IT Governance is Killing Innovation

Recent CEB research shows that work has become much more interdependent — employees increasingly need to tap a broader array of internal and external colleagues and partners to be successful in their jobs. The emergence of this new work environment has significant implications for how IT should enable business growth and, more specifically, for the kinds of investments IT should be making to support employees.

Unfortunately, when it comes to IT's ability to allocate investments in response to the new work environment, traditional governance processes prove grossly outdated. Some of the key challenges:

• Companies don't identify the very best ideas for investment because most capital allocation processes start with business partners' existing ideas about projects to fund. As we've noted in our previous blog, senior business partners might not be that knowledgeable about what actually drives productivity on the front lines.


• Companies allocate capital to the wrong investments because our traditional emphasis on ROI-based business cases undermines IT's ability to invest in high-return-but-hard-to-measure areas like improving knowledge worker productivity.


• Companies tend to spread their capital allocation bets too thinly across business groups or functions, often for political reasons. This practice helps 'keep the peace' but means that often the most transformational opportunities get short-changed.

Across our year of research into this problem, we have identified a select group of companies that are rethinking their governance and investment processes to circumvent the problems outlined above. 

 

Expand First, Filter Second
Most CIOs will tell you that they have no shortage of ideas to invest in — the hard part is whittling down to the right ones. Push that a bit further and what most CIOs say is that those ideas are in the form of project requests from business partners. The problem is that these "bottom-up" project requests often miss the big picture as too many are incremental or uninspiring. Yes, while most of these requests are vetted for alignment with corporate strategy, what's often missing is how these requests fit within a broader context of how the business overall generates value. Furthermore, this lack of context prevents organizations from identifying other investment ideas that have high potential but haven't bubbled up organically through project requests.

To address this challenge, a global transportation company we spoke with is using a strategic lens to expand the list of project ideas to find the ones with the highest potential corporate value, before filtering them. They start with a map of the company's critical business capabilities — those concrete business activities that are vital to meeting a strategic goal (e.g. rapid new product roll-out). Then, they look at the health of the information available to business leaders who manage those capabilities. They find this leads them into all sorts of overlooked opportunities and provides them with a good proxy for where IT investment can have significant business impact, which can better inform prioritization decisions. 

Prioritize Capabilities, not Projects
The currency of most IT project prioritization meetings is the ROI-based business case. As mentioned above, this measure works very well for comparing projects that deliver hard benefits, but undermine the ability to invest in critical capabilities that have a long-term payoff horizon or highly innovative capabilities where the payoff is uncertain.

A global high-tech equipment provider is taking a different approach. Similar to the transportation company mentioned earlier, they start with a top down view of critical business capabilities and pillars required to support long-term business strategy. Then, using customer preference measurement methodologies like conjoint analysis, they survey senior business leaders to determine the relative criticality of each of these pillars. Based on this — and before any projects are even discussed — they are able to map out the relative level of IT investment each capability should receive. So, if the business leadership agrees that capability A is twice as important to realizing their goals as capability B, capability A is targeted for twice as much investment. Projects can then be assessed on contribution to the needs of that pillar, rather than purely on financial metrics like ROI.

CIOs are being asked to arm employees with the capabilities required for success in a new, much more integrated and interdependent work environment. But to do that requires more than capital: it requires a different approach to making decisions and, specifically, rethinking traditional IT project-centric approaches to identifying and funding capital investment opportunities. 

Andrew Horne and Brian Foster

Andrew Horne, a Managing Director at CEB, works with the CEB’s membership network of Chief Information Officers, and leads global research teams in producing best practice case studies, benchmarks, implementation tools, and executive education. Brian Foster, a Managing Director in CEB’s IT Practice, oversees a global team that provides advice and consultation to a network of more than 2,500 IT leaders, including CIOs, enterprise architects, applications, infrastructure, security, and PMO executives.

5 Things Never Heard at the Most Innovative Companies

Kathy Gersch explains that while it may be difficult for your company to generate innovative ideas, high-tech start-ups and other companies we consider to have innovation built into their DNA have just as much difficulty maintaining their innovative edge.

The most interesting thing about the Fast Company Most Innovative Companies 2013 list isn’t who is on it. It’s who isn’t.

Writing about the companies who had fallen off the list (and were obviously upset about it), Robert Safian, Editor of Fast Company magazine said, “It’s not that these businesses suddenly lost their mojo. But in a climate where the velocity of change is accelerating, these companies didn’t have a compelling-enough breakthrough for us to highlight.”

Safian’s remark perfectly illustrates the essential element required for survival in today’s economic environment. If you aren’t constantly innovating, your organization is most likely losing its edge. If your innovations are incremental – not big enough to move the needle – you’re still losing.

What do the companies on Fast Company’s list like Nike, Uber, and Pinterest have that others like Facebook and Twitter don’t? Better new products – which came from innovative ideas, that’s obvious. The mystery is where these ideas come from, how they rise to get noticed, and then how they are brought to market faster than anyone else. This list is a reminder that some of the companies we’ve historically associated with innovation because of their brand name (3M, Facebook, and Twitter) aren’t immune to losing their edge.

While people have spilled much ink on how to create innovation, I’d like to offer an easier way to get there – by process of elimination. Let’s start with five things you will NOT hear at the most innovative organizations. Be on alert for them; These are clear indicators that your company is losing its innovation “mojo.”

1. “Can we do that?” Permission seekers are the mark of unclear company vision. If your company’s vision is clear enough, and has been communicated constantly and consistently, people do not come to you for permission, they come to show you what they’ve already done.
2. “We can’t do that.” On the flip side of the previous comment, you find the limitations or barriers people have set up in reaction to the punishment they’ve experienced for prior failures. If your people see others try, fail, then get punished, you can guarantee that people will remain in the safe spot. No one is going to try to innovate, much less try anything remotely outside the box ever again.
3. “We have to go through proper channels.” A mark of truly innovative companies is that the employees are well-networked, and they are constantly crossing silo walls to engage other departments, gather knowledge, or just get an outside opinion. Though one person may come up with the idea, nobody creates a great innovation solely on their own.
4. “That’s good enough.” In many companies, once significant progress is made, momentum slows and eventually the project fails. This is one of the key reasons 70% of change efforts fail. Yes, it’s important to celebrate incremental wins, but in innovative companies, people don’t let up – they continue to focus on the final prize. This only comes from a relentless focus on winning.
5. “That’s not my job.” This final phrase is the clearest indicator that people aren’t focused on the future of the company. If employees have a clear understanding of the vision set by leadership, no one will be talking in terms of their box on the org-chart. If you hear “us” and “them” language referring to internal teams, beware. Employees at innovative companies know it is always “our” job – we win together.

Stay on the alert to these dangerous phrases that might sneak into conversations in your organization. A great brand name no longer protects you from losing your edge. Remember Kodak?

Kathy Gersch is an Executive Vice President at Kotter International, a firm that helps leaders accelerate strategy implementation in their organizations. John Kotter is the chief innovation officer at Kotter International, and is the Konosuke Matsushita Professor of Leadership, Emeritus, at Harvard Business School.