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A report from The Economist Intelligence Unit
A blended future:
The changing mix of IT service delivery and consumption
Sponsored byA blended future: The changing mix of IT service delivery and consumption
Contents
About this report 2
Executive summary 3
1 Drivers of change 5
2 Business-unit needs 7
case study: Test and learn at Expedia 9
3 CIO response 10
4 Building a shared model 13
case study: IT service delivery at Kaiser Permanente 15
5 Conclusion 16
Appendix: survey results 17
1 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
About this
report
A new global survey of executives confirms a Interviewees
changing mix in how IT services are delivered and
John Kim, senior vice-president global products,
consumed both currently and over the next three
Expedia
years. The survey was conducted by The Economist
Intelligence Unit (EIU) in December 2013 and Edward Mesrobian, chief technology officer,
sponsored by EMC. Respondents include chief Expedia
information officers (CIOs) and line-of-business Phil Fasanso, chief information officer,
executives (LOBs). The findings and insights Kaiser Permanente
complement an earlier EIU study that assessed the
Julie Vilardi, executive director of emerging
emergence of CIOs as strategic leaders in a setting
technologies and clinical informatics,
of continuous business and technological change.
Kaiser Permanente
The report draws on two main sources for its Jeroen Tas, CEO informatics, solutions and
research and findings: services, Philips Healthcare
l A survey that included responses from 205 Judith Spitz, senior vice-president and CIO,
executives worldwide whose responsibilities Verizon IT Strategy and Planning
involve the delivery and consumption of IT
Klas Bendrik, group CIO, Volvo Cars
services. A large majority of respondents are
personally located in Europe (40%), North Jeanne Ross, director and principal research
America (29%) or Asia-Pacific (23%). Nearly scientist, Center for Information Systems
50% of the companies represented in the survey Research, MIT Sloan School of Management
have more than US$500m in revenue, while
about one-third have US$5bn or more.
Respondents hail from 19 different industries,
with financial services (17%), manufacturing
(15%) and IT/Technology (13%) leading the
pack.
l A series of in-depth interviews with senior
executives and academics. We thank them for
their valuable insights.
2 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
Executive
summary
Information technology (IT) has a decisive impact This Economist Intelligence Unit study,
on what a modern organisation can do. So more sponsored by EMC, analyses the emergence of a
line-of-business executives (LOBs) want to control “blended future” of IT service delivery and
IT directly to run their current businesses and consumption in which the enterprise IT function
innovate for competitive advantage. “Technology proactively markets its services to business-unit
has advanced to the point where it is less expensive customers, bringing the full range of internal and
to experiment with radically new experiences,” external IT expertise to bear on business-unit
says John Kim, senior vice-president of global needs. In this scenario, IT and business
product development at Expedia, the world’s organisations collaborate closely to create
largest online travel agency. common service definitions and performance
At the same time, chief information officers metrics to gauge the real impact of IT on business
(CIOs) and other IT professionals understand in outcomes. The blended model transitions the roles
depth how technology and business processes of both CIOs and LOBs away from just overseeing IT
function and relate to each other, not only at the assets towards managing risks and opportunities.
departmental level but for the organisation as a
whole. “Almost any core capability in a modern Key findings of the report include the following:
organisation involves mixing data with some kind
of business process,” says Dr Jeanne Ross of MIT’s l CIOs and LOBs agree that the growing
Sloan School of Management. “That’s where the IT availability of easy-to-use technology services
unit becomes so valuable. They understand what from third parties, along with employee
technology can or cannot do.” expectations for greater control over the
Both LOBs and CIOs acknowledge they must technology they use at work, is driving this
work more closely, according to the EIU survey and trend towards supplementing internal IT
interviews, but not necessarily under the same capabilities with external resources.
rules that governed in the past. LOBs want the
flexibility to use whatever technology and services l At present, LOBs are sourcing more
help them achieve their business goals. CIOs are technologically mature third-party IT services
realistic about giving LOBs more influence and for their business units—services that are easily,
control over IT decisions and resources. The result quickly or inexpensively acquired in the market
is a changing mix of internally developed and but are not ultimately responsible for a firm’s
externally sourced technologies and third-party competitive advantage. Communications (59%
IT services. of surveyed respondents), storage and back-up
3 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
(54%), servers (48%) and web hosting (44%) (21%). Only 12% of surveyed executives
comprise the lion’s share of third-party IT anticipate that traditional CIO functions such as
infrastructure spend for business units. technology infrastructure management and
internal applications development will increase
l Greater adoption of external IT capabilities— substantially over the next three years.
whether directly by the IT organisation or by the
business unit—will change the focus for CIOs l The survey findings and interviews suggest a
going forward. One-quarter of participants say service-centric rather than asset-centric vision
that CIO responsibilities for security, risk and for enterprise IT, in which the internal IT
compliance management will increase department acts more as an advisor and broker
substantially over the next three years. Similar of best-of-breed solutions to business units.
percentages of respondents expect significant Sixty-three percent of LOBs surveyed say
expansion of CIOs’ roles for information third-party technologies and services brokered
management and analytics (25%), IT services from external providers but managed on the
management (23%) and vendor management inside will increase over the next three years.
4 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
1 Drivers of change
Organisations increasingly engage with their Until recently, both CIOs and LOBs lived in
customers and business partners through digital largely separate camps. CIOs focused on back-
channels and technologies. Therefore, how IT is office efficiency and stability of organisation-wide
accessed and managed has a material effect on IT systems, while most LOBs looked to IT for
what a modern organisation can do. It is not business applications but not for competitive
surprising that more LOBs are looking to wield advantage. But the rise of mobility, computing-as-
technology as a native capability. a-service, social media, and other technology and
At the same time, because technology underpins consumer trends has transformed how CIOs and
the vast majority of contemporary business LOBs deliver value to the organisation.
processes, IT leaders have unique insight into how To gain more flexibility to respond to rapidly
an organisation really executes its business. IT changing conditions, both LOBs and CIOs are
professionals understand in depth how information moving towards a blended model of IT service
systems and business processes function and relate delivery that merges internal IT capabilities with
to each other, not only at the departmental level third-party services. Success under this new
but for the organisation as a whole. paradigm requires at least as much organisational
Q Which of the following statements best describe the main forces driving changes
in the CIO’s role in your business?
(% respondents)
Business units and functions have increasing options and opportunities to acquire technology services from third parties
45
The consumerisation of IT and proliferation of easy-to-use technology services have complicated compliance with enterprise IT policies
40
Employees increasingly expect greater control over the way they use technology in their work
38
The consumerisation of IT and proliferation of easy-to-use technology services have reduced the need for centralised control of IT resources
26
The consumerisation of IT and proliferation of easy-to-use technology services have driven the IT organisation to serve
more as a provider of guidance and less as a provider of services
22
The company is trying to leverage IT in revenue generation or other strategic initiatives
21
Source: Economist Intelligence Unit survey, December 2013.
5 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
❛❛ innovation as technology innovation. 45% of LOBs cite the growing availability of
It can’t just be an The EIU survey and follow-on interviews reveal easy-to-use technology services from third parties,
IT innovation or a that business units are taking greater control over while 41% of CIOs and 42% of LOBs mention
business-unit the IT solutions used in their operations and employee expectations for greater control over the
innovation for the decision-making. A little more than 80% of LOBs technology they use at work.
say that they currently obtain IT services directly However, this doesn’t mean that LOBs and CIOs
organisation
from third-party providers or develop them on their intend to neatly divide IT responsibility in half with
❜❜ own, and more than half do both. Many LOBs are the CIO focused on back-office efficiency and LOBs
Klas Bendrik,
Group CIO, bypassing internal IT channels to source external on innovation. Instead, both LOBs and CIOs
Volvo Cars technology and IT services because comparable recognise the need to work more closely together
services are not available from corporate IT, or are at both the tactical and strategic levels. “It can’t
not timely enough in their delivery. This comes in just be an IT innovation or a business-unit
addition to the fact that IT capabilities have innovation for the organisation,” says Klas
become simple to buy on the open market. CIOs Bendrik, group CIO for Volvo Cars in Sweden.
and LOBs agree on the two primary drivers towards “Collaboration is about creating a corporate asset
supplementing internal IT capabilities with that contributes to both top-line growth and
external resources. Forty-three percent of CIOs and bottom-line efficiency.”
6 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
2 Business-unit needs
❛❛ LOBs do not seek to own or control IT for its own of LOBs want an IT services catalogue that lists
The IT supply side sake. LOBs seek agility. Faced with customers who both internal and external capabilities that can be
is not the major can review products and prices with their mobile tapped by business units. Most important, nearly
limiting factor phones and share positive or negative experiences two-thirds (63%) of LOBs expect that the use of
anymore. We can on social networks, business units must pivot to external IT resources brokered by internal IT
become more oriented towards customer departments will grow over the next three years—
use our own
experience. In such a rapidly changing far more than any IT services delivery mode.
resources. We can environment, LOBs want the flexibility to use The dramatic expansion of third-party IT offerings
use somebody whatever technologies and services are necessary is one reason why LOBs are increasingly requesting
else’s resources … to achieve their goals. external IT sourcing, according to Dr Jeanne Ross,
The question is According to the survey, 46% of LOBs say they director and principal research scientist at the
whether an obtain external technology services because Center for Information Systems Research at MIT’s
organisation can comparable services from internal IT are either not Sloan School of Management. “The IT supply side is
available or take too long to deploy. Another 46% not the major limiting factor anymore,” she says.
absorb the
necessary changes
to use these Q Which of the following statements best describe your motives for obtaining IT services
from outside of your corporate IT function?
capabilities (% LOB respondents)
effectively
Comparable services are not available from corporate IT
❜❜ 46
Jeanne Ross, Corporate IT is too slow in delivering services
Director and Principal 29
Research Scientist, Corporate IT is too expensive
MIT Sloan School of 28
Management External IT providers have a more client-centric approach to IT solutions
28
Solutions from external providers are technologically superior
26
Corporate IT is not adequately familiar with emerging technologies
19
Corporate IT imposes too many restrictions
16
Corporate IT does not understand the needs of our business/industry
10
Source: Economist Intelligence Unit survey, December 2013.
7 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
Q Which of the following IT services does your business unit develop locally or obtain from
third-party providers?
(% LOB respondents)
Communications (e-mail, messaging, telephony, videoconferencing)
59
Storage and back-up
54
Servers and computing
48
Web hosting
44
Analytics
42
Employee collaboration and file sharing
40
Information or data services
38
Mobile applications
36
Customer relationship management
34
Other business process applications
34
Social media
30
Partner/Supplier collaboration
25
Source: Economist Intelligence Unit survey, December 2013.
“We can use our own resources. We can use metrics such as uptime and mean time between
somebody else’s resources. We can outsource. We failures. These metrics were important for
can use cloud. Basically, if we want to do something maintaining IT efficiency and resiliency. But they
with IT, we can do it. The question is whether an were too removed from measuring the value of IT
organisation can absorb the necessary changes to for business outcomes in terms that could be
use these capabilities effectively.” understood by most LOBs.
The survey reveals that, for now, LOBs are A focus on operational metrics was not unusual
sourcing more technologically mature third-party for many large organisations. Much of the past
services for their business units. LOBs are decade’s enterprise IT spending was aimed at
typically focused on business-unit-specific automating and streamlining existing business
solutions and services that are easily, quickly or processes to go online. Only in the past five to
inexpensively acquired in the market but are not seven years have many large organisations
ultimately responsible for a firm’s competitive completed the process of transitioning to digital
advantage. channels as a primary means for interacting with
Concurrent with greater demand by LOBs for customers and business partners.
external sourcing is a re-evaluation of the metrics According to Judith Spitz, senior vice-president
for gauging IT value by CIOs and other and CIO for Verizon IT Strategy and Planning, that
management. For most of its history in the heavy lifting has enabled the company to change
enterprise, the value of IT was measured largely by its view of IT from primarily a transactional partner
operational-level metrics such as cost per stored that delivers operational efficiency to a strategic
megabyte, cost per transaction, or IT availability partner that improves customer service and drives
8 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
case study: Test and learn at Expedia
Expedia Inc is the largest travel company in the versions of the Expedia.com website are running
world with an extensive portfolio of online travel live with a portfolio of features across the globe
brands, including category leaders like Expedia. at any one time. Not only must these websites
com and Hotels.com. Collectively, Expedia brands function properly for booking travel, but the
operate across 150 travel-related websites in more websites must also generate data and insight that
than 70 countries. In 2013, the company recorded help guide product development decisions.
nearly US$40bn in gross travel bookings on over Moreover, effective product innovation
400 airlines, more than 260,000 properties, and involves more than experimenting with the user
dozens of cruise lines and rental-car companies. interface. Edmond Mesrobian is Expedia’s chief
According to John Kim, senior vice-president technology officer in charge of ensuring that
of global products, Expedia enables its millions back-end performance enhances the front-end
of users to navigate complex choices related to customer experience. According to Dr Mesrobian,
travel within an interface that is both intuitive and there are infrastructure and back-end operations
fast. In such a massive, high-speed environment, decisions that can’t be boiled down to simple
product development decisions involve a balancing business decisions. For example, Expedia procures
act in which innovation must be justified against fraud control services from a third party, but not
the investment of talent and resources required to necessarily because of lower cost. “The goal is to
bring a new feature up to Expedia-level scale. “For partner with best in class, especially when you’re
example, we know that customers would love to trying to crack a problem that is not core to your
see new ways to view pricing for flights, hotels and business model and yet you need to be world class
other travel services. We also know that building at executing against it,” he says.
these types of experiences can be both very complex Both executives collaborate closely because
and very expensive. What makes this a complex any new product or feature results from highly
problem is there are infinite possibilities for how we interconnected IT systems in which innovative work
do it. But we don’t know if it is worth our time and on the front end must be understood in the context
effort, for any given option, unless we go out and of how it affects the back end. In that sense, the
test it,” he says. test-and-learn methodology runs through one
❛❛ Testing, in this case, means that multiple continuous fabric.
We are strategic
partners in the
business’s success revenue growth. That switch has changed the we are enabling a competitive advantage for
metrics against which IT value is judged. “Years Verizon—are we delivering shareholder value in
and are measured
ago, IT was measured in transactional terms—how terms of the customer experience, simplifying the
by the same often did we deliver projects on time and on businesses, helping to win and retain customers?
yardstick as our budget, what percentage of the requirements did We are strategic partners in the business’s success
marketing and we deliver? Those metrics are nothing more than and are measured by the same yardstick as our
operations teams table stakes now. Today, IT is measured by whether marketing and operations teams.”
❜❜
Judith Spitz,
Senior vice-president and CIO,
Verizon IT Strategy and
Planning
9 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
3 CIO response
❛❛ CIOs are realistic about a certain level of external IT external market. “Today, we get the best IT
Today, we get the procurement by LOBs. Increased consumerisation capabilities into our business when we mix internal
best IT of IT means that employees, customers and and external resources,” Mr Bendrik says. Mr
capabilities into business partners will bring in IT assets and Fasano concurs that once an organisation reaches
our business when capabilities that have not undergone an explicit a certain size, it is virtually impossible to generate
we mix internal approval process by the organisation. And some internally all of the needed IT solutions. “We start
CIOs are embracing external IT solutions as with the bias that we are going to buy our IT
and external
aggressively as their LOB counterparts. capabilities,” he says.
resources Although automotive manufacturing and Greater adoption of external IT capabilities—
❜❜ healthcare seem worlds apart in terms of industry whether directly by the IT organisation or by the
Klas Bendrik,
Volvo Cars
concentration, both Klas Bendrik, group CIO of business unit—will change the focus for CIOs going
Volvo Cars, and Phil Fasanso, CIO of healthcare forward. Policy-setting for how data are secured
company Kaiser Permanente, told the EIU that and made legally compliant is becoming more
their organisations start with the assumption that top-of-mind. One-quarter of survey participants
the first place to look for IT solutions is the say that CIO responsibilities for security, risk and
Q How will traditional CIO responsibilities change over the next three years?
(% CIO respondents)
Increase substantially or moderately Decrease substantially or moderately
Security, risk and compliance management
68 1
Information management and analytics
64 3
Business strategy and consulting
63 4
Services management (including provisioning, metering and billing)
62 5
Vendor management and services brokering
57 3
Technical consulting
51 7
Infrastructure management
50 12
Applications development and management
49 12
Source: Economist Intelligence Unit survey, December 2013.
10 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
Q How important will the following skills be to enable CIOs to lead IT adoption and deployment
across the enterprise under evolving service delivery models?
Please rate each skill from “essential” to “unimportant”.
(% CIO respondents)
Essential or important Somewhat unimportant or unimportant
Innovation skills to serve as a change agent and propose business solutions outside of traditional boundaries
81 2
Communication skills to collaborate more effectively with business stakeholders and lead by persuasion
80 4
Organisational knowledge to understand the needs of diverse business units and integrate those into enterprise-level strategies
79 1
Business skills to participate in high-level strategic decisions across the enterprise
78 5
IT security skills to mitigate the risks of a more decentralised IT delivery model
74 1
Source: Economist Intelligence Unit survey, December 2013.
26 33
compliance management will increase substantially yards.”
over the next three years. Similar percentages of Nearly every CIO the EIU interviewed agreed that
respondents expect significant expansion of CIOs’ exchanging talent across departments is a key
roles for information management and analytics factor in making a blended IT delivery model work.
(25%), IT services management (23%) and vendor That exchange happens at the executive level as
management (21%). Only 12% of surveyed well. More LOBs are participating actively in
executives anticipate that traditional CIO functions enterprise IT governance, and CIOs are playing
such as technology infrastructure management and greater roles in business strategy formulation,
applications development will increase injecting more technology-driven opportunities
❛❛ substantially over the next three years. into the strategic mix. In these and other
LOBs and CIOs Taken together, the survey data suggest that CIOs leadership forums, LOBs and CIOs work together to
need to design are expanding their role to manage a portfolio of IT understand the flow of data, work, decisions and
the high-level capabilities that include internal infrastructure analysis across the enterprise.
flow of work and assets, local and externally developed applications, According to Dr Ross at MIT, business-unit
data in the and third-party IT services. Some of these leaders need a “technical friend” who both
capabilities will originate from the IT organisation. understands technology and can access the
organisation, so
Perhaps just as many IT capabilities will be resources and talent necessary to execute projects.
somebody can
developed or sourced directly by LOBs. LOBs must also provide a clearer vision of how a
build all of the The broader sharing of responsibility by CIOs and business process must function, what are the
connecting parts LOBs for IT service delivery is driving increased critical workflows, how decision rights are
❜❜ cross-fertilisation of human resources among IT and determined and what analytics need to be installed
Jeanne Ross, business units. Says Dr Ross: “Back in 2000, we to ensure that the adopted rules are actually good
MIT Sloan School of
Management
coined the phrase, ‘download IT to the field’, which business practices. “LOBs and CIOs need to design
captured our push to get IT professionals out of their the high-level flow of work and data in the
cubicles and into the call centres, the trucks and the organisation, so somebody can build all of the
business offices to truly understand how work was connecting parts,” she says. “At some level, this
done and what the user and customer experience isn’t new. It has just become so much more
was really like. Requirements documents are far important.”
inferior to first-hand observation and real-world Important, too, are a cluster of key skills that
experience. We also recognised that to deliver value, CIOs need according to survey respondents.
the technologists and their business partners Communications skills to collaborate more
needed to be comfortable in each other’s back effectively with business stakeholders (49%) and
11 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
❛❛ the ability to innovate solutions outside of more business process modelling, configuration
The IT skill traditional boundaries (42%) emerged as the most and integration expertise,” he says.
emphasis has essential for adoption of new models of IT service Where does “shadow IT” fit in the blended mix of
shifted internally delivery. These skills will be at a premium as CIOs IT delivery? Neither CIOs nor LOBs are in favour of
to more business anticipate even greater demands from LOBs in having business-significant information systems
areas such as mobility, Big Data and social media initiatives outside the purview of central or local IT
process modelling,
that cut across IT service delivery models. organisations. However, they are also realistic
configuration and In addition to technology forces that are about the growing capability of individuals and
integration pushing from the outside, it has become teams to meet many of their own information
expertise increasingly difficult for large enterprises to needs. The survey reveals that while 68% of CIOs
❜❜ develop internal IT for just departmental or regard shadow IT as counterproductive and actively
Jeroen Tas, business-unit use. According to Jeroen Tas, CEO of discourage it, 78% are mitigating risks by taking a
CEO of informatics,
informatics, solutions and services at Philips more proactive approach to information and
solutions and services,
Philips Healthcare Healthcare, the fact that multiple business units security across their organisations. Equally
must collaborate to develop a complete solution important, slightly over half (55%) of CIOs say
for the customer means the desired skill sets for IT their organisations are assisting lines of business
leaders have evolved from focusing mainly on to make external IT procurement decisions by
systems analysis and application development. disseminating catalogues of preferred external
“The IT skill emphasis has shifted internally to services and providers.
Q Do you agree with the following statements about your company’s policies towards IT
that is implemented without informing or seeking support from corporate IT (“shadow IT”)?
(% CIO respondents who agree)
We are mitigating the risks of shadow IT by promoting a more informed and proactive approach to information and security across the company
78
We regard shadow IT as counterproductive and we actively discourage it
68
We explicitly forbid the use of shadow IT and we prevent or stop its use wherever we find it
61
We want to discourage shadow IT and we believe we can do so in positive ways by offering assistance from corporate IT
61
We assist LOB decision-makers to make their own IT decisions by disseminating a catalogue of services/providers
55
We dislike shadow IT but we recognise that LOBs sometimes adopt it for good reasons
54
We have liberalised our policies concerning shadow IT on the grounds that it is inevitable
43
Our policies do not encourage or discourage the use of shadow IT
38
Source: Economist Intelligence Unit survey, December 2013.
Agree Disagree
12 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
4 Building a shared model
Going forward, CIOs and LOBs point to partnerships operates in parallel with external providers.
among internal IT, lines of business and third-party Internal IT transitions to a service-centric delivery
providers as the standard way to do business. The model by pooling assets that had formerly been
survey findings and interviews suggest the devoted to specific business units (and severely
emergence of a shared vision: an enterprise IT under-utilised). With the help of virtualisation and
function that proactively markets its services to cloud computing, IT can deploy a general pool of
business-unit customers, bringing the full range of data, application and infrastructure resources
IT expertise—including brokered third-party drawn upon by multiple business units that pay for
solutions—to bear on business-unit needs. While usage. The shared asset and services approach
50% of LOBs surveyed say they expect to rely drives up utilisation, drives down cost and gives
increasingly on enterprise systems, storage and LOBs a better understanding of the relationship
networks deployed by internal IT over the next between their units’ IT consumption and business
three years, 63% say that third-party technology outcomes.
services brokered by the IT organisation will also Of course, the challenge for organisations will
increase over the same period. be to figure out what constitutes effective
Thirty-one percent of CIO respondents say their brokering and delivery of IT services—whether
organisations intend to adopt a service model that internal or external. Expertise in this area could
offers fee-based services to business units and become a point of advantage in a world where IT
Q How will your business unit’s reliance on the following IT service delivery methods likely change
over the next three years?
(% LOB respondents)
Increase substantially or moderately Decrease substantially or moderately
Third-party IT from external service providers, brokered by the IT function
60 10
Enterprise IT systems, storage and networks deployed by the corporate IT function
49 9
Third-party IT from external service providers, sourced by LOB IT specialists
42 13
Local IT developed internally by LOB IT specialists
35 18
IT solutions developed or sourced by individuals or small teams without control from either corporate or LOB IT
28 23
Source: Economist Intelligence Unit survey, December 2013.
13 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
Q Which of the following statements best describe your company’s strategy for transforming its
IT delivery model over the next three years?
(% CIO respondents)
We will increase the use of IT and business process outsourcing to reduce the need for enterprise IT services
32
We will transform our IT function to adopt an IT service model that offers fee-based services to LOBs
and operates in parallel with external providers
31
We are satisfied with our current IT service delivery model and we do not currently plan to revise it
25
We will work to compete effectively against third-party solutions
24
We will devolve many IT functions to business units
21
We recognise the need to re-think our IT service delivery model but we have not yet established strategic directions
15
Source: Economist Intelligence Unit survey, December 2013.
costs and capabilities are far more transparent. In without knowing that Ericsson is running the back
addition, this evolution will require new skill sets end. Making this collaboration work starts with the
for both IT and lines of business. Organisations will human resources mix, says Volvo Car group CIO Klas
need to develop an innovation and collaboration Bendrik: “From an IT perspective, roughly one-third
mindset at the top of CIO and LOB ranks, not simply of the staff working on connected cars come direct
for cracking business problems at the enterprise from Volvo, one-third are coming from Ericsson or a
level, but also for operating at the ecosystem level telecoms background, and one-third are being
as more technology-based opportunities require recruited from outside industries such as retail and
collaboration in the marketplace. customer service.” Such a diversity of talent not
In the automotive space, the race to connect only brings the right skills to bear on the current
cars to online services has become a strategic challenge, but also sets the stage for further
imperative for every global player. Recently, Volvo innovation, says Mr Bendrik. “When you apply
Cars and Ericsson struck a far-reaching different capabilities from different industries to
arrangement that includes communications and serve the customer, you open up pathways for
information services managed by Ericsson for Volvo creating new experiences and benefits that feed
cars. The driver signs up for various digital services back to the ecosystem,” he says.
14 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
case study: IT service delivery at Kaiser Permanente
Headquartered in Oakland, California, Kaiser business-unit meetings and are in effect part of the
Permanente (KP) is one of the US’s largest not-for- staff of the LOB leaders. Their mission is to deliver
profit health plans with more than 9m members and technology capabilities, whether developed in-
nearly 17,000 physicians. KP’s information systems house or sourced externally, against the charter and
range from life-critical clinical systems to insurance objectives of a business unit.
billing systems to patient self-help and marketing Goals and reality for IT innovation merge in the
systems to the corporate IT infrastructure that area of new-product development. Julie Vilardi is
serves KP’s 170,000+ employees. KP’s executive director of emerging technologies
According to CIO Phil Fasano, KP’s service and clinical informatics. According to Ms Vilardi,
delivery strategy uses high tech to enable high- over the past few years the consumerisation of IT
One way that touch human delivery of healthcare services for its has penetrated even the highly regulated borders of
Kaiser Permanente members. Reaching that point requires sustained, healthcare. For example, external providers are now
evolves its IT significant automation and innovation in IT. The offering texting solutions designed for physicians.
lynchpin for much of that automation has been Although most of these systems are compliant with
capabilities is
electronic medical records (EMR). EMRs have patient privacy laws (also known as HIPPA in the
embedding IT emerged as the core data currency for all of the US), the ease with which physicians can download
executives at the various KP systems. However, the deployment and use texting solutions required KP to jump in
division level of EMR constitutes more or less table stakes for front of the trend rather than trying to restrict it.
across various modern health organisations. “All of the basic “We pulled a group together to perform a
business units. elements of healthcare have changed over the market scan of all the solutions out there towards
last seven years because of all the automation making a recommendation,” says Ms Vilardi. “We
that has been put in place. Now, we’re building also communicated with selected vendors what
on that investment to take it to a new level for our we believe should be our enterprise standard for
members,” says Mr Fasano. texting solutions. The other piece is that every
One way that KP evolves its IT capabilities is solution must go through security, compliance and
embedding IT executives at the division level across risk assessment before it’s officially accepted into
various business units. According to Mr Fasano, the organisation. Back in the office, we don’t tell
there are division-level CIOs for care delivery clinicians that they must install texting. But if that’s
systems, health insurance, corporate systems a direction they’ve decided to go, we will tell them
and so forth. These IT executives participate in which vendor they should use and why.”
15 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
5 Conclusion
In an environment of pervasive technology and advantage and which execute the general
non-stop technological innovation, more operating model.
organisations are looking to CIOs to be architects
and strategists who can collaborate with LOBs l CIOs and LOBs directly embed specialists within
across the full range of business processes. At the each other’s departments in order to learn each
same time, lines of business are investigating other’s needs and capabilities.
external technologies and services on an ongoing
basis rather than relying on a central IT department l CIOs and LOBs develop common policies for
to propose them first. security, compliance and other organisational
❛❛ The goal of both parties’ evolving roles is standards for information systems and data to
Business and IT business agility. Agility means more than just using aid internal IT development or external IT
must craft the new technologies. Agility requires an IT asset or sourcing.
customer service brought inside of an organisation to be
experience integrated with the flow of data, decisions and l IT generates catalogues of approved technology
business processes that define how a modern firm resources and services for LOBs, some of which
together. That’s
does business. “Success demands as much are internally developed and others that are
when the magic operational innovation as IT innovation,” says available on the open market.
happens Kaiser Permanente’s Julie Vilardi.
❜❜ The EIU survey and interviews pointed out that The survey and interviews demonstrate that an
Jeroen Tas, progressive organisations are taking concrete steps innovative mindset is the most important shared
Philips Healthcare
to adopt a blended IT service delivery model: skill for CIOs and LOBs moving to a blended model
for IT service and delivery. “It’s about having
l CIOs and LOBs define target outcomes in people inside who can use all of these technology
business-value language with business-relevant capabilities to design and deliver a superior
metrics. customer experience,” declares Jeroen Tas of
Philips Healthcare. “And it doesn’t matter if we’re
l CIOs and LOBs participate in leadership talking about the CIO or the LOB. Business and IT
meetings to determine which parts of an IT must craft the customer experience together.
portfolio comprise an organisation’s competitive That’s when the magic happens.”
16 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
Appendix:
survey
results
Several survey questions In your opinion, how effective is your company in each of the following performance indicators compared with its peers?
were posed to CIOs only, Please rate on a scale from “well above average” to “well below average”.
several to LOBs only, and (% respondents) Well above Somewhat Average/On Somewhat Well below
average above average par with peers below average average
the remainder to all
Profitability
respondents. 18 40 33 71
Percentages may not add Revenue growth
15 38 38 9
to 100% owing to
Market share
rounding or the ability of 17 34 35 12 2
respondents to choose Innovation
multiple responses. 15 39 33 12 1
Effective use of IT
11 27 40 20 2
Regulatory compliance
19 42 33 4 2
Which role in your company has primary decision-making authority for allocating resources to integrate new technologies
into the enterprise?
(% respondents) CEO CFO CIO CTO Heads of Other
business
units
Internal business infrastructure technologies
24 9 41 11 12 3
Technologies that focus on customer-facing functions
20 6 30 9 29 5
Technologies related to product/service functionality
18 7 28 14 28 4
If your company had to choose a single delivery model for all of its IT needs, which one would be most effective
from your perspective?
(% respondents)
Centrally provided IT (developed and delivered by corporate IT)
40
Locally provided IT (developed and delivered by business-line IT)
19
IT procured from third parties, brokered by corporate IT
25
IT procured from third parties, managed by business-line IT
11
Don’t know/Not applicable
6
17 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
Which of the following statements best describes the role of the CIO in formulating your company’s business strategy?
Please select one.
(% respondents)
The CIO is viewed as a key member of the executive team and participates fully in business-wide strategic decisions beyond matters that involve the use of IT
38
The CIO participates in business-wide strategic decisions, but only when these involve the use of IT
31
The CIO is seen mainly as a provider of IT services and is only consulted about strategic business decisions in which IT is considered a critical component
19
The CIO is seen mainly as a provider of IT services and is not consulted about strategic business decisions
7
Don’t know/Not applicable
5
Which of the following statements describe the role of the CIO in managing your company’s IT resources?
Please select all that apply.
(% respondents)
The CIO exercises control over all IT systems across the enterprise and must approve all additions and modifications to the IT infrastructure
51
The CIO is responsible for ensuring the smooth operation of the centralised enterprise IT infrastructure but does not control IT procurements
by business units for use entirely within their own operations
41
The CIO is the company’s principal IT strategist and leads the identification, selection and implementation of new technologies throughout the business
41
The CIO is the company’s top IT advisor and collaborates with LOB executives to help them make critical decisions regarding the use of IT systems
30
The CIO collaborates with the CTO to align IT strategies with broader business objectives
21
Don’t know/Not applicable
5
Which of the following statements best describe the main forces driving changes in the CIO’s role in your business?
Please select up to three.
(% respondents)
Business units and functions have increasing options and opportunities to acquire technology services from third parties
45
The consumerisation of IT and proliferation of easy-to-use technology services have complicated compliance with enterprise IT policies
40
Employees increasingly expect greater control over the way they use technology in their work
38
The consumerisation of IT and proliferation of easy-to-use technology services have reduced the need for centralised control of IT resources
26
The consumerisation of IT and proliferation of easy-to-use technology services have driven the IT organisation to serve more as a provider
of guidance and less as a provider of services
22
The company is trying to leverage IT in revenue generation or other strategic initiatives
21
Don’t know/Not applicable
6
Other
2
18 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
Which of the following statements best describes the role of LOB executives in managing your business units’ IT resources?
Please select one.
(% respondents)
LOB executives require corporate approval to acquire IT solutions for their business units
41
LOB executives can acquire IT solutions for their business units as long as they do not contravene corporate policies
22
LOB executives can acquire IT solutions for their business units, but they cannot duplicate or ignore core elements of the
enterprise IT infrastructure without corporate approval
22
LOB executives have complete freedom to acquire IT solutions
9
Other
3
Don’t know/Not applicable
3
Which of the following statements describes the role of LOB executives in developing corporate IT strategy?
Please select one.
(% respondents)
LOB executives do not fully participate but are consulted about business-wide corporate IT strategy whether it directly affects their business units
33
LOB executives participate fully in high-level, business-wide decisions concerning corporate IT strategy
25
LOB executives are consulted only about corporate IT strategy that directly affects their business units
25
LOB executives play little if any role in development of corporate IT strategy
13
Other
0
Don’t know/Not applicable
4
Which of the following statements best describe the main forces driving changes in the role of LOB executives in IT decisions?
Please select up to three.
(% respondents)
Employees increasingly expect greater control over the way they use technology in their work
42
Business units and functions have increasing options and opportunities to acquire technology services from third parties
40
The consumerisation of IT and proliferation of easy-to-use technology services have complicated compliance with enterprise IT policies
34
The consumerisation of IT and proliferation of easy-to-use technology services have reduced the need for centralised control of IT resources
32
The consumerisation of IT and proliferation of easy-to-use technology services have driven the IT organisation to serve
more as a provider of guidance and less as a provider of services
26
The company is trying to leverage IT in revenue generation or other strategic initiatives
26
Other
2
19 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
How will your company’s expenditure on the following IT service delivery methods likely change over the next three years?
Please select one in each row.
(% CIO respondents) Increase Increase No change Decrease Decrease
substantially moderately moderately substantially
Enterprise IT systems, storage and networks deployed by the corporate IT function
19 46 28 5 2
Local IT developed internally by LOB IT specialists
14 26 44 8 8
Third-party IT from external service providers, brokered by the corporate IT function
14 39 40 5 1
Third-party IT from external service providers, sourced by LOB IT specialists
11 24 51 6 8
IT solutions developed or sourced by individuals or small teams without control from either corporate or LOB IT
18 27 39 8 7
Which of the following statements best describe your company’s strategy for transforming its IT delivery model
over the next three years?
Please select all that apply.
(% CIO respondents)
We will increase the use of IT and business process outsourcing to reduce the need for enterprise IT services
32
We will transform our IT function to adopt an IT service model that offers fee-based services to LOBs and operates in parallel with external providers
31
We are satisfied with our current IT service delivery model and we do not currently plan to revise it
25
We will work to compete effectively against third-party solutions
24
We will devolve many IT functions to business units
21
We recognise the need to re-think our IT service delivery model but we have not yet established strategic directions
15
Other
4
Don’t know/Not applicable
2
How will traditional CIO responsibilities change over the next three years?
Please select one item in each column.
(% CIO respondents) Increase Increase No change Decrease Decrease
substantially moderately moderately substantially
Services management (including provisioning, metering and billing)
23 39 33 4 1
Vendor management and services brokering
21 36 39 2 1
Infrastructure management
12 38 39 11 1
Applications development and management
12 37 39 10 2
Information management and analytics
25 39 33 2 1
Security, risk and compliance management
25 43 31 1
Technical consulting
13 38 42 5 2
Business strategy and consulting
16 47 33 2 2
20 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
Do you agree with the following statements about your company’s policies towards IT that is implemented without informing or
seeking support from corporate IT (“shadow IT”)?
Please select one from each row.
(% CIO respondents)
We are mitigating the risks of shadow IT by promoting a more informed and proactive approach to information and security across the company
78
We regard shadow IT as counterproductive and we actively discourage it
68
We explicitly forbid the use of shadow IT and we prevent or stop its use wherever we find it
61
We want to discourage shadow IT and we believe we can do so in positive ways by offering assistance from corporate IT
61
We assist LOB decision-makers to make their own IT decisions by disseminating a catalogue of services/providers
55
We dislike shadow IT but we recognise that LOBs sometimes adopt it for good reasons
54
We have liberalised our policies concerning shadow IT on the grounds that it is inevitable
43
Our policies do not encourage or discourage the use of shadow IT
38
How important will the following skills be to enable CIOs to lead IT adoption and deployment across the enterprise
under evolving service delivery models?
Please rate each skill from “essential” to “unimportant”.
(% CIO respondents)
Essential Important Neutral Somewhat Unimportant
unimportant
Communication skills to collaborate more effectively with business stakeholders and lead by persuasion
49 31 16 4
Innovation skills to serve as a change agent and propose business solutions outside of traditional boundaries
42 39 16 2
Organisational knowledge to understand the needs of diverse business units and integrate those into enterprise-level strategies
41 38 20 1
Business skills to participate in high-level strategic decisions across the enterprise
39 39 18 5
IT security skills to mitigate the risks of a more decentralised IT delivery model
28 46 25 1
Other
13 13 42 2 31
21 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
Does your business unit develop IT solutions internally? Does your business unit obtain IT solutions or services
(% LOB respondents) directly from third-party providers?
(% LOB respondents)
Yes Yes
57 81
No No
40 18
Don't know/Not applicable Don't know/Not applicable
3 2
81 81
Which of the following IT services does your business unit develop locally or obtain from third-party providers?
Please select all that apply.
(% LOB respondents)
Communications (e-mail, messaging, telephony, videoconferencing)
59
Storage and back-up
54
Servers and computing
48
Web hosting
44
Analytics
42
Employee collaboration and file sharing
40
Information or data services
38
Mobile applications
36
Customer relationship management
34
Other business process applications
34
Social media
30
Partner/Supplier collaboration
25
Other
2
Don’t know/Not applicable
2 Increase Increase No change Decrease Decrease Don’t know
substantially moderately moderately substantially
How will your business unit’s reliance on the following IT service delivery methods likely change over the next three years?
Please select one in each row.
(% LOB respondents) Increase Increase No change Decrease Decrease
substantially moderately moderately substantially
Enterprise IT systems, storage and networks deployed by the corporate IT function
11 39 41 81
Local IT developed internally by LOB IT specialists
2 34 46 10 8
Third-party IT from external service providers, brokered by the IT function
10 53 27 10 1
Third-party IT from external service providers, sourced by LOB IT specialists
4 39 43 12 2
IT solutions developed or sourced by individuals or small teams without control from either corporate or LOB IT
7 22 47 11 14
22 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
Which of the following statements best describe your motives for obtaining IT services from outside of your corporate IT function?
Please select up to three.
(% LOB respondents)
Comparable services are not available from corporate IT
46
Corporate IT is too slow in delivering services
29
Corporate IT is too expensive
28
External IT providers have a more client-centric approach to IT solutions
28
Solutions from external providers are technologically superior
26
Corporate IT is not adequately familiar with emerging technologies
19
Corporate IT imposes too many restrictions
16
Corporate IT does not understand the needs of our business/industry
10
Other
5
Don’t know/Not applicable
3
What role does corporate IT primarily play when your business unit obtains IT solutions from third-party providers?
Please select one.
(% LOB respondents)
Corporate IT offers advice and assistance in identifying, selecting and implementing third-party IT solutions
44
Corporate IT actively brokers all arrangements with external IT providers
30
Corporate IT offers an optional brokering service to manage relationships with external providers
16
Corporate IT is not involved in our internal development of IT solutions nor acquisitions of IT from third-party providers
6
Other
1
Don’t know/Not applicable
4
What additional services would you like to be available from your corporate IT function that are not currently provided?
Please select all that apply.
(% LOB respondents)
IT services catalogue that incorporates both internal and third-party offerings
46
Technical advice and recommendations
44
Guidelines for using third-party services
39
Staff from IT function embedded in our business unit
39
Brokering services for third-party services
27
Other
3
23 © The Economist Intelligence Unit Limited 2014A blended future: The changing mix of IT service delivery and consumption
Do you agree or disagree with the following statements about the outcomes of your company’s IT delivery methods?
Please select one in each row.
(% respondents) Strongly Somewhat Neither agree Somewhat Strongly
agree agree nor disagree disagree disagree
Every business unit in our company has timely access to the latest IT solutions
13 45 18 18 6
Our corporate IT function is seen as an enabler of innovation
16 33 29 16 6
Our corporate IT function is open to new technologies and approaches
25 38 21 13 4
Our corporate IT function provides solid infrastructure for our core business processes
24 36 27 12 3
Our corporate IT function allows flexibility for business units
17 33 26 20 4
Our corporate IT function actively supports the acquisition of specialised solutions from third-party providers
19 35 27 15 4
What is the single most important challenge that your company faces in developing the optimal IT service delivery strategy?
Please select one.
(% respondents)
Encouraging the IT function, LOBs and third-party providers to work in partnership to develop innovative solutions to business needs
33
Strongly Somewhat Neither agree Somewhat Strongly Don’t know
Convincing LOB executives that the centralised IT function understands
agreetheir needsagree
and is in the best
norposition
disagree to address
disagreethem disagree
19
Lack of business knowledge on the part of corporate IT specialists
13
Finding new ways of ensuring IT security in a more decentralised IT delivery model
11
Lack of technical knowledge on the part of LOB executives
6
Lack of necessary technical skills within the corporate IT function
5
Lack of senior management vision
5
Lack of financial resources
4
Other
2
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