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Research: Why CIOs fail and how to fix it

trainwreckatmontparnasse1895-2-e831de136fd6e17c492c31aba7c5837337c076eeDigital transformation has placed CIOs under tremendous pressure. As expectations of IT increase, CIOs must adapt to a business environment where innovation, speed, and solution precision are essential.

 

Unfortunately, the historical relationship between IT and the business has been fraught with difficulty. With IT failure rates estimated between 30- and 70-percent, CIOs have significant baggage to overcome.

The problem is especially acute when a new CIO takes the reins. For this reason, conventional wisdom describes the importance for CIOs to make a mark during their first several months on a new job. Gartner, McKinsey, recruiters and others all explain why the CIO’s initial 100 days are so important.

University professors Tony Gerth and Joe Peppard researched causes of “CIO derailment” by interviewing over “100 CIOs, CDOs, non-IT executives, and board members;” they also surveyed almost 700 CIOs globally. They published results in a paper available as a case study from Harvard Business Review titled, The dynamics of CIO derailment: How CIOs come undone and how to avoid it.

The paper describes five reasons that cause CIOs to fail – they call it “derail.” Semantics aside, the point is creating situations where the CIO meets business expectations.

In my experience studying IT failures, success is defined by how well the CIO and IT meet customer and business goals. Regardless of any other measure, if the business perceives IT as achieving its objectives to a sufficient degree, then the CIO is successful by definition.

Here are the causes of CIO derailment presented in the report:

Misunderstanding the transition. CIOs must be clear about why the organization has hired them. Is it to jumpstart innovation, save a failing project, or get a new IT program underway? To succeed in the role, the CIO must understand the goals.

Ambiguity in defining IT success. Many CIOs operate in an environment where business leaders define IT success as delivering projects on-time and within budget. However, such metrics leave out the all-important concepts of outcomes and value.

To achieve success, the CIO must establish rules of engagement, or:

face a conundrum: [being] held accountable for benefits but hav[ing] little authority over what needs to happen in the organization for benefits to be achieved.

Ambiguity in role expectations. Organizations may want the CIO to play different roles. For example, some companies expect the CIO to provide technology services and infrastructure while others recognize the CIO as a full strategic partner. To meet these expectations, the CIO must identify what the organization wants and meet those goals.

Some non-IT business executives:

view the role as encompassing strategy and innovation but still treat the CIO as a service provider only. Failing to see the contradiction, they want their CIO to be a miracle worker and achieve major impact without having to trouble them.

Poor relationship management with peers. As technologists, many CIOs do not place sufficient emphasis on the need to collaborate with business leaders in their organization.

In my own research into the issue of CIO relationships in higher education, we offered this advice:

Although the top decision-maker and other senior executives shape an institution’s organizational culture, IT can take a variety of steps to facilitate opening the culture to improvement and innovation. However, IT’s historical reputation for being insular and unwelcoming may create negative perceptions that require significant effort to overcome. By establishing processes and workflows for listening to, and engaging, stakeholders, IT can build the relationships needed to support institutional change.

Pushing change at the wrong pace. Although transformation and innovation are synonymous with change, they are among the most difficult challenges facing any organization. Therefore, every CIO must determine the right pace of change for her or his company and situation. However, it is also true that figuring this out is not easy:

Clearly, new CIOs must make an impact, but at what pace? While creating change too slowly can cause derailment, so can implementing change too quickly.

As with all organizational issues, there is no silver bullet for addressing the points raised here. However, the authors suggest:

  1. Clearly understanding the CEO’s vision for IT
  2. Recognizing the ambiguity of the CIO role
  3. Delivering on service and solution commitments
  4. Building a relationship strategy
  5. Proactively defining IT success
  6. Managing the pace of change
  7. Speaking the language of the business

For many CIOs, these issues may seem obvious and hardly worth research or thorough evaluation. However, in my discussions with many CIOs on the CXOTALK platform and in advisory situations, it is precisely these organizational issues that deserve the greatest attention.

Buying technology products and capabilities is easy; developing strategic clarity and the political savvy to execute an innovation agenda requires far greater subtlety and skill.

(Cross-posted @ ZDNet | Beyond IT Failure Blog)

Data science at Dun & Bradstreet

Although data and analytics are core parts of modern computing, the underlying data science is often a black box. To shed light on this topic, I conducted a CXOTALK conversation with Anthony Scriffignano, Chief Data Scientist at Dun & Bradstreet.

Dun & Bradstreet uses data to help its customers reduce risk, market products, and increase sales. Founded before the Civil War, the company has been in the data and analysis business for about 175 years. As Chief Data Scientist, Anthony Scriffignano continues that tradition using modern tools and techniques to find meaningful information from large sets of raw data.

In the video, Scriffignano explains data science in business terms, using specific examples that highlight the challenges associated with making sense of large data sets. He also describes the difference between big data and smart data.

To read a complete transcript, click over to the episode page for this show. Watch more CXOTALK shows, to learn from real-world stories of innovation, leadership, and disruption in the enterprise.

(Cross-posted @ ZDNet | Beyond IT Failure Blog)

NetSuite CEO on professional services, customer satisfaction, and recurring revenue

Zach Nelson, CEO, NetSuiteDuring a CXOTALK conversation with NetSuite CEO, Zach Nelson we discussed many topics, including two core issues: the role of professional services at NetSuite and how the company thinks about customer retention and subscription sales.

 

The discussion with Nelson took place on-stage at the SaaStr Annual, a conference bringing together 5,000 software-as-a-service entrepreneurs.

Here is short video pulled from our lengthy discussion. You can watch the whole thing and read the full transcript over at the CXOTALK site.

As background, recognize that the SaaS ideal is selling products that are easy to use without significant human intervention, although the reality is often far different. Most enterprise software buyers have complex business processes and strong expectations for service and support. These expectations force software companies to create professional services organizations to help customers go live with their software purchase.

For enterprise SaaS companies, professional services are a necessity that risks creating distraction from the core business while watering down margins on software sales.

(As an aside, be aware we are talking about software-as-service vendors; on-premise suppliers have different economics. Maintenance and support revenue at on-premise players in ERP, for example, is typically far higher than license revenue. In addition, that support revenue stream is often more stable than the license revenue. This is distinct from professional services, but the point is that SaaS economics are far different than on-premise.)

Regardless of profitability, professional services are an essential ingredient for making enterprise software customers happy. Enterprise buyers expect responsive vendor assistance during when purchasing and implementing software in areas such as finance, CRM, or supply chain.

In addition, when selling a subscription service, software companies must ensure ongoing customer satisfaction. If not, unhappy buyers voting with their wallet will eventually abandon the service for alternatives.

For this reason, smart SaaS companies have long understood that the successful execution of the subscription business model forces high customer satisfaction. Again, unhappy subscription customers tend to leave. Therefore, churn is a core metric for any SaaS business.

With this background in mind, here are edited comments from my conversation with Zach Nelson, CEO of NetSuite:

Why did NetSuite build a services organization?

We would have rather not built a services organization. However, we had to get customers live and make sure the revenue recurs. If the customer doesn’t get live the revenue doesn’t recur.

We built our professional services because there was no other alternative, but we did it differently than a services business would. [For us,] services are an investment in recurring revenue. We make a little money on our services, but it’s really a necessary evil, even though I’m not saying services are evil.

I’m really happy that 40% of our business now comes from channel partners. The channel was reticent ten years ago but is driving our business today.

In other words, professional services drive recurring software sales?

In our case, yeah.

What are your metrics for correlating customer satisfaction and recurring revenue?

[One] way to align our interest with customers is doing one-year deals because we’re incented to get that customer live and they’re incented to get live as well.

We’ve always focused on revenue churn. Every year we say that revenue churn can’t get lower and then it goes lower again.

The bad side of revenue churn is [subscription non-renewal] and down-sell; those are the negative inputs. The positive input is up-sell. Year-over-year, our up-sell is more than our churn and down-sell.

As you build company models, up-sell is a very good thing. You need products to up-sell, to replace the inevitable churn and down-sell, even in a sticky application like ours. So, that’s a very important piece of the model.

To want to add more things, the customer has to be happy. You also have to target the right group of customers; some upsell just comes naturally. We’re probably the platform for 70% to 80% of next-generation businesses such as here in the audience [at the SaaStr conference], so when they go from 50 employees to 500 employees, it’s a beautiful thing. Choosing your markets wisely is another important piece.

(Cross-posted @ ZDNet | Beyond IT Failure Blog)