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A report from The Economist Intelligence Unit
A blended future:
The changing mix of IT service delivery and consumption
Sponsored by
A blended future: The changing mix of IT service delivery and consumption
Contents
About this report
2
Executive summary
3
1
Drivers of change
5
2
Business-unit needs
7
9
3
CIO response
10
4
Building a shared model
13
15
5
1
case study: Test and learn at Expedia
case study: IT service delivery at Kaiser Permanente
Conclusion
16
Appendix: survey results
17
© The Economist Intelligence Unit Limited 2014
About this
report
A new global survey of executives confirms a
changing mix in how IT services are delivered and
consumed both currently and over the next three
years. The survey was conducted by The Economist
Intelligence Unit (EIU) in December 2013 and
sponsored by EMC. Respondents include chief
information officers (CIOs) and line-of-business
executives (LOBs). The findings and insights
complement an earlier EIU study that assessed the
emergence of CIOs as strategic leaders in a setting
of continuous business and technological change.
John Kim, senior vice-president global products,
Expedia
Edward Mesrobian, chief technology officer,
Expedia
Phil Fasanso, chief information officer,
Kaiser Permanente
Julie Vilardi, executive director of emerging
technologies and clinical informatics,
Kaiser Permanente
The report draws on two main sources for its
research and findings:
Jeroen Tas, CEO informatics, solutions and
services, Philips Healthcare
l A survey that included responses from 205
executives worldwide whose responsibilities
involve the delivery and consumption of IT
services. A large majority of respondents are
personally located in Europe (40%), North
America (29%) or Asia-Pacific (23%). Nearly
50% of the companies represented in the survey
have more than US$500m in revenue, while
about one-third have US$5bn or more.
Respondents hail from 19 different industries,
with financial services (17%), manufacturing
(15%) and IT/Technology (13%) leading the
pack.
Judith Spitz, senior vice-president and CIO,
Verizon IT Strategy and Planning
l A series of in-depth interviews with senior
executives and academics. We thank them for
their valuable insights.
2
Interviewees
Klas Bendrik, group CIO, Volvo Cars
Jeanne Ross, director and principal research
scientist, Center for Information Systems
Research, MIT Sloan School of Management
Executive
summary
Information technology (IT) has a decisive impact
on what a modern organisation can do. So more
line-of-business executives (LOBs) want to control
IT directly to run their current businesses and
innovate for competitive advantage. “Technology
has advanced to the point where it is less expensive
to experiment with radically new experiences,”
says John Kim, senior vice-president of global
product development at Expedia, the world’s
largest online travel agency.
At the same time, chief information officers
(CIOs) and other IT professionals understand in
depth how technology and business processes
function and relate to each other, not only at the
departmental level but for the organisation as a
whole. “Almost any core capability in a modern
organisation involves mixing data with some kind
of business process,” says Dr Jeanne Ross of MIT’s
Sloan School of Management. “That’s where the IT
unit becomes so valuable. They understand what
technology can or cannot do.”
Both LOBs and CIOs acknowledge they must
work more closely, according to the EIU survey and
interviews, but not necessarily under the same
rules that governed in the past. LOBs want the
flexibility to use whatever technology and services
help them achieve their business goals. CIOs are
realistic about giving LOBs more influence and
control over IT decisions and resources. The result
is a changing mix of internally developed and
externally sourced technologies and third-party
IT services.
3
This Economist Intelligence Unit study,
sponsored by EMC, analyses the emergence of a
“blended future” of IT service delivery and
consumption in which the enterprise IT function
proactively markets its services to business-unit
customers, bringing the full range of internal and
external IT expertise to bear on business-unit
needs. In this scenario, IT and business
organisations collaborate closely to create
common service definitions and performance
metrics to gauge the real impact of IT on business
outcomes. The blended model transitions the roles
of both CIOs and LOBs away from just overseeing IT
assets towards managing risks and opportunities.
Key findings of the report include the following:
l CIOs and LOBs agree that the growing
availability of easy-to-use technology services
from third parties, along with employee
expectations for greater control over the
technology they use at work, is driving this
trend towards supplementing internal IT
capabilities with external resources.
l At present, LOBs are sourcing more
technologically mature third-party IT services
for their business units—services that are easily,
quickly or inexpensively acquired in the market
but are not ultimately responsible for a firm’s
competitive advantage. Communications (59%
of surveyed respondents), storage and back-up
(54%), servers (48%) and web hosting (44%)
comprise the lion’s share of third-party IT
infrastructure spend for business units.
l Greater adoption of external IT capabilities—
whether directly by the IT organisation or by the
business unit—will change the focus for CIOs
going forward. One-quarter of participants say
that CIO responsibilities for security, risk and
compliance management will increase
substantially over the next three years. Similar
percentages of respondents expect significant
expansion of CIOs’ roles for information
management and analytics (25%), IT services
management (23%) and vendor management
4
(21%). Only 12% of surveyed executives
anticipate that traditional CIO functions such as
technology infrastructure management and
internal applications development will increase
substantially over the next three years.
l The survey findings and interviews suggest a
service-centric rather than asset-centric vision
for enterprise IT, in which the internal IT
department acts more as an advisor and broker
of best-of-breed solutions to business units.
Sixty-three percent of LOBs surveyed say
third-party technologies and services brokered
from external providers but managed on the
inside will increase over the next three years.
1
Drivers of change
Organisations increasingly engage with their
customers and business partners through digital
channels and technologies. Therefore, how IT is
accessed and managed has a material effect on
what a modern organisation can do. It is not
surprising that more LOBs are looking to wield
technology as a native capability.
At the same time, because technology underpins
the vast majority of contemporary business
processes, IT leaders have unique insight into how
an organisation really executes its business. IT
professionals understand in depth how information
systems and business processes function and relate
to each other, not only at the departmental level
but for the organisation as a whole.
Q
Until recently, both CIOs and LOBs lived in
largely separate camps. CIOs focused on backoffice efficiency and stability of organisation-wide
IT systems, while most LOBs looked to IT for
business applications but not for competitive
advantage. But the rise of mobility, computing-asa-service, social media, and other technology and
consumer trends has transformed how CIOs and
LOBs deliver value to the organisation.
To gain more flexibility to respond to rapidly
changing conditions, both LOBs and CIOs are
moving towards a blended model of IT service
delivery that merges internal IT capabilities with
third-party services. Success under this new
paradigm requires at least as much organisational
Which of the following statements best describe the main forces driving changes
in the CIO’s role in your business?
(% respondents)
Business units and functions have increasing options and opportunities to acquire technology services from third parties
45
The consumerisation of IT and proliferation of easy-to-use technology services have complicated compliance with enterprise IT policies
40
Employees increasingly expect greater control over the way they use technology in their work
38
The consumerisation of IT and proliferation of easy-to-use technology services have reduced the need for centralised control of IT resources
26
The consumerisation of IT and proliferation of easy-to-use technology services have driven the IT organisation to serve
more as a provider of guidance and less as a provider of services
22
The company is trying to leverage IT in revenue generation or other strategic initiatives
21
Source: Economist Intelligence Unit survey, December 2013.
5
❛❛
It can’t just be an
IT innovation or a
business-unit
innovation for the
organisation
❜❜
Klas Bendrik,
Group CIO,
Volvo Cars
6
innovation as technology innovation.
The EIU survey and follow-on interviews reveal
that business units are taking greater control over
the IT solutions used in their operations and
decision-making. A little more than 80% of LOBs
say that they currently obtain IT services directly
from third-party providers or develop them on their
own, and more than half do both. Many LOBs are
bypassing internal IT channels to source external
technology and IT services because comparable
services are not available from corporate IT, or are
not timely enough in their delivery. This comes in
addition to the fact that IT capabilities have
become simple to buy on the open market. CIOs
and LOBs agree on the two primary drivers towards
supplementing internal IT capabilities with
external resources. Forty-three percent of CIOs and
45% of LOBs cite the growing availability of
easy-to-use technology services from third parties,
while 41% of CIOs and 42% of LOBs mention
employee expectations for greater control over the
technology they use at work.
However, this doesn’t mean that LOBs and CIOs
intend to neatly divide IT responsibility in half with
the CIO focused on back-office efficiency and LOBs
on innovation. Instead, both LOBs and CIOs
recognise the need to work more closely together
at both the tactical and strategic levels. “It can’t
just be an IT innovation or a business-unit
innovation for the organisation,” says Klas
Bendrik, group CIO for Volvo Cars in Sweden.
“Collaboration is about creating a corporate asset
that contributes to both top-line growth and
bottom-line efficiency.”
2
❛❛
The IT supply side
is not the major
limiting factor
anymore. We can
use our own
resources. We can
use somebody
else’s resources …
The question is
whether an
organisation can
absorb the
necessary changes
to use these
capabilities
effectively
❜❜
Jeanne Ross,
Director and Principal
Research Scientist,
MIT Sloan School of
Management
Business-unit needs
LOBs do not seek to own or control IT for its own
sake. LOBs seek agility. Faced with customers who
can review products and prices with their mobile
phones and share positive or negative experiences
on social networks, business units must pivot to
become more oriented towards customer
experience. In such a rapidly changing
environment, LOBs want the flexibility to use
whatever technologies and services are necessary
to achieve their goals.
According to the survey, 46% of LOBs say they
obtain external technology services because
comparable services from internal IT are either not
available or take too long to deploy. Another 46%
Q
of LOBs want an IT services catalogue that lists
both internal and external capabilities that can be
tapped by business units. Most important, nearly
two-thirds (63%) of LOBs expect that the use of
external IT resources brokered by internal IT
departments will grow over the next three years—
far more than any IT services delivery mode.
The dramatic expansion of third-party IT offerings
is one reason why LOBs are increasingly requesting
external IT sourcing, according to Dr Jeanne Ross,
director and principal research scientist at the
Center for Information Systems Research at MIT’s
Sloan School of Management. “The IT supply side is
not the major limiting factor anymore,” she says.
Which of the following statements best describe your motives for obtaining IT services
from outside of your corporate IT function?
(% LOB respondents)
Comparable services are not available from corporate IT
46
Corporate IT is too slow in delivering services
29
Corporate IT is too expensive
28
External IT providers have a more client-centric approach to IT solutions
Solutions from external providers are technologically superior
28
26
Corporate IT is not adequately familiar with emerging technologies
19
Corporate IT imposes too many restrictions
16
Corporate IT does not understand the needs of our business/industry
10
7
Q
Which of the following IT services does your business unit develop locally or obtain from
third-party providers?
(% LOB respondents)
Communications (e-mail, messaging, telephony, videoconferencing)
59
Storage and back-up
54
Servers and computing
48
Web hosting
44
Analytics
42
Employee collaboration and file sharing
40
Information or data services
38
Mobile applications
36
Customer relationship management
34
Other business process applications
34
Social media
Partner/Supplier collaboration
30
25
“We can use our own resources. We can use
somebody else’s resources. We can outsource. We
can use cloud. Basically, if we want to do something
with IT, we can do it. The question is whether an
organisation can absorb the necessary changes to
use these capabilities effectively.”
The survey reveals that, for now, LOBs are
sourcing more technologically mature third-party
services for their business units. LOBs are
typically focused on business-unit-specific
solutions and services that are easily, quickly or
inexpensively acquired in the market but are not
ultimately responsible for a firm’s competitive
advantage.
Concurrent with greater demand by LOBs for
external sourcing is a re-evaluation of the metrics
for gauging IT value by CIOs and other
management. For most of its history in the
enterprise, the value of IT was measured largely by
operational-level metrics such as cost per stored
megabyte, cost per transaction, or IT availability
8
metrics such as uptime and mean time between
failures. These metrics were important for
maintaining IT efficiency and resiliency. But they
were too removed from measuring the value of IT
for business outcomes in terms that could be
understood by most LOBs.
A focus on operational metrics was not unusual
for many large organisations. Much of the past
decade’s enterprise IT spending was aimed at
automating and streamlining existing business
processes to go online. Only in the past five to
seven years have many large organisations
completed the process of transitioning to digital
channels as a primary means for interacting with
customers and business partners.
According to Judith Spitz, senior vice-president
and CIO for Verizon IT Strategy and Planning, that
heavy lifting has enabled the company to change
its view of IT from primarily a transactional partner
that delivers operational efficiency to a strategic
partner that improves customer service and drives
case study: Test and learn at Expedia
❛❛
We are strategic
partners in the
business’s success
and are measured
by the same
yardstick as our
marketing and
operations teams
❜❜
Expedia Inc is the largest travel company in the
world with an extensive portfolio of online travel
brands, including category leaders like Expedia.
com and Hotels.com. Collectively, Expedia brands
operate across 150 travel-related websites in more
than 70 countries. In 2013, the company recorded
nearly US$40bn in gross travel bookings on over
400 airlines, more than 260,000 properties, and
dozens of cruise lines and rental-car companies.
According to John Kim, senior vice-president
of global products, Expedia enables its millions
of users to navigate complex choices related to
travel within an interface that is both intuitive and
fast. In such a massive, high-speed environment,
product development decisions involve a balancing
act in which innovation must be justified against
the investment of talent and resources required to
bring a new feature up to Expedia-level scale. “For
example, we know that customers would love to
see new ways to view pricing for flights, hotels and
other travel services. We also know that building
these types of experiences can be both very complex
and very expensive. What makes this a complex
problem is there are infinite possibilities for how we
do it. But we don’t know if it is worth our time and
effort, for any given option, unless we go out and
test it,” he says.
Testing, in this case, means that multiple
revenue growth. That switch has changed the
metrics against which IT value is judged. “Years
ago, IT was measured in transactional terms—how
often did we deliver projects on time and on
budget, what percentage of the requirements did
we deliver? Those metrics are nothing more than
table stakes now. Today, IT is measured by whether
Judith Spitz,
Senior vice-president and CIO,
Verizon IT Strategy and
Planning
9
versions of the Expedia.com website are running
live with a portfolio of features across the globe
at any one time. Not only must these websites
function properly for booking travel, but the
websites must also generate data and insight that
help guide product development decisions.
Moreover, effective product innovation
involves more than experimenting with the user
interface. Edmond Mesrobian is Expedia’s chief
technology officer in charge of ensuring that
back-end performance enhances the front-end
customer experience. According to Dr Mesrobian,
there are infrastructure and back-end operations
decisions that can’t be boiled down to simple
business decisions. For example, Expedia procures
fraud control services from a third party, but not
necessarily because of lower cost. “The goal is to
partner with best in class, especially when you’re
trying to crack a problem that is not core to your
business model and yet you need to be world class
at executing against it,” he says.
Both executives collaborate closely because
any new product or feature results from highly
interconnected IT systems in which innovative work
on the front end must be understood in the context
of how it affects the back end. In that sense, the
test-and-learn methodology runs through one
continuous fabric.
we are enabling a competitive advantage for
Verizon—are we delivering shareholder value in
terms of the customer experience, simplifying the
businesses, helping to win and retain customers?
We are strategic partners in the business’s success
and are measured by the same yardstick as our
marketing and operations teams.”
3
❛❛
Today, we get the
best IT
capabilities into
our business when
we mix internal
and external
resources
❜❜
Klas Bendrik,
Volvo Cars
CIO response
CIOs are realistic about a certain level of external IT
procurement by LOBs. Increased consumerisation
of IT means that employees, customers and
business partners will bring in IT assets and
capabilities that have not undergone an explicit
approval process by the organisation. And some
CIOs are embracing external IT solutions as
aggressively as their LOB counterparts.
Although automotive manufacturing and
healthcare seem worlds apart in terms of industry
concentration, both Klas Bendrik, group CIO of
Volvo Cars, and Phil Fasanso, CIO of healthcare
company Kaiser Permanente, told the EIU that
their organisations start with the assumption that
the first place to look for IT solutions is the
Q
external market. “Today, we get the best IT
capabilities into our business when we mix internal
and external resources,” Mr Bendrik says. Mr
Fasano concurs that once an organisation reaches
a certain size, it is virtually impossible to generate
internally all of the needed IT solutions. “We start
with the bias that we are going to buy our IT
capabilities,” he says.
Greater adoption of external IT capabilities—
whether directly by the IT organisation or by the
business unit—will change the focus for CIOs going
forward. Policy-setting for how data are secured
and made legally compliant is becoming more
top-of-mind. One-quarter of survey participants
say that CIO responsibilities for security, risk and
How will traditional CIO responsibilities change over the next three years?
(% CIO respondents)
Increase substantially or moderately
Decrease substantially or moderately
Security, risk and compliance management
68 1
Information management and analytics
64
3
Business strategy and consulting
63
4
Services management (including provisioning, metering and billing)
62
5
Vendor management and services brokering
57
3
Technical consulting
51
7
Infrastructure management
50
12
Applications development and management
49
12
10
Q
How important will the following skills be to enable CIOs to lead IT adoption and deployment
across the enterprise under evolving service delivery models?
Please rate each skill from “essential” to “unimportant”.
(% CIO respondents)
Essential or important
Somewhat unimportant or unimportant
Innovation skills to serve as a change agent and propose business solutions outside of traditional boundaries
81 2
Communication skills to collaborate more effectively with business stakeholders and lead by persuasion
80
Organisational knowledge to understand the needs of diverse business units and integrate those into enterprise-level strategies
79 1
Business skills to participate in high-level strategic decisions across the enterprise
78
IT security skills to mitigate the risks of a more decentralised IT delivery model
74 1
26
❛❛
LOBs and CIOs
need to design
the high-level
flow of work and
data in the
organisation, so
somebody can
build all of the
connecting parts
❜❜
Jeanne Ross,
MIT Sloan School of
Management
11
33
compliance management will increase substantially
over the next three years. Similar percentages of
respondents expect significant expansion of CIOs’
roles for information management and analytics
(25%), IT services management (23%) and vendor
management (21%). Only 12% of surveyed
executives anticipate that traditional CIO functions
such as technology infrastructure management and
applications development will increase
substantially over the next three years.
Taken together, the survey data suggest that CIOs
are expanding their role to manage a portfolio of IT
capabilities that include internal infrastructure
assets, local and externally developed applications,
and third-party IT services. Some of these
capabilities will originate from the IT organisation.
Perhaps just as many IT capabilities will be
developed or sourced directly by LOBs.
The broader sharing of responsibility by CIOs and
LOBs for IT service delivery is driving increased
cross-fertilisation of human resources among IT and
business units. Says Dr Ross: “Back in 2000, we
coined the phrase, ‘download IT to the field’, which
captured our push to get IT professionals out of their
cubicles and into the call centres, the trucks and the
business offices to truly understand how work was
done and what the user and customer experience
was really like. Requirements documents are far
inferior to first-hand observation and real-world
experience. We also recognised that to deliver value,
the technologists and their business partners
needed to be comfortable in each other’s back
4
5
yards.”
Nearly every CIO the EIU interviewed agreed that
exchanging talent across departments is a key
factor in making a blended IT delivery model work.
That exchange happens at the executive level as
well. More LOBs are participating actively in
enterprise IT governance, and CIOs are playing
greater roles in business strategy formulation,
injecting more technology-driven opportunities
into the strategic mix. In these and other
leadership forums, LOBs and CIOs work together to
understand the flow of data, work, decisions and
analysis across the enterprise.
According to Dr Ross at MIT, business-unit
leaders need a “technical friend” who both
understands technology and can access the
resources and talent necessary to execute projects.
LOBs must also provide a clearer vision of how a
business process must function, what are the
critical workflows, how decision rights are
determined and what analytics need to be installed
to ensure that the adopted rules are actually good
business practices. “LOBs and CIOs need to design
the high-level flow of work and data in the
organisation, so somebody can build all of the
connecting parts,” she says. “At some level, this
isn’t new. It has just become so much more
important.”
Important, too, are a cluster of key skills that
CIOs need according to survey respondents.
Communications skills to collaborate more
effectively with business stakeholders (49%) and
❛❛
The IT skill
emphasis has
shifted internally
to more business
process modelling,
configuration and
integration
expertise
❜❜
Jeroen Tas,
CEO of informatics,
solutions and services,
Philips Healthcare
the ability to innovate solutions outside of
traditional boundaries (42%) emerged as the most
essential for adoption of new models of IT service
delivery. These skills will be at a premium as CIOs
anticipate even greater demands from LOBs in
areas such as mobility, Big Data and social media
that cut across IT service delivery models.
In addition to technology forces that are
pushing from the outside, it has become
increasingly difficult for large enterprises to
develop internal IT for just departmental or
business-unit use. According to Jeroen Tas, CEO of
informatics, solutions and services at Philips
Healthcare, the fact that multiple business units
must collaborate to develop a complete solution
for the customer means the desired skill sets for IT
leaders have evolved from focusing mainly on
systems analysis and application development.
“The IT skill emphasis has shifted internally to
Q
more business process modelling, configuration
and integration expertise,” he says.
Where does “shadow IT” fit in the blended mix of
IT delivery? Neither CIOs nor LOBs are in favour of
having business-significant information systems
initiatives outside the purview of central or local IT
organisations. However, they are also realistic
about the growing capability of individuals and
teams to meet many of their own information
needs. The survey reveals that while 68% of CIOs
regard shadow IT as counterproductive and actively
discourage it, 78% are mitigating risks by taking a
more proactive approach to information and
security across their organisations. Equally
important, slightly over half (55%) of CIOs say
their organisations are assisting lines of business
to make external IT procurement decisions by
disseminating catalogues of preferred external
services and providers.
Do you agree with the following statements about your company’s policies towards IT
that is implemented without informing or seeking support from corporate IT (“shadow IT”)?
(% CIO respondents who agree)
We are mitigating the risks of shadow IT by promoting a more informed and proactive approach to information and security across the company
78
We regard shadow IT as counterproductive and we actively discourage it
68
We explicitly forbid the use of shadow IT and we prevent or stop its use wherever we find it
61
We want to discourage shadow IT and we believe we can do so in positive ways by offering assistance from corporate IT
61
We assist LOB decision-makers to make their own IT decisions by disseminating a catalogue of services/providers
55
We dislike shadow IT but we recognise that LOBs sometimes adopt it for good reasons
54
We have liberalised our policies concerning shadow IT on the grounds that it is inevitable
43
Our policies do not encourage or discourage the use of shadow IT
38
Agree
12
Disagree
4
Building a shared model
Going forward, CIOs and LOBs point to partnerships
among internal IT, lines of business and third-party
providers as the standard way to do business. The
survey findings and interviews suggest the
emergence of a shared vision: an enterprise IT
function that proactively markets its services to
business-unit customers, bringing the full range of
IT expertise—including brokered third-party
solutions—to bear on business-unit needs. While
50% of LOBs surveyed say they expect to rely
increasingly on enterprise systems, storage and
networks deployed by internal IT over the next
three years, 63% say that third-party technology
services brokered by the IT organisation will also
increase over the same period.
Thirty-one percent of CIO respondents say their
organisations intend to adopt a service model that
offers fee-based services to business units and
Q
operates in parallel with external providers.
Internal IT transitions to a service-centric delivery
model by pooling assets that had formerly been
devoted to specific business units (and severely
under-utilised). With the help of virtualisation and
cloud computing, IT can deploy a general pool of
data, application and infrastructure resources
drawn upon by multiple business units that pay for
usage. The shared asset and services approach
drives up utilisation, drives down cost and gives
LOBs a better understanding of the relationship
between their units’ IT consumption and business
outcomes.
Of course, the challenge for organisations will
be to figure out what constitutes effective
brokering and delivery of IT services—whether
internal or external. Expertise in this area could
become a point of advantage in a world where IT
How will your business unit’s reliance on the following IT service delivery methods likely change
over the next three years?
(% LOB respondents)
Increase substantially or moderately
Decrease substantially or moderately
Third-party IT from external service providers, brokered by the IT function
60
10
Enterprise IT systems, storage and networks deployed by the corporate IT function
49
9
Third-party IT from external service providers, sourced by LOB IT specialists
42
13
Local IT developed internally by LOB IT specialists
35
18
IT solutions developed or sourced by individuals or small teams without control from either corporate or LOB IT
28
23
13
Q
Which of the following statements best describe your company’s strategy for transforming its
IT delivery model over the next three years?
(% CIO respondents)
We will increase the use of IT and business process outsourcing to reduce the need for enterprise IT services
32
We will transform our IT function to adopt an IT service model that offers fee-based services to LOBs
and operates in parallel with external providers
31
We are satisfied with our current IT service delivery model and we do not currently plan to revise it
25
We will work to compete effectively against third-party solutions
24
We will devolve many IT functions to business units
21
We recognise the need to re-think our IT service delivery model but we have not yet established strategic directions
15
costs and capabilities are far more transparent. In
addition, this evolution will require new skill sets
for both IT and lines of business. Organisations will
need to develop an innovation and collaboration
mindset at the top of CIO and LOB ranks, not simply
for cracking business problems at the enterprise
level, but also for operating at the ecosystem level
as more technology-based opportunities require
collaboration in the marketplace.
In the automotive space, the race to connect
cars to online services has become a strategic
imperative for every global player. Recently, Volvo
Cars and Ericsson struck a far-reaching
arrangement that includes communications and
information services managed by Ericsson for Volvo
cars. The driver signs up for various digital services
14
without knowing that Ericsson is running the back
end. Making this collaboration work starts with the
human resources mix, says Volvo Car group CIO Klas
Bendrik: “From an IT perspective, roughly one-third
of the staff working on connected cars come direct
from Volvo, one-third are coming from Ericsson or a
telecoms background, and one-third are being
recruited from outside industries such as retail and
customer service.” Such a diversity of talent not
only brings the right skills to bear on the current
challenge, but also sets the stage for further
innovation, says Mr Bendrik. “When you apply
different capabilities from different industries to
serve the customer, you open up pathways for
creating new experiences and benefits that feed
back to the ecosystem,” he says.
case study: IT service delivery at Kaiser Permanente
One way that
Kaiser Permanente
evolves its IT
capabilities is
embedding IT
executives at the
division level
across various
business units.
15
Headquartered in Oakland, California, Kaiser
Permanente (KP) is one of the US’s largest not-forprofit health plans with more than 9m members and
nearly 17,000 physicians. KP’s information systems
range from life-critical clinical systems to insurance
billing systems to patient self-help and marketing
systems to the corporate IT infrastructure that
serves KP’s 170,000+ employees.
According to CIO Phil Fasano, KP’s service
delivery strategy uses high tech to enable hightouch human delivery of healthcare services for its
members. Reaching that point requires sustained,
significant automation and innovation in IT. The
lynchpin for much of that automation has been
electronic medical records (EMR). EMRs have
emerged as the core data currency for all of the
various KP systems. However, the deployment
of EMR constitutes more or less table stakes for
modern health organisations. “All of the basic
elements of healthcare have changed over the
last seven years because of all the automation
that has been put in place. Now, we’re building
on that investment to take it to a new level for our
members,” says Mr Fasano.
One way that KP evolves its IT capabilities is
embedding IT executives at the division level across
various business units. According to Mr Fasano,
there are division-level CIOs for care delivery
systems, health insurance, corporate systems
and so forth. These IT executives participate in
business-unit meetings and are in effect part of the
staff of the LOB leaders. Their mission is to deliver
technology capabilities, whether developed inhouse or sourced externally, against the charter and
objectives of a business unit.
Goals and reality for IT innovation merge in the
area of new-product development. Julie Vilardi is
KP’s executive director of emerging technologies
and clinical informatics. According to Ms Vilardi,
over the past few years the consumerisation of IT
has penetrated even the highly regulated borders of
healthcare. For example, external providers are now
offering texting solutions designed for physicians.
Although most of these systems are compliant with
patient privacy laws (also known as HIPPA in the
US), the ease with which physicians can download
and use texting solutions required KP to jump in
front of the trend rather than trying to restrict it.
“We pulled a group together to perform a
market scan of all the solutions out there towards
making a recommendation,” says Ms Vilardi. “We
also communicated with selected vendors what
we believe should be our enterprise standard for
texting solutions. The other piece is that every
solution must go through security, compliance and
risk assessment before it’s officially accepted into
the organisation. Back in the office, we don’t tell
clinicians that they must install texting. But if that’s
a direction they’ve decided to go, we will tell them
which vendor they should use and why.”
5
❛❛
Business and IT
must craft the
customer
experience
together. That’s
when the magic
happens
❜❜
Jeroen Tas,
Philips Healthcare
Conclusion
In an environment of pervasive technology and
non-stop technological innovation, more
organisations are looking to CIOs to be architects
and strategists who can collaborate with LOBs
across the full range of business processes. At the
same time, lines of business are investigating
external technologies and services on an ongoing
basis rather than relying on a central IT department
to propose them first.
The goal of both parties’ evolving roles is
business agility. Agility means more than just using
new technologies. Agility requires an IT asset or
service brought inside of an organisation to be
integrated with the flow of data, decisions and
business processes that define how a modern firm
does business. “Success demands as much
operational innovation as IT innovation,” says
Kaiser Permanente’s Julie Vilardi.
The EIU survey and interviews pointed out that
progressive organisations are taking concrete steps
to adopt a blended IT service delivery model:
l CIOs and LOBs define target outcomes in
business-value language with business-relevant
metrics.
l CIOs and LOBs participate in leadership
meetings to determine which parts of an IT
portfolio comprise an organisation’s competitive
16
advantage and which execute the general
operating model.
l CIOs and LOBs directly embed specialists within
each other’s departments in order to learn each
other’s needs and capabilities.
l CIOs and LOBs develop common policies for
security, compliance and other organisational
standards for information systems and data to
aid internal IT development or external IT
sourcing.
l IT generates catalogues of approved technology
resources and services for LOBs, some of which
are internally developed and others that are
available on the open market.
The survey and interviews demonstrate that an
innovative mindset is the most important shared
skill for CIOs and LOBs moving to a blended model
for IT service and delivery. “It’s about having
people inside who can use all of these technology
capabilities to design and deliver a superior
customer experience,” declares Jeroen Tas of
Philips Healthcare. “And it doesn’t matter if we’re
talking about the CIO or the LOB. Business and IT
must craft the customer experience together.
That’s when the magic happens.”
Appendix:
survey
results
Several survey questions
were posed to CIOs only,
several to LOBs only, and
the remainder to all
respondents.
In your opinion, how effective is your company in each of the following performance indicators compared with its peers?
Percentages may not add
to 100% owing to
rounding or the ability of
respondents to choose
multiple responses.
Revenue growth
Please rate on a scale from “well above average” to “well below average”.
(% respondents)
Well above
average
Somewhat
above average
Average/On
par with peers
Somewhat
below average
Well below
average
Profitability
18
40
15
33
38
71
38
9
Market share
17
34
35
12 2
Innovation
15
39
33
12 1
Effective use of IT
11
27
40
20
2
Regulatory compliance
19
42
33
4 2
Which role in your company has primary decision-making authority for allocating resources to integrate new technologies
into the enterprise?
(% respondents)
CEO
CFO
CIO
CTO
Heads of
business
units
Internal business infrastructure technologies
24
9
41
Other
11
12
3
Technologies that focus on customer-facing functions
20
6
30
9
29
5
Technologies related to product/service functionality
18
7
28
14
28
4
If your company had to choose a single delivery model for all of its IT needs, which one would be most effective
from your perspective?
(% respondents)
Centrally provided IT (developed and delivered by corporate IT)
40
Locally provided IT (developed and delivered by business-line IT)
19
IT procured from third parties, brokered by corporate IT
25
IT procured from third parties, managed by business-line IT
11
Don’t know/Not applicable
6
17
Which of the following statements best describes the role of the CIO in formulating your company’s business strategy?
Please select one.
(% respondents)
The CIO is viewed as a key member of the executive team and participates fully in business-wide strategic decisions beyond matters that involve the use of IT
38
The CIO participates in business-wide strategic decisions, but only when these involve the use of IT
31
The CIO is seen mainly as a provider of IT services and is only consulted about strategic business decisions in which IT is considered a critical component
19
The CIO is seen mainly as a provider of IT services and is not consulted about strategic business decisions
7
5
Which of the following statements describe the role of the CIO in managing your company’s IT resources?
Please select all that apply.
(% respondents)
The CIO exercises control over all IT systems across the enterprise and must approve all additions and modifications to the IT infrastructure
51
The CIO is responsible for ensuring the smooth operation of the centralised enterprise IT infrastructure but does not control IT procurements
by business units for use entirely within their own operations
41
The CIO is the company’s principal IT strategist and leads the identification, selection and implementation of new technologies throughout the business
41
The CIO is the company’s top IT advisor and collaborates with LOB executives to help them make critical decisions regarding the use of IT systems
30
The CIO collaborates with the CTO to align IT strategies with broader business objectives
21
5
Which of the following statements best describe the main forces driving changes in the CIO’s role in your business?
Please select up to three.
(% respondents)
45
40
38
26
The consumerisation of IT and proliferation of easy-to-use technology services have driven the IT organisation to serve more as a provider
of guidance and less as a provider of services
22
21
6
Other
2
18
Which of the following statements best describes the role of LOB executives in managing your business units’ IT resources?
Please select one.
(% respondents)
LOB executives require corporate approval to acquire IT solutions for their business units
41
LOB executives can acquire IT solutions for their business units as long as they do not contravene corporate policies
22
LOB executives can acquire IT solutions for their business units, but they cannot duplicate or ignore core elements of the
enterprise IT infrastructure without corporate approval
22
LOB executives have complete freedom to acquire IT solutions
9
Other
3
3
Which of the following statements describes the role of LOB executives in developing corporate IT strategy?
Please select one.
(% respondents)
LOB executives do not fully participate but are consulted about business-wide corporate IT strategy whether it directly affects their business units
33
LOB executives participate fully in high-level, business-wide decisions concerning corporate IT strategy
25
LOB executives are consulted only about corporate IT strategy that directly affects their business units
25
LOB executives play little if any role in development of corporate IT strategy
13
Other
0
4
Which of the following statements best describe the main forces driving changes in the role of LOB executives in IT decisions?
(% respondents)
42
40
34
32
The consumerisation of IT and proliferation of easy-to-use technology services have driven the IT organisation to serve
more as a provider of guidance and less as a provider of services
26
26
Other
2
19
How will your company’s expenditure on the following IT service delivery methods likely change over the next three years?
Please select one in each row.
(% CIO respondents)
Increase
substantially
Increase
moderately
No change
Decrease
moderately
Decrease
substantially
19
46
28
5 2
14
26
44
8
8
Third-party IT from external service providers, brokered by the corporate IT function
14
39
40
5 1
11
24
51
6
8
18
27
39
8
7
Which of the following statements best describe your company’s strategy for transforming its IT delivery model
over the next three years?
(% CIO respondents)
We will increase the use of IT and business process outsourcing to reduce the need for enterprise IT services
32
We will transform our IT function to adopt an IT service model that offers fee-based services to LOBs and operates in parallel with external providers
31
We are satisfied with our current IT service delivery model and we do not currently plan to revise it
25
We will work to compete effectively against third-party solutions
24
We will devolve many IT functions to business units
21
We recognise the need to re-think our IT service delivery model but we have not yet established strategic directions
15
Other
4
2
How will traditional CIO responsibilities change over the next three years?
Please select one item in each column.
(% CIO respondents)
Increase
substantially
Increase
moderately
No change
Decrease
moderately
Decrease
substantially
Services management (including provisioning, metering and billing)
23
39
33
4 1
Vendor management and services brokering
21
36
39 2 1
Infrastructure management
12
38
11 1
39
Applications development and management
12
37
39
10 2
Information management and analytics
25
39
33 2 1
Security, risk and compliance management
25
43
31 1
Technical consulting
13
38
42
5 2
Business strategy and consulting
16
20
47
33 2 2
Do you agree with the following statements about your company’s policies towards IT that is implemented without informing or
seeking support from corporate IT (“shadow IT”)?
Please select one from each row.
(% CIO respondents)
We are mitigating the risks of shadow IT by promoting a more informed and proactive approach to information and security across the company
78
We regard shadow IT as counterproductive and we actively discourage it
68
We explicitly forbid the use of shadow IT and we prevent or stop its use wherever we find it
61
We want to discourage shadow IT and we believe we can do so in positive ways by offering assistance from corporate IT
61
We assist LOB decision-makers to make their own IT decisions by disseminating a catalogue of services/providers
55
We dislike shadow IT but we recognise that LOBs sometimes adopt it for good reasons
54
We have liberalised our policies concerning shadow IT on the grounds that it is inevitable
43
Our policies do not encourage or discourage the use of shadow IT
38
How important will the following skills be to enable CIOs to lead IT adoption and deployment across the enterprise
under evolving service delivery models?
Please rate each skill from “essential” to “unimportant”.
(% CIO respondents)
Essential
Important
Neutral
Somewhat
unimportant
Unimportant
Communication skills to collaborate more effectively with business stakeholders and lead by persuasion
49
31
16
4
Innovation skills to serve as a change agent and propose business solutions outside of traditional boundaries
42
39
16 2
Organisational knowledge to understand the needs of diverse business units and integrate those into enterprise-level strategies
41
38
20 1
Business skills to participate in high-level strategic decisions across the enterprise
39
39
18
5
IT security skills to mitigate the risks of a more decentralised IT delivery model
28
46
25 1
Other
13
21
13
42 2
31
Does your business unit develop IT solutions internally?
Does your business unit obtain IT solutions or services
directly from third-party providers?
(% LOB respondents)
(% LOB respondents)
Yes
Yes
57
81
No
No
40
18
Don't know/Not applicable
Don't know/Not applicable
3
2
81
81
Which of the following IT services does your business unit develop locally or obtain from third-party providers?
(% LOB respondents)
Communications (e-mail, messaging, telephony, videoconferencing)
59
Storage and back-up
54
Servers and computing
48
Web hosting
44
Analytics
42
Employee collaboration and file sharing
40
Information or data services
38
Mobile applications
36
Customer relationship management
34
Other business process applications
34
Social media
30
Partner/Supplier collaboration
25
Other
2
Increase
substantially
2
Increase
moderately
No change
Decrease
moderately
Decrease
substantially
Don’t know
How will your business unit’s reliance on the following IT service delivery methods likely change over the next three years?
(% LOB respondents)
Increase
substantially
Increase
moderately
No change
Decrease
moderately
Decrease
substantially
11
39
41
81
2
34
46
10
8
Third-party IT from external service providers, brokered by the IT function
10
53
27
10 1
4
39
43
12
2
7
22
22
47
11
14
Which of the following statements best describe your motives for obtaining IT services from outside of your corporate IT function?
(% LOB respondents)
Comparable services are not available from corporate IT
46
Corporate IT is too slow in delivering services
29
Corporate IT is too expensive
28
External IT providers have a more client-centric approach to IT solutions
28
Solutions from external providers are technologically superior
26
Corporate IT is not adequately familiar with emerging technologies
19
Corporate IT imposes too many restrictions
16
Corporate IT does not understand the needs of our business/industry
10
Other
5
3
What role does corporate IT primarily play when your business unit obtains IT solutions from third-party providers?
Please select one.
(% LOB respondents)
Corporate IT offers advice and assistance in identifying, selecting and implementing third-party IT solutions
44
Corporate IT actively brokers all arrangements with external IT providers
30
Corporate IT offers an optional brokering service to manage relationships with external providers
16
Corporate IT is not involved in our internal development of IT solutions nor acquisitions of IT from third-party providers
6
Other
1
4
What additional services would you like to be available from your corporate IT function that are not currently provided?
(% LOB respondents)
IT services catalogue that incorporates both internal and third-party offerings
46
Technical advice and recommendations
44
Guidelines for using third-party services
39
Staff from IT function embedded in our business unit
39
Brokering services for third-party services
27
Other
3
23
Do you agree or disagree with the following statements about the outcomes of your company’s IT delivery methods?
(% respondents)
Strongly
agree
Somewhat
agree
Neither agree
nor disagree
Somewhat
disagree
Strongly
disagree
Every business unit in our company has timely access to the latest IT solutions
13
45
18
18
6
16
6
Our corporate IT function is seen as an enabler of innovation
16
33
29
Our corporate IT function is open to new technologies and approaches
25
38
21
13
4
Our corporate IT function provides solid infrastructure for our core business processes
24
36
27
12
3
Our corporate IT function allows flexibility for business units
17
33
26
20
4
15
4
Our corporate IT function actively supports the acquisition of specialised solutions from third-party providers
19
35
27
What is the single most important challenge that your company faces in developing the optimal IT service delivery strategy?
Please select one.
(% respondents)
Encouraging the IT function, LOBs and third-party providers to work in partnership to develop innovative solutions to business needs
Strongly
Somewhat
Neither agree
Somewhat
Convincing LOB executives that the centralised IT function understands
and is in the best
agreetheir needsagree
norposition
disagree to address
disagreethem
19
Lack of business knowledge on the part of corporate IT specialists
13
Finding new ways of ensuring IT security in a more decentralised IT delivery model
11
Lack of technical knowledge on the part of LOB executives
6
Lack of necessary technical skills within the corporate IT function
5
Lack of senior management vision
5
Lack of financial resources
4
Other
2
24
Strongly
disagree
33
Don’t know
What are your company’s global annual revenues
in US dollars?
Which of the following best describes your job title?
(% respondents)
(% respondents)
CIO or equivalent
41
Less than $500m
20
SVP/VP/Director
$500m to $999m
35
21
Head of Business Unit
$1bn to $4.999bn
13
27
Head of Department
$5bn to $9.999bn
10
11
$10bn or more
21
What are your main functional roles?
Select no more than three.
(% respondents)
In which region are you personally located?
General management
42
Strategy and business development
(% respondents)
Western Europe
37
38
Marketing and sales
North America
25
29
Finance
Asia-Pacific
19
23
Operations and production
Latin America
16
4
Risk
Africa
13
2
Customer service
Middle East
12
2
Supply-chain management
Eastern Europe
8
2
R&D
6
Human resources
5
In which country are you personally located?
Procurement
(% respondents)
5
United States of America
Legal
28
3
United Kingdom
IT
25
0
India
Other
5
3
Singapore
3
Australia, China, Germany, Hong Kong, Italy, Japan
2
Are you involved in your business unit’s purchasing and
consumption of IT services?
Austria, Bahamas, Barbados, Belgium, Brazil, Canada,
Malaysia, New Zealand, Nigeria, Norway, Oman, Pakistan,
Sweden, Switzerland, Thailand, Turkey, Uruguay
(% respondents)
1
Yes
100
Do you have budgetary or profit-and-loss management
responsibilities within your area of the business?
(% respondents)
Yes
100
25
What is your primary industry?
(% respondents)
Financial services
17
Manufacturing
15
IT and technology
13
Professional services
9
Healthcare, pharmaceuticals and biotechnology
6
Chemicals
5
Energy and natural resources
5
Automotive
4
Consumer goods
4
Retailing
4
Aerospace and defence
3
Education
2
Entertainment, media and publishing
2
Government/Public sector
2
Logistics and distribution
2
Telecoms
2
Transportation, travel and tourism
2
Construction and real estate
1
26
Whilst every effort has been taken to verify the accuracy of this
information, neither The Economist Intelligence Unit Ltd. nor the
sponsor of this report can accept any responsibility or liability
for reliance by any person on this white paper or any of the
information, opinions or conclusions set out in the white paper.
27
London
20 Cabot Square
London
E14 4QW
United Kingdom
Tel: (44.20) 7576 8000
Fax: (44.20) 7576 8476
E-mail: [email protected]
New York
750 Third Avenue
5th Floor
New York, NY 10017
United States
Tel: (1.212) 554 0600
Fax: (1.212) 586 0248
Hong Kong
6001, Central Plaza
18 Harbour Road
Wanchai
Hong Kong
Tel: (852) 2585 3888
Fax: (852) 2802 7638
Geneva
Boulevard des
Tranchées 16
1206 Geneva
Switzerland
Tel: (41) 22 566 2470
Fax: (41) 22 346 93 47

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