CIO and IT Transformation: IT is the New Raw Material

In the old days, the CIO was responsible for delivering IT infrastructure to increase worker productivity. Increasingly, IT is part of the products we buy, in effect, becoming a new raw material for the business. And this requires a different kind of CIO leading radical IT transformation initiatives.

The best way to illustrate this transformation is by looking at Toyota, one of the largest car companies in the world. Over the last couple years, Toyota, GM, and Volkswagen have all been jostling for the top spot. In 2010, Toyota produced more than 8.5 million vehicles.

A decade ago, a Toyota CIO (and there are multiple) might have been concerned with a long list of traditional IT issues:

  • Is the email system working reliably?
  • How’s the new Windows desktop rollout going?
  • Will I be able to increase headcount next year?
  • Is the expanded ERP initiative paying dividends to help lower production costs?
  • Did my budget request to build a new data center get approved?

In other words, the CIO’s main concerns were keeping everybody else productive and keeping a lid on his own cost structure. From an accounting point of view, the CIO’s activities and initiatives rolled up into the “Selling, General & Administrative,” or SG&A, line of the income statement. The IT department was a necessary evil, overhead to be minimized. But this is starting to change as more and more products incorporate digital and information technology as features.

What used to be a simple vehicle that could take a driver from point A to point B, quickly and economically, built from raw materials such as steel, glass, and plastic, has increasingly become a mobile Internet node, chock full of wireless communications and entertainment features. A good example of that is Toyota’s Entune technology, which brings web applications like OpenTable and Pandora right to the drivers seat. Many of these features require backend, server-side infrastructure run by, you guessed it, the IT folks. Which means that IT is increasingly one of the raw materials that makes up the product, on the same level as steel, glass, and plastic. And that requires a massive shift in CIO thinking.

In this new world, the CIO’s cost structure will increasingly shift from the SG&A line of the income statement to the Cost of Goods Sold (COGS) line. Now, rather than focusing on worker productivity and support initiatives, the CIO is thinking about product introduction deadlines and the reliability of a digital feature that is very much in front of the company’s users on a daily basis.

Zack Hicks, CIO for Toyota in North America, is on the front lines. Hicks quickly recognized that to address new initiatives would require clearing the decks of some traditional IT tasks. He’s been aggressive about using cloud computing and has embraced Microsoft Office 365 to help create free resources to focus on product-level IT initiatives. Business Insider recently interviewed Hicks, and he described it thusly:

 “We have some awesome tech coming out in our vehicles,” Hicks says. The cloud has turned cars into the next big “connected platform,” as Hicks puts it—another way besides PCs, smartphones, and tablets to access Internet-based services.

Some examples:

  • Semi-autonomous vehicles that can help the elderly get around
  • Steering wheels that “can measure your heartbeat, respiration, blood-sugar levels, and send it to a doctor”
  • Cars that can send an alert if a driver’s health condition has become unsafe and needs medical help

All this because the company no longer makes its IT people manage email.

“It’s cool that our team is part of that and we’re not in the back office anymore,” he says.

The Wall Street Journal sees a similar shift happening and describes the transformation of the CIO into the “Chief Digital Officer,” responsible for all things digital within the 21st-century enterprise:

According to Gartner, 12 years ago 20% of IT spending was outside the CIO organization. Now, IT is becoming integrated into every nook and cranny of the business, used in just about every single function and department, and connecting to every stakeholder inside and outside the institution. This trend will only accelerate as our economy and society are going increasingly digital. As the digital revolution continues to impact every single aspect of the business, Gartner predicts that by the end of this decade, 90% of IT spending will take place outside the classic CIO organization.

The Chief Digital Officer is essentially the senior executive responsible for helping the organization transition into the 21st century digital economy and digital society. Here is how Russell Reynolds, one of the world’s top recruiting companies, describes the The Rise of the Chief Digital Officer:

“The challenges and opportunities for businesses in this digital age are enormous. Companies need to be fleet-footed to keep pace with changing technology and consumer behavior. Business strategies now must be seamlessly interwoven with ever-expanding digital strategies that address not only the web but also mobile, social, local and whatever innovation there may be around the corner. To help meet these challenges, companies are increasingly looking for a Chief Digital Officer (CDO) who can oversee the full range of digital strategies and drive change across the organization.”

This trend is unstoppable. More and more products are becoming “digitized” and connected in some way. These products will increasingly incorporate information technology into the product itself, shifting IT from a support organization to a more front-line role in product development.

As a new CIO or CDO responsible for these activities, you’re going to have to be well-versed in both technology and product design. You’re going to be focused on organizational transformation and the integration of all facets of the enterprise into its new “digital backbone.” The good news is that while the challenge is huge, the opportunity for forward thinking CIOs and IT departments has never been greater.

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