Every issue of our annual CIO 100 proves to be a revelation to the editorial team. The CIOs we interviewed this year are clearly more upbeat and positive than at any time over the past three years. There is a more confident air about IT leaders circa 2007.
Of course, some things don’t change – like being clearly focused on cutting cost and increasing the business value delivered by the IT function.
CIOs continue to improve productivity with consolidation and developing single views of the business while, equally critical, developing their teams and their own leadership talents.
Ready for business
Reading this year’s profiles, the difference seems more personal than previously. The CIO 100 shows repeatedly that IT is central to UK Plc. The upshot is that CIOs are upping their own strategic games. Never has it been quite so important to get on with the CEO and have relationships with senior decision-makers across the business. Those who do are thinking strategically and, importantly, believe in the influence of the office of CIO.
In 2007, it is all about having a keen understanding of what the organisation requires so that IT can enable it to operate at optimal levels. A CXO mindset doesn’t distinguish the challenges of a CIO from any other director. It’s about being absolutely clear about what the business needs to achieve; and to act on that to proactively address corporate priorities. This year’s CIO 100 shows that’s exactly what the best CIOs are doing.
The challenges facing top-flight CIOs haven’t shrunk. If anything, they’ve increased. The breadth and depth of knowledge and expertise needed is greater than before and IT leadership hasn’t got any easier over the past 12 months. But CIOs, to their credit and not before time, are carrying the mantle with greater poise, confidence and self belief.
For many businesses, the past year was a period in which large rollouts were completed. The lead players in their sectors are now better equipped than before to engage globally with customers, suppliers and other key shareholders through CRM, HR, ERP and e-commerce systems.
Corus, for instance, has been performing a massive IT consolidation programme, which is producing business benefits to the whole organisation. Work on the infrastructure was split into four domains – datacentres, end user computing, networks and collaborations. Corus uses SAP and had been moving all of its applications and business processes on to a single version of the software instead of numerous business silos and was beginning to concentrate on master data management.
Now that Corus has being acquired by Indian steel producer Tata, that could mean a significant change of focus. Tata gets to increase its global scale, while Corus gets access to India, one of the fastest growing markets in the world.
It remains to be seen how the two organisations will be integrated and how the respective IT organisations will pull together. If indeed, they can pull together.
Mergers and acquisitions have been a strong theme in 2006/2007. Probably nowhere are the challenges and opportunities of systems and cultural integration more clear than at Virgin Media. The company was launched in February and now encompasses ntl, Telewest, Virgin Mobile and Virgin.net. It has been undergoing major integration work since the combined organisation was announced last year.
"We want to make life easier for our colleagues in the business by offering a single view but allowing them to have the information they need at their fingertips"
Howard Watson, CTO and CIO, Virgin Media
Finishing the Virgin Media infrastructure integration while supporting the continuing growth of the business are the twin challenges for Howard Watson, CTO and CIO.
He says there are three strategic pillars the company is working towards: synergy, growth and efficiency. “The aim is to realise £250 million from annualised synergies,” says Watson. “This is a two-year programme to bring everything together into a single IT infrastructure and we are about half way through.”
There are several major parts to this, including a critical bill migration programme, an ERP system and an enterprise-wide datawarehouse. The vision behind the strategic plan is to provide everyone in the business with a single integrated customer view.
The ERP project is putting disparate and legacy systems on to the latest instance of Oracle, addressing all three strands of the company strategy.
“This is now about exploiting its power and we will be using the system’s online functionality to improve efficiency and support growth, as well as maximising synergies,” says Watson.
‘A single point of truth’ is how he describes the enterprise-wide datacentre: “It is a single engine and brings everything to life for our employees who are handling the customers. We want to make life easier for our colleagues in the business by offering a single view but allowing them to have the information they need at their fingertips.”
Integration and cultural issues are not the preserve of acquisitive media giants. The UK’s top two co-operatives are merging in late July and that will lead to the formation of the world’s largest consumer co-operative group. The merger of Rochdale-based United Co-operatives, which has 930,000 members, and the Manchester-based Co-operative Group, with 3.5 million members, is responsible for more than 80 per cent of the co-operative retail trade in the UK.
The integration of IT operations will be a major project for the combined IT functions.
In 2005 the IT functions for the Co-operative Group and Co-operative Financial Services (CFS) were merged, and the integration of the two organisations’ IT operations and infrastructures was successfully completed last year.
Since then the IT team, led by CIO Gerry Pennel, has been supporting a marketing-led card-based membership scheme, which now has two million members. In the financial services arena it has been focusing on its delivery channel architecture and ongoing projects include work on the Faster Payments systems, where organisations move from a three-day payment cycle to one day. The Faster Payment initiative is a large change programme for the CFS with significant implications in terms of product manufacture and distribution, according to Pennell. “We are working on a single view of the customer across the operations, so it is a very significant project for the CFS. There are around 70 different projects going on in the financial services part of the business alone.”
The biggest challenge for the year ahead will be supporting the scale of change, and continuing to enable the business through using technology, Pennell says. Post-merger, a further integration programme will be on the agenda, as well as the planned initiatives the teams are already working on.
Pennell comments: “It has been a very interesting year. With the Group and CFS merger work completed and the card scheme in place we have been looking to get our financial services, Smile and General Insurance, with identical supporting systems so that as and when the business wants to, it can move quickly to change things.”
The effects of globalisation
Speed of change is the universal cry of businesses and a huge driver of this is globalisation. It is a major strategic and tactical factor for today’s CIOs. WPP CIO David Nicoll says that global procurement of group IT is an ongoing theme and that changes imposed over the past couple of years have proved successful in reducing costs while promoting IT and business process best practice. The organisation will continue to implement shared services and global procurement wherever possible.
Other businesses are tackling the same global challenges but their approaches differ radically. The retail sector, once the poor relation of IT strategy and investment, is rarely out of the headlines. The sector continues to be led by Tesco, a business whose global ambitions are matched by world class IT strategy and implementation. Probably the biggest Tesco story throughout 2007 was its ongoing growth and consolidation as a market leader to rival Wal-Mart in the US through increased global expansion. Most recently, that expansion saw it announce it will enter the US market in 2007 with a new ‘Fresh & Easy Neighbourhood Market’ brand based on its local ‘Express’ format. The retailer’s own research found an annual US market worth £310 billion that is also estimated to outstrip UK market turnover growth of around five per cent, at 40 per cent over the next five years.
Taking a world view
Colin Cobain, Tesco group IT director, says the move to the US would consolidate and build on the company’s success at home and in Europe, South-East Asia and China. The IT strategy that underpins such aggressive expansion is based on a common operating model across all countries.
Business processes and IT are standardised as much as possible and particularly notable within this global strategy was the deal struck with Wipro late in 2006.
The outsourcer is rolling out a ‘Tesco-in-a-box’ suite of systems, consisting of standard ERP packages and custom applications for cost-effective and efficient store rollouts, while still maintaining some sensitivity to local conditions.
Its preferred database and application mix – Oracle Retek, ERP, Teradata and Business Objects – has been augmented by mainframe integration software from Micro Focus to extend its bespoke merchandising system for the UK and Ireland to other territories. Cobain says extending the life and scope of the system was essential to extend Tesco’s global supply chain fulfilment footprint in other markets.
“In other countries, like Korea and Japan, we have established the bedrock – including tills system, back-office, core communications, financials and so on. Now we need to go on and build on that with store ordering, space planning and merchandising, for example, to make sure what we’re delivering is constantly innovating to improve the customer offering,” says Cobain. “Elements of our common operating model are already in place and benefiting some of our businesses but this investment will help us meet our goal of opening our first US store in 2007.”
Outsourcing cool down
By 2007, most CIOs have experienced several generations of outsourcing but it’s a far rarer creature who, hand on heart, can say any one model comprehensively meets their business needs.
It looks like the day of the IT outsourcing mega-deal is now largely done, and while the public sector has generated a spending bubble in the UK over the last few years most of these large contracts have now been let and this has taken the heat out of the market. “IT outsourcing started calming down at the end of 2005 and is slowing down quite a bit now but a lot of contracts are being or are on the verge of being renewed. So it’s not so much that there’s lots of new business around as about contracts coming up for renewal,” says Dr Katy Ring, research manager with outsourcing analysts NelsonHall.
"Elements of our common operating model are already in place and benefiting some of our businesses but this investment will help us meet our goal of opening our first US store in 2007"
Colin Cobain, group IT director, Tesco
This process began last year and is likely to continue for the next couple. But many organisations have learned from past mistakes and are reducing the length of their deals from a previously typical seven to 10 years to between five and seven.
Apparently this is due to the lack of flexibility in contracts and – surprise, surprise – because it is simply impossible to know what a business is going to look like in 10 years time. Rather than choosing a single supplier to handle all of their requirements, CIOs are breaking contracts into smaller chunks, opting for either a lead vendor that manages a range of specialist sub-contractors or a range of specialist providers that they manage themselves. Gartner calculates that heads of IT now obtain services from an average of 4.1 outsourcing providers.
“These days, customers are looking for selective outsourcing with multiple providers. It’s a new trend, signing a big deal with a supplier that says they can do it all isn’t considered enough anymore,” says Gianluca Tramacere, Gartner research director. “In the past, it was an attractive proposition because the bigger the provider, the more money you could save but cost savings are less important now.”
Instead CIOs are exploring how they can enhance their skills base and flex it up and down as required, while at the same time provide more adaptable systems and services to the business. Tramacere concludes: “In a world where people are looking to increase their competencies and become more flexible, service delivery excellence has simply become more crucial.”
Well, maybe. Or maybe not. Cost, despite much talk of strategic advantage and service excellence, is still a huge driver of outsourcing deals. Hence the decision by Somerfield to sign a seven-year deal with Indian services provider Tata Consultancy Services (TCS), outsourcing the management of its entire IT infrastructure late last year.
Somerfield expects to cut costs by a third over the duration of the contract, which extended its existing agreements with TCS. Under the deal, TCS will take responsibility for managing Somerfield’s mainframes, Unix and NT platforms, and delivering IT services to 900 outlets and eight distribution depots.
The Indian option
The supplier plans to exploit developments in technology to manage user accounts, deploy software upgrades and manage capacity remotely from India. About 115 of the 141 IT jobs at the retailer’s Bristol IT headquarters were transferred to TCS, but Somerfield retained a team of 25 senior executives to manage the strategic direction of the contract.
As to who is outsourcing what, NelsonHall estimates that just under 20 per cent of UK deals last year were full-scope IT outsourcing ones. These were undertaken mainly by organisations in central government and manufacturing. Again, the main driver was to cut costs.
A further 45 per cent of contracts covered managed IT infrastructure services, although they comprised only about 30 per cent of the total value of the market. The highest levels of activity took place among local government bodies, mid-size retailers and mid-size insurance companies as they attempt to contain costs and transform their infrastructures.
Analysts maintain that a key change is that the focus is now on customer service rather than simply on managing the IT estate. The Co-operative Group’s Pennell is in the process of changing the sourcing model that the company uses and looking to move its CIS co-operative insurance development function to outsourcing partner Xansa. “This will free up in-house IT management time, so we can be focused on the business rather than IT supply side issues,” he says.
This will have a big impact of the IT function itself, with a third of Pennell’s IT team moving to the outsourcer.
Saving the best for last
No matter how strategic the CIO role has become, cost savings are non-negotiable, says BA’s Paul Coby, who wrote ’50 Things I wish I’d known before becoming CIO’, published in CIO UK in February 2007 (see www.cio.co.uk). If you haven’t read Coby’s 50 Things, please make the time to do so. And if you have, take time to refresh. As far as peer-to-peer experience goes, it is invaluable.
At BA, the work being done in preparation for the opening of T5 uses a lean methodology framework.
Coby says: “We are working to transform the experience for customers in T5. If we can hit the 80 per cent self-service target there it affects the terminals, reducing the numbers of queues and transforms the experience for customers.”
"Since IT covers the whole enterprise, you are a powerful engine to drive its execution. Use your power and authority as a CIO"
Paul Coby, CIO, BA
He adds that the IT function will, as ever, continue to work to reduce costs and manpower as it moves forward and, although IT is recruiting some professionals, the overall net trend is still down. Having concentrated on front of house operations, Coby’s next step is to address the prosaic but critical back-office operations.
“Some of the systems are based on very old shipped architecture so we will be re-engineering the operating stuff. If we are as agile at back-office as at the front end it will offer huge productivity improvements, as well as basic cost savings. If we are agile we will move faster, which is what everyone wants.
“CIOs should reduce the year-on-year costs of IT operations, whatever the growth in demand. CEOs know, because suppliers tell them, that the unit costs are reducing. Outsourcing salesmen will offer substantial year-on-year reductions and CIOs have to do better. They should be able to since unlike suppliers, they are not making a 20 per cent margin.”
Coby concludes: “A CIO’s most important relationship is with the CEO. Make sure you understand your CEO’s business strategy and support its execution.
“Since IT covers the whole enterprise, you are a powerful engine to drive its execution. Use your power and authority as a CIO.”