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As the person with the CIO job, it is your responsibility to provide your company with guidance on how they can be successful. In order to be able to provide good advice, what we need to do is to take a look at other companies that have learned to use IT in order to be successful and take lessons from them. Good examples of such companies who realized the importance of information technology include Amazon, Google, Microsoft, and Facebook. If we take a look at how they have become so successful we’ll quickly start to realize something: they invest in their own technology.
The Secret Of Success In IT
Let’s face it, all IT spending is not the same. In the early days of the PC revolution IT firms went out and purchased their computers and software off the shelf. The next big thing that happened was that the cloud came along. When this happened companies started to switch to services that were being offered by the likes of Google, Microsoft, and Amazon. What we need to understand is that the services that were being bought could be customized. However, they were not custom.
What makes today’s leading IT firms such a powerful force is that they have spent their IT dollars on hiring developers and using them to create software that is both owned and used exclusively by them. This provides them with a key competitive advantage. What needs to be understood here is that the software that they have developed is used solely by the company and is not part of the products that they have developed for their customers.
The biggest IT firms got that way by going “all in”. They made the investment to build their own software and in some cases they even built their own hardware. . By doing this they were able to invent and perfect their own processes. This is in contrast to other firms that ended up aligning their business model with a model that an outside developer decided to implement for them. Back in 1985 companies spent roughly 7% of their net revenue on proprietary IT. In 2016 approximately 24% of a company’s net income went into proprietary IT.
Using IT To Gain A Competitive Advantage
This heavy investing by a firm into its own IT is a new thing. In the past, when new technologies were invented, they would diffuse to other firms with enough speed that productivity would rise across an entire industry. What appears to be happening now is that there is a slowdown in the diffusion engine. The person in the CIO position has to figure out what is going on. Part of it has to be that the IT technologies that have been developed are simply too complex to be copied. The newest IT technologies are huge and highly dependent on the engineers who created them. These technologies can’t be separated from the systems that they are linked to.
An historical example of a firm that used IT technology to gain a competitive advantage would be Walmart. Back in the day, Walmart created a complete logistical system that was based on bar code scanners. This technology permitted them to defeat their smaller retail rivals. A key part of their success was that they never sold their technology to their rivals. Companies need to be careful. Just spending money on IT isn’t enough. Once again, back in the day Sears used to be IBM’s biggest customer. Sears spent heavily on IT; however, they were unable to compete with Walmart and its systems. A big part of Sears problem was that they had hired an outside technology firm to do all of their IT work and never built the systems, talent, and infrastructure internally.
What CIOs need to understand is that in today’s highly competitive IT environment, perhaps the only way to gain an advantage on your competition is through mergers and acquisitions. This may be the only way for an IT department to get its hands on the critical IT technology that it desperately needs. The good news is that if a CIO can get his or her IT department to create truly novel IT technology, their competitors probably will not be able to copy it. With enough of an investment in the firm’s IT department, a CIO can propel the company into a leadership position that nobody will be able to catch up to.
What All Of This Means For You
Today’s CIOs are facing a real challenge. In the world of IT, certain firms are using their IT resources to jump ahead of the pack. CIOs need to take the time to take a careful look at the firms such as Amazon, Google, and Facebook and try to determine how they have been so successful. If they can figure out what they have done, then CIOs can perhaps find a way to emulate them and make their companies as successful.
In the early days of IT, companies could just go out and purchase hardware and software off the shelf and be competitive. Next came the cloud in which firms were reduced to configuring complex software to run their businesses. What firms need to do is invest in their own IT shops so that they can create a competitive advantage over their competition. The biggest IT firms got that way by being willing to invest in their IT shops. Technology used to flow from one company to another; however, that no longer happens. History shows us that firms that create their own IT solutions can be successful while firms that don’t invest in themselves won’t survive. CIOs may have to look at mergers to find the solutions that they need in order to keep their firms competitive.
It’s not going to be easy for the CIO to convince the rest of the company that making a larger investment in IT will create the long lasting competitive benefits that they are looking for. What CIOs need to do is to point out the firms that have been willing to invest heavily in their IT shops and have become big successes because of this. If CIOs can make their point, then their firms may become the next major IT firm that everyone else wants to be like.
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Department Leadership Skills™
Question For You: How long do you think a firm has to invest heavily in it’s IT shop before it will start to see results?
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What We’ll Be Talking About Next Time
CIOs who work for grocery store chains are undergoing some significant changes in their lives. It used to be that being a CIO who worked in the grocery business allowed you to focus on such issues as the delivery of items to stores, current inventory levels, and the tracking of food shipments when a contamination was detected. However, that has all been changed. Every year in the U.S. consumers spend over US$800B on grocery store food. More and more of that spending is starting to go online. Grocery store CIOs need to understand the importance of information technology and adapt to this change or risk being left behind.