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Implications of Michael Dell's Vision for the New Role of the CIO

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At Dell World last week, Michael Dell hosted a variety of speakers, most of whom pointed to a vision of a new CIO, one who abandons the under-the-hood, component level focus in favor of vastly increased attention on business processes and crafting and configuring applications to support them. While the vision represents a coherent synthesis that addresses most of the challenges facing CIOs, several implications of the vision deserve attention in order for CIOs to avoid serious errors.

The new vision for the CIO consisted of the following arguments set forth in a series of presentations by Michael Dell, Vivek Kundra, Marc Benioff, Paul Maritz, and a variety of Dell executives:

  • Too much IT money and time are spent on infrastructure tasks such as building data centers, constructing servers, and performance tuning that are better accomplished by outsourcers
  • The IT monopoly is over and it does not make sense to ignore that fact. CIOs cannot lead by saying no and exerting control. Rather CIOs must earn a leadership role based on their superior ability to manage complexity and their understanding of how technology can support the business.
  • CIOs are now, in effect, service brokers. They should act as portfolio managers assembling a coherent set of offerings from a variety of sources.
  • To be effective service brokers, CIOs must build skills in product management, product marketing, and customer satisfaction.
  • In order to bring focus to their efforts, CIOs must pay attention to identifying the core value-creating business processes.
  • Social media should not be confined to marketing but should be used by the entire company to create “big ears.” The CIO must embrace social media in internal and external communication.

The conference was a coming out party of sorts for Dell's integrated suite of IT products and services. Of course, it is no surprise that Dell’s offerings are tailor made to support this new vision. Dell wants to be the IT supermarket through which a CIO can find components and service offerings of all sizes. Dell wants to be a trusted advisor offering consulting services to help figure everything out and make it work. Dell wants to take responsibility for running large parts of the portfolio better than the CIO can with internal resources.

In my view, Dell is right on target with these offerings. Dell’s acquisition strategy is focused on buying companies that will help manage and supercharge a portfolio of service offerings. Dell is showing remarkable independence and good judgement in presenting its offering. The most compelling evidence was the slide that Michael Dell presented in which he offered to build private clouds based on either Open Stack or VMware’s vCloud. Private clouds are the safest way to learn what the cloud can do for your business and offering a choice between those two alternatives will cover the needs of most CIOs. It will be interesting to see how Dell balances this independence with its ambition to build an even larger portfolio of technology to solve even more problems for its customers.

Several implications of this vision deserve more attention. A CIO who doesn’t approach the role of a service broker in a sophisticated way will get skinned. CIOs must prepare from day one to be service brokers who get a great deal and have leverage in future negotiations. Here are my suggestions for how to prepare to be a savvy service broker.

Cost and Value Accounting

As I’ve pointed out in my articles on the skills deficit in IT management (”The Coming Crisis of IT Management”, “Eight Steps to Address the IT Management Crisis”) and the need for better IT risk management (“Elevating the IT Risk Management Conversation to the Boardroom”), IT must no longer be managed as a guild, with specialists running each silo in an informal manner. IT is a supply chain and it is vital that you understand the costs of running your supply chain before you make an outsourcing deal. If you don’t understand your internal costs, how will you know if you have a good deal? Most companies cannot answer simple questions about how costs are allocated over services they are considering outsourcing. This is not the foundation for a savvy negotiator.

Companies like Apptio offer the CIO products that allow a Bill of IT to be created to account for the value provided by a service as well as a highly granular cost model of that service. Technology Business Management, IT Financial Management, and IT Service Management are the names used to describe products in this space.

Cost and value accounting must continue after the outsourcing deal is done in order to be able to compare competing offers. CIOs should insist on a highly granular stream of information about cost and performance of the components used to provide services at the beginning of an outsourcing deal.

Monitoring Performance and SLAs in the IT Supply Chain

Monitoring performance and SLAs in an outsourcing deal is vital to getting the best deal and to gaining power in future negotiations. Using the stream of information that you negotiated for in the beginning of the deal, you can keep close tabs on the services you are consuming. Using this information, you can see whether SLAs can be adjusted as your needs change. Knowing how much you are paying for specific services is a great foundation for comparison shopping later on. Good accounting for the value being provided to the business sets the stage for expanding the ability to allocate costs to business units.

Most IT departments are not ready for this level of accounting and analysis. The CFO has been demanding that any new efforts in IT must be managed out of savings. The reason why is less discussed. Is the current level of IT spending magically what is needed forever? Most companies act as if this is true. To be an effective IT department, whether under a service broker model or not, IT must be better managed and this takes time, money, and effort. Some companies will realize this before they get into bed with an outsourcing deal. Many companies won’t figure it out until they are deep into a deal and realize they don’t have control over costs and cannot figure out a reasonable plan for escape.

Migration Strategy

It is not wise to assume that everything will work out when you first approach outsourcing. Most of the time it will, but there will be mistakes made in crafting the deals. Asking nicely is one way to modify a contract. Threatening to cancel and taking action to migrate usually works better.

Make sure you have a strategy for migration of all or part of your outsourced components. Insist on a clear definition of how data and meta data can be extracted to support a migration. Better still, make sure that your outsourcing deal supports migration tools. Estimate the cost of migration before you sign the deal.

Just raising the issues needed to support this type of IT prenuptial agreement will improve the deal you end up with. If push comes to shove, it will give you much more power in difficult negotiations in the face of problems.

Identifying Core IT Assets

The smaller your business, the more likely you can live completely with an outsourced arrangement. But even for a small business, there are certain things you really need to do for yourself, such as simple reporting and analysis. For medium sized and larger businesses, the ability to report on and analyze data is even more crucial. In addition there are likely to be a set of core applications that do exactly what you need that no vendor can ever provide.

A CIO seeking to be a service broker must be careful about what stays and what goes. At first, assuming everything must go is a good starting point: what Vivek Kundra, formerly the first federal CIO of the US, calls a “cloud first” policy. But outsourcing must be liberating, not confining. For most companies, a core set of applications and capabilities should stay in house so that you can make the most use of them for the least cost. The time and resources freed up in an outsourcing deal must be spent using these core assets to create even more value.

Process Focus

Most IT departments are overwhelmed. As I pointed out in a set of three articles on Enterprise Architecture (“How Enterprise Architecture Raises IT’s Game”,”Enterprise Architecture: Moving from Chaos to Business Value”,”Why CIOs Fail to Increase Awareness Through Enterprise Architecture”), it is rare for the CIO to rise above level 1 of IT management, which is the task of making things work as intended. In level 2, you align IT with the business, and in level 3 you optimize that aligned set of resources.

The crisis in IT management I mentioned earlier comes about because the natural inclination of CIOs is to focus on infrastructure, the guild system, and the lack of management training and resources. The net effect is that IT is perpetually at level 1. To rise above it, you need to improve IT’s management game. But let’s say you win that battle and rise to level 2. What should you do then? How should you align your efforts with the business?

A value-driven process focus is the answer. A CIO must organize planning and strategy about how to support the core processes of a company. An intimate understanding of current and emerging business processes provides the CIO with a solid foundation for making portfolio management decisions. Without a focus on process prioritized by how value is created, a CIO will end up with a huge to do list and no idea what to do next. Priorities will constantly shift based on who yells the loudest or has the most political power. Sound familiar?

The improved accounting lays the foundation for a process focus, and a deep analysis of how value is created finishes the job. Dell has adopted this approach for its own IT and is organizing its IT delivery by focusing on 5 key process areas. Before too long, I suspect Dell will be teaching its customers to organize its IT in the same way.

IT Customer Satisfaction

Paying attention to customer satisfaction may be the biggest challenge for CIOs. Every outsourcing decision must take into account the impact it will have on customer satisfaction. A company must feel that its lot has improved after an outsourcing deal, not that things have gotten worse.

The problem is that CIOs are often both unwilling and unable to measure and analyze customer satisfaction. Rackspace CIO Steve Mills explained during a panel discussion at Dell World how he keeps a staff of 3,700 “rackers” happy. Mills explained how a proactive, open, and listening environment allows IT to be an enabler of productivity. What Mills did not explain, but I found out about during a visit to Rackspace, was the way that the entire company uses the Net Promoter Score to monitor the success of all types of activities. Using this simple tool provides IT with a constant source of information about how well it is doing. More importantly, the information can be used to identify the factors that drive customer satisfaction up or down.

So, if you think that outsourcing is a no brainer, think again. Clearly, opportunities for the CIO to grow into a new role, tocreate more value, and exert a new kind of leadership are there for the taking. But outsourcing is just one piece of the puzzle. I’ve tried to identify some of the pieces that are important but often overlooked.

Dell isn’t naive. They know that they will have to support CIOs in their quest to grow in their role and to document that fact that they are getting a good deal. It wouldn’t surprise me if Apptio or other companies dedicated to improving the craft of IT management were one of Dell’s next acquisitions. But Dell, like any vendor, will play its hand well to get the best deal. It is important that CIOs prepare to do the same.

Dan Woods is chief technology officer and editor of CITO Research, a firm focused on the needs of CTOs and CIOs. He consults for many of the companies he writes about. For more stories about how CIOs and CTOs can grow visit CITOResearch.com.