcliffe advises senior executives and top industry vendors on the strategies necessary to confront change and thrive in the digital era.

Transcript

Steve Ginsberg: Hi I'm Steve Ginsburg. My guest today is Dion Hinchcliffe, well known for his thought leadership in the digital workplace, enterprise IT, customer experience, Agile methods, CIO issues, and digital transformation. In this episode, we'll get Dion's insight into digital transformation and some of the most important changes facing the enterprise today.

Thanks for joining me today.

Dion Hinchcliffe: Thanks for having me, Steve.

I wanted to just start by asking, in your view what are some of the best ways to create effective digital strategy?

Well, strategy is a difficult topic when it comes to technology in general. We have a famous saying in the tech business that culture eats strategy for lunch, right? So the best-laid plans often don't survive first contact with the opposition. So when we find leaders that are successful at strategy, they're able to find ways of getting it executed on the ground, and they're able to then validate it and use the information they learn, things like Agile methodologies that taught us that.

When it comes to technology, it's very difficult for us to predict what's going to happen because it's a relatively new field compared to almost any other human endeavor, digital technology in particular. And so we find that the best strategies are ones that are more heuristics than they are detailed plans laid out in advance, which very rarely in the digital world ever come out in the way that you expect.

You make a great point there about getting the strategy through to completion. I wonder if you want to talk a little bit also about overcoming objections, or how the influence... once you're moving from strategy into implementation and kind of getting that ‘buy in’ that IT groups need?

Well, and it really depends on who's driving the whole strategy. Is it just the IT leader or is it the business leader? And it typically is not the two of them together. IT strategies usually have plans to kind of cross different business units. The different divisions are certainly different business systems. And so it's often very hard to get to, let's say, the CMO who's spending as much on digital as the CIO is in many cases now, on the same timeline with same priorities as, let's say, the chief financial officer or the Chief Supply Chain Officer. All three often have very different priorities and timelines.

And so cross-cutting strategy is notoriously difficult and then getting the ‘buy in,’ which requires a lot of negotiation and a lot of compromise, often going up into the boardroom and getting someone very senior, typically a CEO, to get everyone to agree on what that's going to be. And especially when we talk in terms of digital transformation strategy, which all of those have to be more aligned than almost ever before, that can be a real issue. And so we see strategy often being driven down into the organization, saying can we decentralize the strategy into a larger number of efforts, initiatives and projects that aren't so tightly linked. And then that can be carried out in a way that doesn't require so much lockstep execution.

Yeah, it's a good way to maybe avoid needing as much ‘buy in’ and as much consensus I guess. I'm wondering in that regard, how do you feel about the emergence of the Chief Digital Officer especially vis a vis the CIO roles?

Well, the challenge traditionally in IT has been that it hasn't really been a P&L, a profit and loss center on its own cost center. Its overhead, and so there's often been a lot of interest in making sure it's highly efficient, and that it costs as little as possible. Where if you look at digital businesses, they tend to want to spend as much as possible, invest as much as possible to gain market share.

So if you look at an Amazon or a Google versus a Sears or another traditional organization that hasn't done so well in digital, you see very different investment level [from] a technology company, a digital business that tends to spend twice as much on IT. And this is where the Chief Digital Officer role is typically somebody who has experience on operating aP&L, who has much more business experience than, let's say, IT experience, but typically have both. It made some sense in order to spearhead that side of IT as a business, but a long term... and we do see that.

I continually see announcements that the CIO is getting the CDO role added to them that's relatively new in the last couple of years. We see they still want one leader at the very top in charge of all technology decisions, although you end up with two IT leaders, two sets of priorities, two sets of strategy, two sets of foundations. And it is very difficult to make them both work. Often you see the CDO rolling up to/reporting up to the CIO these days. So I think... after these digital lines of business gets built out, I think that we're seeing that’s often getting rolled back into IT, and then expertise getting thrown back in, but you still see divisions as well.

Are you also seeing a similar or a different number of cases of CDO being tied to product organizations?

You definitely see the CDO being tied to product organizations and certainly spearheading even a new digital division. So it could be the product organization, or the new digital division. They're typically not grabbing nearly as much an IT Op to have a dotted line over there to the CIO, but there's often a direct report. You definitely see that.

And similarly, do you see ‘chief data officer’ making good sense in a lot of organizations? If so probably this is kind of the same, in some cases, that would be overlapped with one or both of these roles?

Well the data officer is a little bit more varied role, and we see organizations that are very data heavy, financial institutions in particular, but this can be seen in virtually any field: getting a data officer, when they see the importance of getting a consistent story around the organization's data and using it strategically, can't be done inside just an IT organization. So there might be a heavy scientific curve, a physical sciences component where there are...

I was talking to the American Geophysical Union the other day and they're sitting on a wealth of data. It is so broad that it far exceeds the scope of any IT department. They simply have to get a handle on creating master data around 80 years of scientific research, both structured and unstructured. How do they do that? And that's something that goes far beyond just the [IT] purview into the actual scientific advance itself from scientific literature, that the domain expertise doesn't exist in AI, and arguably shouldn't necessarily reside solely in IT, so more of a business function.

So you see in organizations like that, where data is so paramount and so rooted in what they do from a demand perspective, I think that the chief officer makes a lot of sense. And it's also that that's the key competitive advantage for the organization.

Yeah, makes sense [to me] as well. There's been a lot of hype around digital transformation, but I see you've done a lot of very detailed work in this area. What's your view of what really matters here?

Well you know there is a lot of trite phrases that still remain true about about the practice, right? Some folks I talked to say, “Why are we still talking about digital transformation?” And I think most organizations are going to be talking about it for the rest of the time that they're around. I mean we're in the very, very early days of digital. We'll be doing it for most likely hundreds of more years, and it's because of the exponential rate of technology change, it's going to be a very challenging topic for the foreseeable future for every organization. And so it requires new techniques that haven't existed before.

We haven't had to operate for an extended period of time in an exponential operating environment. And so a lot of the change that we're seeing is happening so quickly that organizations can't keep up. You know the famous smart tech flop: technology changes exponentially, but organizations change at best logarithmically. And so there's a widening gap between the operating environment and what organizations are capable of doing, are capable of keeping up. And so we need all new ways of adapting to the challenge. And we need sustainable ways of adapting to the challenge. And that's what a lot of the strategy that really is focused on the short term: how do we build some digital products? As opposed to: how do we stand a long term change in a way that we can do repeatedly and reliably when we don't... we're getting only the glimmerings of what those techniques are.

So in one sense, clearly if we look at organizations that have successfully ridden that curve, if you look at the Nike, the Burberry, the Disney and they do tend to be very consumer-facing organizations. They may have more decentralized change than they have in large big digital transformation initiatives. They tend to have autonomy in the business unit, yet they share innovation, they allow centric activity in the margins, but they have a strong corporate culture that brings these ideas together and they're able to pick the best pieces and share them with other parts of the business.

That seems to be a recurring pattern: the empowerment of change agents allowing innovators inside the organization to try things out and not be... High performing organizations usually highly penalize failure. They really prize that. But that's not necessarily true in organizations that do a lot of successful continuous digital transmission and there aren't that many examples.

It's interesting to see, so we're learning these new these new sustainability techniques in the exponential era. And it's just, we have to ride that curve, and so we are seeing the first frameworks [that] can cope with this. I've read a lot about this and I published a number of these frameworks kind of adapted as a hybrid from a number of organizations. And what they've done that's worked [is] that fast learning, fast experimentation, rapid measurements of what you've done and rolling that it's agile and the methods in the large... to some extent, but it's also much more wide-scale decentralized empowerment in organizations and also seems to be one of the key success factors.

One of the areas where you've talked about applying those is customer experience with worker experience and supply partner experience. How do you see these three coming together and what advice would you have for IT organizations there?

Sure. You know I'm not by any means the first person to point out that the functional structure of our organizations today was really invented in a different era. We're really focused on efficiency and functional specialization, and the industrial revolution was based on that: we could do the same thing over and over again. You could do it a lot faster, we could do each piece of the process individually with highly varied processes in particular. But today when everything is automated, that's no longer true.

And what's more important, the most important boundary right now in our organizations is the one between us and our customers. And that's become incredibly sophisticated and complex. Whereas we used to have a few relatively standardized touch points, we now have dozens, sometimes hundreds for certain types of organizations, digital touch points with our customers. They expect to know us at each one of those, and be able to pick up the conversation where we left off. In these increasingly complicated pictures of the journey that a customer takes, and learning about us and wanting to do business with us, and learning to work with us, we use our services to grow with us and learn and then stay with us as customers. And that requires a very sophisticated set of features that’s offered from the entire organization.

And typically throughout history, we've grown the customer from marketing to sales, to delivery or operations, then to customer care and other resources; and we might periodically reach out to them in another... with our product innovation which are in need of learning about what they know about our products. And each one of those is essentially a different set of people and a different set of conversations. And it works very poorly now, and so what I've proposed is that we really need to organize our businesses around three main streams: that's the customer experience, the worker experience and the supplier experience. Those are the three big boundaries and three big work spans and they're actually connected.

And so workers being employees and contractors?

Yeah, you don't want to say employees, because companies are quite a complex set of people that deliver the services and in contracting now, with the gig economy, getting even ‘on demand,’ that there's now whole services that hire teams on demand for a week to complete something. It could be a development project, a creative task or drill an oil well for you. For that example, it's all visually delivered.

So when you look at supplier partners, I assume you're saying that they’re grouped with similarities, but you'd still make distinctions about how the business manages those relationships as well?

Yeah. And a lot of suppliers are highly strategic in their business partners, and they have a lot of different rules and different capabilities that are enabling and constraining them. Your business partners have a different staple than workers, for example.

Are organizations doing well organizing around these principles and kind of managing to each, with both collective and individual focus?

Yeah well, we have this interesting tendency in the tech business that once you see a solution, we think that everyone should somehow be able to change and easily adapt it and use it. I remember I used to say, “well it takes organizations 10 to 15 years to adopt Agile methods” and people scoff and say, “well that's what we should do. It should take us no time at all.” But change involving technology really involves people, and that's the hardest part. It's easy to change technology, it's relatively hard to change people.

And I would put forth that such a fundamental change to our organizations when there's so much history around you know the C level roles, and these functional specializations, and that's why everybody is still part of that school, I would argue that you're talking about a much longer term gradual change. I think it's inevitable because you now see so much effort, for example, reorganizing things around customer experience, that's the big differentiator.

If you look at the number one factor that determines profitability for example, right now if you look at the Watermark Consulting S&P 500 benchmark, the customer experience leaders greatly outperform the S&P 500, where sales and marketing leaders underperform it. It's the biggest discriminator, and so if your company's really trying to figure out how to better organize, they're kind of doing tactical experiments like adding a chief customer officer,as opposed to if you if you're really going to do it, you really have to organize around the most important thing that matters to your business, I think you're talking about a change that's going to be inevitable, but takes more like 20 to 30 years. So we can say that the average organization has been structured that way.

How do you think IT organizations should view investment in this era?

Well I feel organizations have often been constrained by, for example, the quarterly profit cycle, so the business desire to turn in regular performance numbers on short increments, and that works when everybody was playing by the same rules, but you have certain technology companies which are plowing in all of their profits into becoming a leader in their sector, even despite what being punished by the market, understanding that if they don't do that, that there may not be a future.

So organizations like Amazon.com and Jeff Bezos famously plowed in virtually all of its profits and took very little profit taking for year after year after year, and they were able to withstand it, knowing that if he didn't invest everything that he could, he realized he couldn't maintain that number one position. That's a very different cycle than most IT departments which, aren't perceived as being the business.

And also the traditional organization is saddled by another issue which I've talked a lot about in industry with a lot of CEOs, written a lot about, done a lot of talks about which is: a major off balance [sheet] liability called technical debt. Most organizations, especially older organizations, have you know 20, 30, 40 years of legacy systems, a hundred thousand person organization typically has 2500 to 3000 applications that run the business of varying age and maturity. And then 90% of the IT budget is spent maintaining and keeping those alive as opposed to driving innovation. There's very little money in a traditional organization that isn't already being spoken for by keeping the lights going on the existing system and paying down some technical cash. But it's this making expedient decisions to deal with the schedule realities, budget realities of today and putting them off to tomorrow, for a CIO officer to deal with.

So it sounds like a part of that is that you encourage organizations to take a firm look at what legacy products they have, and can they be retired, and ‘up leveled’ those type of things?

Well that, and some of that is technical, then there are all of those hundreds of expedient decisions that were made over the years that have to be kept, that expects the organization to move fast. Often what happens is the organization decides ‘let's move quickly let's organize better,’ and then they're faced with the realities of these mountains of technical debt and hundreds of legacy systems which are holding them back. And they have to remediate a lot of them before they can begin to innovate.

So their customers' data may be scattered across all of these things and access to them may be hampered by technical debt. And then the board wonders why they can't move as fast as their digital competitors, digital competitors which have comparatively fewer legacy systems that have less technical debt.

I tend to think of this in part over the years as: it would be great if everything is in one database. But then it also would not be great if everything is in one database.

On the tech side of the world, you've also written [about] how microservices will become the core business strategy for most organizations. How are you seeing this play out?

So I see this actually happening, which is one of the reasons I wrote that that every organization realizes that they have to unleash their data to serve the rest of the business and their customers. And so the ways of doing that has typically been the application programming interface, the API, which a lot of people, their eyes glaze over when they hear about the plumbing of IT, but it's not that... it's Amazon built one of the world's largest digital business on this concept of opening up your business for use by others programmatically, so I'm connecting my business to your business live. It's the ultimate real-time supply chain.

And for example, I was talking to the Centers for Medicare and Medicaid and they already process 25% of all of their transactions through their API, and they have come to the sudden realization that well, pretty soon that's gonna be most of their business. But they have to design... they have a bunch of ad hoc kind of evolving APIs that kind of grew up more accidentally than as a deliberate corporate [or] organizational strategy. And they realized that well, if this is the future of how their business is going to run most of the business is going to operate through their microservices, which is the current way of kind of saying “let's create a master review of our business view of our organization through these interfaces that is designed for the long term, is designed to be managed and governed properly” that they probably need to think differently and design it differently than they have in the past. That was just something that some parts of the organization did on the ground.

So they had a bunch of APIs designed to different parts of the organization that didn't really fit together. They weren't designed to work together, they weren't part of a cohesive whole. And I think most organizations are finding themselves that way. And certainly tech companies have gotten their religion. Microsoft has made what the CEO, Satya Nadella called their ‘big net,’ which is Microsoft Craft, which is basically microservices for everything that Microsoft offers for company access to all of their own data through one master set of microservers.

So tech companies are doing it, big government is doing it, the financial services companies are all adopting microservices, because this is the way to be part of a modern digital supply chain, to build an ecosystem, to be a platform to do all the things that it's supposed to, to be a digital company.

We've certainly drawn some similar conclusions here at GigaOm. Are you, therefore, seeing most companies looking at a hybrid cloud or multi cloud or both, strategy?

Well, I think the ship has sailed. I hear about these conversations and you know every organization today is already multi part, right? So whether it's just software as a service (SaaS) and you have one official, let's say public cloud provider, but every organization using multi cloud just has to realize it. So you have to have a multi cloud strategy that says... “Where's my data? What are we paying for? How secure is it?”

The dream, of course, is to be able to move workloads around to wherever it makes the most sense, the infrastructure as a service (IaaS) provider of your choice with the software stack and applications of your choice be able to make them match. Those days will eventually come, and we're seeing more and more providers coming to that logical conclusion. Like SAP famously made the high end of so many business systems that you [can] run anything in any other of their applications on almost any cloud that you wish, realizing if they don't do that, they'll be the first to do that then, they're not the most appealing. They're not the ones offering a choice and offering a bigger game.

So I think that you have organizations who already really live very much in a multi cloud world that we have to build strategies around, and that we can then... we have to get vendors to help us live in that world.

You mentioned SaaS applications and of course, as you said, it's no secret that most organizations are moving vast amounts of their IT productivity and kind of digital workplace to SaaS applications one way or another. You've done some writing on digital workplace as well. How do you see that rolling out over time, maybe in the next year or two specifically?

Well, I think with the advent of things like Office 365 which is almost entirely cloud, I mean almost all ‘net new’ IP is cloud these days. Even though I think it's still about only about 85% of IT is on prem today. You look at the global numbers and 50% is cloud. Cloud is growing and on premise is shrinking dramatically for new projects and so that's how that transition is happening, and that's particularly true of digital workplace which isn't viewed as core IT necessarily. If email goes down for half a day it's really bad, but it's not going to get a front page of The Wall Street Journal event as if your order system or your supply chain went down. It's often because SaaS is considered a safe choice for employee productivity tools.

And now we see the employee productivity tools, that space is proliferating in a way it's hard to believe. There's dozens of new applications being made available every week, major new applications because it is becoming more specialized and more nuanced, and the average worker has five times as much IT as they did let's say seven years ago five times as many IT applications that they need to do their job. And so you see the only way to feel that much IT and support it and keep it updated is to do this in the cloud. Cloud does result in much less overall technical debt, less on a legacy challenge because it's easier to keep updated and to manage. So that's exciting but it's also a challenge and opportunity for workers.

Obviously, this will vary a little bit by organization, but as you look across all of this change, what would you say are the most valuable things that CIOs and their staff should be working on in 2019?

So that's a great question. The number one thing that the CIO and their staff should be focussing on is how they can deliver a better customer experience, for the best in the business. Reaching out to their counterparts, their chief marketing officer, their sales officer, the COO, and say, “do you have everything that it takes, what you need from me?” I think also preparing the organization for digital transformation is absolutely key. We see the best success stories didn't just leap into digital transformation. They looked at: Are we ready, do we have the talent, what are the other submerged obstacles, things like insufficient long term spending, reducing technical debt, getting the master data story together?

There's a lot of preparatory work that, if we look at particular cases studies, talking about Nordstrom for example. A recent Harvard Review Business case study showed they spent a couple of years getting their house in order, and then they were able to move fast. So you have to move slow sometimes, to then move quickly and that's a recurring lesson.

Those are key areas, and then I think just cultivating talent in general. IT is changing more than it ever has, the complexion of it, in terms of talent and being trans-disciplinary, much more connected to the business, much more business savvy, much more data science heavy, and much more innovation-centric. You need to have both business builders and entrepreneurs, as much as the hardcore technology folks. So building that talent base, is [what] CIOs are having the most difficult time with right now. The bench is small and the offense is to create your own talent, that would be third mega talent tool I would say.

Any tips for how to do that last piece?

Well, I think that, as I alluded to, you're going to have to hire the talent. You're competing against the biggest tech companies in the world that are trying to hire the smartest people in the business, and that can be challenging, especially depending on your geography. The next best way is to mint the talent yourself. Educational resources are the best quality they've ever been for bringing up IT managers and senior staff. I talk to a lot of IT CIOs and the challenge, it tends to be towards the top half of talent pool that gets very, very offended, including people that have built digital businesses successfully, and know IT, and can work with the best and collaborate with them effectively, and do all of these new things that we're talking about here. So the ranks thin dramatically.

So you need mentoring and apprenticeship programs that have heavy real time educational components. We now see both traditional universities providing continuing education designed for this, as well as these amazing on demand learning capabilities, these massive open online courses designed for the middle manager for IT, if you look at Princeton and Harvard, are making these major investments, making these openly available for anybody who wants to learn about this. It's a great time to do that, it's faster, easier, and cheaper than it ever has been. We have to make time for our employees, our ‘up and comers’ to take advantage of that. That's the challenge. If you can't hire them, you're going to have to create your talent bench yourself.

Turn to building them.

Yes exactly.

Well great! Thank you very much, and I appreciate you joining us and sharing your insights with us today.

Thank you very much for having me.

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