The road to innovation is a bumpy ride

By Linda Tucci, Senior News Writer 02 Nov 2006 | SearchCIO.com

IT news and analysis for CIOs Digg This!     StumbleUpon     Del.icio.us

Innovate, that is. According to research from Stamford, Conn.-based consultancy Gartner Inc., 80% of CIOs say IT innovation is critically important to the business. Only 40%, however, act on this imperative by funding a project or naming someone in the organization accountable for innovation. And of the projects that are launched, 90% bite the dust two years later.

My role as the CIO would be to make sure that the technology itself is something that fits into an overall strategy of where the industry was going. Nick Christiano CIO, Health Quest Systems Inc.

So what? Well, according to another survey, this time courtesy of Deloitte, 70% of products on the market in 2005 will be obsolete by 2010. Companies need to push the envelope or perish. They must move beyond "current success" to "continuous innovation," said Gartner analyst Kathy Harris, who prepped IT execs on innovation at the recent Gartner Symposium/ITxpo. IT departments that are good partners to the business will find ways to foster innovation.

Most companies, when they do innovate, innovate from crisis, usually because revenue has declined or costs are out of control, Harris said. Innovating from success is much harder, but it can be done. IBM, under CEO Sam Palmisano, is a good example of a company that was able "to shift from success to innovation," she said.

Mere mortals can innovate, too

Harris said innovation tends to take three forms. Companies innovate their way to a big jump in revenue and operational performance; companies innovate by changing their organizational structure, a "moving the deck chairs" approach to charting new territory; and companies use their bleeding-edge customers to point them to the future.

(To capitalize on the third approach -- letting the boldest customers lead the way -- Harris says you need to systematize interactions with those customers but not box them in. For example, an online forum that asks open-ended questions generates more ideas than the usual requests for feedback.)

A "first-mover" or "Type A" company, like Microsoft or Accenture Ltd., invests millions in research and development to identify the "disruptive business trends" that will affect their markets, then works like mad to exploit those trends, Harris said. The aim of the Type A's is to build new markets.

But mere mortals can innovate, too, without all the R&D. Companies can focus on finding a breakthrough solution for persisting business needs. Or they can take one of their core values -- customer satisfaction, for example -- and try to bring it to a new level. Bank of America Corp., for example, found that improving customer satisfaction by 1% led to 3% revenue growth.

Get a handle on IT ROI Aligning IT with the business organization is not good enough anymore. Good IT departments maximize business value. Are you making the right IT investments to do that? Gartner analysts George Mansour and Barbara Gomolski advised executives at the firm's recent conference on how to more accurately predict the return on IT investments. According to the firm, only 40% of CFOs say their IT investments produce the returns they expected. "The question you should be asking is, 'What is the minimum benefit that you can be 90% confident of achieving from a project?'" Gomolski said. Sounds reasonable, but most CIOs don't do that, according to Gartner, relying instead on "three dumb metrics" to measure risk: a rating system, averages and best case/worst case scenarios. Asking people to rate a project on a scale of one to three is dumb because there is room for interpretation. Using averages to measure risk means you're wrong 50% of the time -- not good enough. (You want to maximize business value.) And best- and worst-case scenarios are dumb because, "What good does it do that the project could confer a $100 million or a $10 million benefit," Gomolski scolded. One measuring technique Gartner likes and is seeing more of is simulation modeling. Around since the Manhattan Project, this technique allows you to model all the uncertainties associated with a project and run millions of scenarios to predict outcomes at various levels of risk. The technique forces companies to confront how much risk they are willing to tolerate. The estimates are superior to those generated by dumb metrics, because they are not subject to interpretation. But the technique requires skilled people, because the reliability of the estimates depends on the quality of the information put into the model. "Probing for the validity of the rationale behind the input received during the model-building process and the ability to determine what is the most appropriate (and conservative) choice of probability distributions to be used, are two of the most important skills that an experienced model builder brings to the table," Mansour states in a report published Oct. 17. Mansour suggested reading up on simulation modeling. You can find introductory as well as highly technical articles at The Winter Simulation Conference, (http://www.wintersim.org/). The market offers many simulation tools. Some come as Excel add-ins, including Decisioneering Inc.'s Crystal Ball and Palisade Corp.'s @RISK products.

Nick Christiano, CIO at Health Quest Systems Inc., a three-hospital chain in Poughkeepsie, N.Y., says he takes a "portfolio approach" to innovation. Around 40% to 45% of the hospital's IT investment goes to basic infrastructure. Another 40% or so goes into a category he classifies as "transitional systems."

"These are the systems that are the high ROI contenders: I put in this system and I will completely retool this process and make x amount of dollars," Christiano explained. About 10 % of the transitional systems are information-based, real-time and predictive modeling systems that tell the hospital how it's doing.

The remaining 5% of Christiano's budget falls into a high-risk/high-reward category. These are strategic systems. "One of the things you always want to make better in health care is physician relationships. So one of the things we said was a high-risk area was to develop a Web-based portal that any physician can use anywhere in the world, secure and safe," he said.

Christiano says he doesn't make a move on a high-risk/high-reward project without business buy-in. Indeed, he doesn't make a move unless the business leader takes responsibility for the project.

"My role as the CIO would be to make sure that the technology itself is something that fits into an overall strategy of where the industry was going: So the technology would be Web-based; it would be interoperable; it would have certain standards on the underside," Christiano said. "But in terms of features and functions and the actual implementation and forcing the people at the frontlines to use the technology? That would be the business leader."

Actually, this is true for all Health Quest IT projects, Christiano added. "I work with the business leader, I do the technical assessments, I provide the project management, I provide any expertise, skills set and experience to the business leader -- what I know about the product, where it has been used, successes and failures -- but when the business leader gets up and says, 'We're putting in a new human resources information system,' or 'We're putting in a new medication bar-coding system' -- that business leader has done his or her job, has put together the request for proposal and gone through the responses, has met with the vendors. It was not at arm's length, they were in it up to their neck."

Road blocks: 15 minutes of fame

The biggest obstacle to innovation is the "tyranny of ideas," Harris said. Ideas, it seems, are a dime a dozen. To innovate, companies need to select the good ones and get going. Charlotte, N.C.-based Bank of America, for example, puts a three-week limit on generating ideas, then takes a vote, Harris said.

Another "big rock" stands between the selection of idea and development. Organizations stumble here because they have not thought about how to fund those good ideas, or integrate them into current operations.

How do you fix it?

First, you need to get endorsement from the business. (Gartner, not surprisingly, suggests you also might want to bring in an outside "special team" to help.) If you don't have business sign-on, "go to the next idea," Harris advised. Remember, there's rarely a shortage of ideas.

Once the business-backed idea is selected, the free-for-all culture of the brainstorming stage stops. Put someone in charge of the project, Harris says. Make sure you find someone who can foster the cooperation it will take to get the project implemented, and don't be afraid to replace that person if the project stalls.

Harris also counseled CIOs to banish the perfectionist in themselves. The IT department should not -- repeat, not -- spend months fixing broken parts of an innovative technology. As long as IT is "15 minutes ahead of the people using the process," implementation will move forward, she said.

Let us know what you think about the story; email: Linda Tucci, Senior News Writer

Sound Off! -   Be the first to post a message to Sound Off!

Tags: Leadership and strategic planning,  VIEW ALL TAGS

Digg This!     StumbleUpon     Del.icio.us