Ten commandments for cios by Korn Ferry

EXECUTIVE OUTLOOK

Cultivating ‘smart growth’ TEN COMMANDMENTS FOR CIOleaders S The perspectives of a CFO Technology leadership turbulent times to outpace theimperatives globalforeconomy master class

by Michael O’Callaghan an By Peter Everaert, Scott Kin

by Michael O’Callaghan and Chris Campbell BYPeter HAGEN SCHWEINITZ By Everaert, Scott Kingdom and Indranil Roy

October 2013

The convergence of rapid technological change and ongoing economic upheaval makes Chief Information Officer one of the most demanding executive roles in business today. Korn/Ferry International interviewed nearly two dozen IT leaders about the crucial skills and approaches CIOs need to solve complex problems, manage internal customers, drive business results, lead innovation, and develop leadership talent—including their own.

How do companies survive dramatic economic turbulences? And how do leaders brace themselves for such rough seas—particularly on a journey to unknown shores?

Jeff Sampler, the technology strategist and Fellow of Strategy and Technology at Green Templeton College, Oxford University, has gained widespread recognition among Chief Information Officers (CIOs) for his presentations and lectures on “10 Commandments For Competing in Turbulent Times.” It’s certainly understandable why this concept would resonate with CIOs, whose entire domain of expertise is reinvented every few years. Inspired by Sampler’s thinking, Korn/Ferry International took these questions about leading through periods of such change directly to twenty-three senior IT executives from multiple sectors—financial services, retail and wholesale distribution, life sciences, logistics, utilities, automotive, high tech, engineering and process manufacturing. We asked them what leadership talents and management strategies help CIOs succeed in the current economy. In particular, we discussed:   

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Which qualities—technical as well as leadership skills—are required, and which are true differentiators? How does a CIO build a team that contributes to success? How is the CIO embedded in the organization and what can he do to improve his standing as part of the senior management team? What are the talent gaps in IT, and what industries or sectors are building ahead-of-the-curve talent?

We used Korn/Ferry’s library of leadership characteristics—skills and behaviours that research shows correlate with career success—to capture our findings and develop the following list of ten “commandments”—practical imperatives for CIOs looking to succeed in these difficult times.

1. Embrace VUCA The term VUCA, derived from military jargon, is an acronym for volatility, uncertainty, complexity, and ambiguity. It is as applicable to the fast-changing global business context as it is any military engagement. Many of the leadership qualities that helped companies win big in their domestic markets don’t carry as much power in today’s global marketplace. With so much of growth now coming from emerging economies, multinational competitors have to win on unfamiliar battlegrounds. The accelerating technology cycle allows agile firms to bring new, disruptive products to market faster than ever before. Generational shifts are requiring employers to fundamentally re-think the qualities that today’s leader needs. Rapid-cycle change is the “new normal.”

The leadership qualities that helped companies win in their domestic markets don’t carry as much power in today’s global marketplace.

Among the intriguing ways the VUCA is playing out in individual business sectors:

Telecommunications: Established players are struggling to remain profitable, win back market share from competitors, and keep new market entrants (e.g. cable network operators offering value-added services, but also content providers extending their value chain) at bay. This means that new products and services need to be developed and brought to the market with high speed. Transportation: The new trend to offer individualized and industry-specific doorto-door solutions based on seamless (“intermodal”) transportation chains across all carriers is creating new complexity. Interoperability across national borders is a new source of competitive advantage, fuelled by the “Technical Specification for Interoperability” (TSI) drafted by the European Railway Agency. Life Sciences: Demographic shifts (the “aging society”), the new economic power the tier-1 emerging markets (the “pharmerging” countries, a word coined by IMS Health a few years ago), the increasing pressure of regulatory bodies such as the US Federal Drug Administration, and decreasing reimbursement are all causing pain in this sector. Social media is starting to provide a direct link between manufacturer and the patient, which presents a variety of potential commercial applications, but—as in the early days of the Internet—there is no dominant model yet. Energy. This whole sector is re-inventing itself, seeking long-term strategies that will outlive the conventional business model. Many new business models (i.e.

Smart Grids, Connected Home) are still in nascent stages and/or developed by small individual players. Retail. The complexity of multi-channel e-commerce and the “educated consumer” who walks into a store having already made decisions online, are keeping retail executives on their toes. Pure online players, without the bricks-and-mortar baggage and legacy inertia, target lucrative niches and cause pain to the established players with their aggressiveness and speed. Electronic payment transaction costs eat into the already paper-thin margins. In some segments, such as grocery retail, there is still some reluctance for the consumers to go online. At the same time, recent food scandals underscore the need—and consumer demand—for a seamless and traceable supply chain. A revival of master data management is underway. There are far more examples. Fast-moving consumer packaged goods benefit from growth in new economies abroad, but are losing power of voice when dealing with the consumer, as many other channels and intermediaries step in. In high tech, the sector’s high public visibility puts institutions much more at risk in terms of reputation and transparency. Stakeholder interests include privacy and data security, and technical failures become visible instantly. In the construction industry, government stimulus in the Western world and increasing political stability in emerging countries are major growth drivers. And in the financial services sector, the regulatory framework has become an overly dominant force.

2. Better understand the business The VUCA world has put corporate information technology into a hotter spotlight—particularly where IT is a major driver of business, such as online and logistics companies. “Our margins are decreasing, and IT is expected to be a performance driver,” says a CIO from a large manufacturing company. “This is what our management expects from us. This has put me much more into the driver’s seat, exposed me to the vital business processes.” In some corners, such as the pharmaceutical industry and its suppliers, IT has reached a stage of maturity that there aren’t many quick wins in cost-reduction left. In others, the challenges keep growing. Online retailers must vastly improve their time-to-delivery as delivery of digital products (especially in the media sector) has changed consumers’ expectation. Bricks-and-mortar retailers, meantime, need to find ways to improve their overall efficiency. In both cases, the CIO is expected to find answers. When technology becomes a true business support function—driving R&D and innovation, or substituting traditional commercial access models with social3

media-based solutions—it receives the necessary attention of the top management. But some CIOs still feel they are working outside the core of the business. A CIO who prefers not to be identified told us: “They expect me to run my day-to-day operations blindfolded, and at the same time they want me to be a business enabler. But no one knows actually how. And I don’t know, either. I am a technology leader, and have spent all my time getting smart on the latest innovations in hardware and software, that is where my focus was.” For a CIO today, an adequate understanding goes beyond just business functions and operations skills. He or she must know how the business works, have a good view on the competition and their activities, and also understand the broader business environment, including the regulatory framework, technology trends, and potential disruptive innovations coming down the pike.

3. Enable innovation No one can deny that innovation cycles are shorter and technological disruptions greater. “The overall speed has increased dramatically. We CIOs need to be able to shift direction much quicker. Established technology standards can become obsolete overnight,” says one CIO. CIOs have to get ahead of the cycle. Social media is a good example: In the retail and consumer goods industries, social media is still not integrated into many companies’ e-commerce systems. “We are still trying to find out how to make money with it, and we already know that it will all depend on how much credibility we have with the consumer not to misuse his data,” said one consumer company CIO. “This is particularly the case when looking at the ‘TV Generation,’ who are not used to revealing too much about themselves online.” A CIO who can anticipate trends and their consequences can bring vision and creativity into the game. But even that requires dealing with a lot of ambiguity: Certain technology will be obsolete, but when? Which of many potential applications of a new technology will take hold in the culture? CIOs who are comfortable with such uncertainty won’t fear failure or be overwhelmed by the possibilities. They know the right questions to ask to frame the problem, and are pragmatic enough not to let perfectionism slow down their decision-making. Big Data presents another opportunity for many CIOs, but one with little value unless the data is aggregated, analysed, and interpreted to provide businessrelevant decision support. “I am expected to help the business leaders in their

daily work by creating tools and methods to skim the fat out of the huge amount of data we collect,” says one CIO. Done right, he knows this can improve inventory monitoring and even manufacturing targets. Likewise, innovative utilization of mobile devices can be a game-changer for retailers or logistics firms. “Our business leaders ask me to provide input how to improve their business solutions with technology,” said one logistics CIO. “I need to brainstorm with my team to “I need to brainstorm with my team to quickly ‘crowd-source’ innovative ideas, quickly ‘crowd-source’ innovative ideas, which I then consolidate into real-life which I then consolidate into real-life applications for the business.”

applications for the business,” said one logistics CIO.

This does not mean that the CIO will have to be in charge of technological trendscouting himself, but rather create an environment, including human and technology resources, to facilitate innovation. “The CIO needs to be a change driver, actively initiating new things,” says one CIO. “He needs to respond quickly to technological innovation, prove the concept by prototyping and then win the trust of the senior management to implement that technology.”

4. Make sound complex decisions Today’s CIOs have to make complex decisions that demand incorporating a mixture of analysis, wisdom, experience, and sound judgment. Outsourcing is one very good example. While the concept remains appealing in a cost-conscious environment, it is a multi-dimensional problem requiring a rigorous decision-making process. Consider the factors several CIOs weighed: “Operating data centres is not our core competency, not even within the IT department, so shifting this to an outsourcing provider enables us to allocate resources to the more business-critical processes,” says one. Adds another, “The idea of having a big IT factory in India has lost its charm. And a third: “IT needs to be close to the business functions and processes, both physically and from the state of mind.” Finally, a fourth says, “While there are obvious cost benefits from outsourcing, we also need to look at the non-cost benefits—or risks, such as IP protection.” Those most skilled at analysing and solving problems use rigorous logic and methods and look beyond the obvious, not stopping at first answers. They don’t jump to conclusions but instead tackle the complexity. A CIO from the financial services industry suggests, “Reducing complexity is key. I divide multidimensional problems into manageable slices and tackle them individually.”

5. Master organisational politics Today, all corporate processes and functions are linked with, and rely on, IT. As a result, any CIO action can have a widely felt impact on the organisation. One we spoke with offered a sobering example: “When we decided to replace all our decentralized legacy systems with a single, group-wide ERP system, this wasn’t simply an IT project. It affected nearly all parts of our business, with dramatic impact on our core processes which had to be re-designed to accommodate the requirements of the new software. As a leader of this global project, I misread the interests of the divisional business heads. I just wanted to complete the project on time and budget—and I simply wasn’t aware of the true gatekeepers of information—and that sent the wrong message to the people whose daily business was interrupted by this project.” CIOs must work collaboratively across organizational boundaries. The best of them are political enough to know how to get things done through formal channels and the informal networks, but don’t waste energy by manoeuvring for personal advantage. They understand the culture of an organisation and are patient enough to learn the whys and wherefores behind key policies and procedures. A CIO who displays organisational savvy will be a strong negotiator, as he reads the interests of others well and knows his way around the maze of egos, issues, stakeholders, and rivalries.

6. Manage customer communication Today, most IT departments operate as an internal services provider, and deal with a variety of distinct internal customers. A CIO with a strong focus on customer needs will establish and maintain effective relationships with all of them to gain their trust and respect. He will try to anticipate their needs. He will handle criticisms, complaints and special requests without being overly responsive gain the trust and respect of all to customer demands.

CIOs must internal customers, and even try to anticipate their needs. A major factor in success is communicating effectively.

A major factor in his success is communicating effectively. A CIO from a formerly state-owned, privatized company puts it plainly: “Large change initiatives fail when my people are not open-minded and don’t communicate proactively across internal organisational borders.” Another CIO from a large, decentralized company, noted how poor communication harms IT’s relationships: “We (in the IT organisation) have been too much inward-focused in the way we communicated, and neglected the internal customers and their needs.”

Listening is also highly important. A CIO with a customer-focus patiently hears people out and values their input. “Our internal clients from marketing and sales often communicate in a much more ambiguous way than finance,” noted one consumer goods CIO. “We need to be able to deal with it and figure out what they really want—by listening and asking the right questions.”

7. Strengthen your boss relationship In industries where IT has not been at the centre of attention (such as infrastructure- or materials-intensive sectors), CIOs often find themselves outside the inner circle of the C-suite. “Senior management sees IT mainly as cost driver, not as business partner. They see us as the ‘computer guys’ but rarely involve me in business discussions,” said one such CIO. Likewise, a retail CIO bemoaned how go-to-market innovations were being developed without IT involvement. Another CIO from consumer goods said he was making only slow progress pushing social media platforms as a way to connect with consumers. “The impact of what I am doing largely depends on my ability to win confidence of the senior management— and not so much on the solution itself.” CIOs need the ability to build collaborative relationships everywhere, but the most important one is with the CEO. Ideally, they will see their boss as an enabler, with matching ethics, values and management style. While they will rely on him for counsel and guidance, they will not be overly dependent on him. They will accept him as an authority, learn from him and respond and relate well to him.

8. Drive for business results First and foremost, in order to drive business results, CIOs need to take initiative. Acting quickly on an opportunity might mean curbing one’s appetite for certainty before making decisions.

Acting quickly on opportunities might for

As one CIO from the financial services mean curbing one’s natural appetite sector explains: “Our senior management certainty before making decisions. pushes hard for tangible results, and they expect me to be the main driver behind technological developments and upgrades. They commit themselves to certain results towards the shareholders, and hold me accountable for my contribution in the overall execution of these plans.” There is no time for procrastination or pondering, says another CIO. “Once I have identified a problem and broken it down into digestible chunks, I don’t waste any time but take action immediately,” he says. “We are exposed to the same time-to-

market pressure as an IT product manufacturer or software company. Months or even weeks can be mission-critical.” Focusing on performance and business outcomes is essential—even when problems arise outside the CIO’s immediate reach. “When we moved from a self-developed legacy system to a group-wide standard software, we encountered a dramatic slowdown because of our implementation partner who was caught up in a complex post-merger situation,” relays on CIO. “It was a very frustrating affair and I had to keep pushing everyone involved to continue delivering their contribution.” Achieving bottom-line results is less related to the CIO’s personal drive and more connected to his ability to manage and motivate the team supporting him. That requires empathy, charisma and stamina. A CIO who can build team spirit, keep up morale in difficult times—often by celebrating and sharing successes—usually is also able to keep staff turnover low. A CIO must drive to finish things successfully without being stubborn and unyielding. When progress slows or become difficult, he will not give up too soon. In case of confrontation and interpersonal difficulties, he will not take rejection personally, but proceed with a positive attitude—and the bottom line in mind.

9. Upgrade your own organisation A CIO’s success depends heavily on the strength of his direct reports and the rest of the IT organisation. Solid technical knowledge is more or less seen as a mandatory requirement, but not as a true differentiator. Among the skills CIOs said they needed from their managers: effective communication with stakeholders, understanding and anticipation of internal clients’ needs, ability to deal with ambiguity, skills to operate in a diverse or global environment.

“While the actual delivery of technology will become less and less important, I need people who can spot and evaluate technological trends,” said one consumer goods sector CIO.

“While the actual delivery of technology will become less and less important, I need people who can spot and evaluate technological trends—and people who can be the interface to the internal business stakeholders,” said one CIO from the consumer goods sector.

To bring these competencies into the organisation, external hiring is still a valid approach. One CIO we interviewed replaced all of his direct reports over the course of three years in order to align his group with the overall strategy requirements. Still, this method has its challenges, namely finding the right hunting ground for outstanding IT talent.

Very few CIOs considered their own industry as best in class when it comes to developing IT talent. Instead, they looked for talent in: • • •

Companies where “the CEO has a great passion for IT … for example General Electric”; “Industries with complex products and a very sophisticated process landscape, like automotive”; Narrow-margin sectors like retail, or Germany’s mid-size Mittelstand companies—places where IT has to be innovative and get things done with limited resources.

Most CIOs said that industries with historically healthy margins such as the banking sector rarely breed outstanding IT leaders, as there has not been enough pressure to optimize processes. Many of the CIOs interviewed struggled to answer this question at all and often remarked that they lacked insight into other Very few CIOs considered their own industry sectors. industry as best in class when it comes

developing IT talent.

At the same time, CIOs should be looking at their existing team to see who has the potential to become a leader. The most reliable indicator of potential is an attribute called Learning Agility, which is the ability and willingness to learn lessons from experience and subsequently apply those lessons to perform successfully in new or first-time situations. Learning Agility, easily measured by an online self-assessment, provides an ideal gauge for quickly sizing up the overall talent base. Development of internal talent, however, is not a one-off project. It requires continuous attention, dedicated resources, and advanced management systems— things often in short supply in modern, lean-managed organisations. Forte, a new application from Korn/Ferry International, automates, monitors and advances the skills of global professionals and provides a complete cloud-based development plan that is available anytime, anywhere. Forte also presents an employee with a personalized multimedia development journal that guides and tracks his or her progress—in alignment with goals set by a manager. Its device-based approach very much suits the technology-oriented people in IT.

10. Prioritize your own development All our interviewees underscored the importance of personal development for CIOs, but admitted they found it difficult to work on improving their own competencies and capabilities in a practical, efficient, relevant and operational manner. 9

Our research has shown that the most effective way to develop a new competency is to take on an internal project that stretches ones skills and exposes you to unfamiliar situations. Korn/Ferry’s John Atherton, Principal in the Leadership and Talent Consulting Practice, calls this approach the backbone of any effective leadership development for leaders. “This is quickly understood by executives when they consider the circumstances in which they learned the most in their careers: in-role, challenging assignments. Through development-in-place assignments, leaders are able to focus on acquiring or improving specific skills (e.g. digital and emerging technologies) and broad leadership competencies (e.g. managing innovation) that are not only crucial for their own development, but are also for the performance and possible transformation of the organisation.” A CIO should make sure his own development is tightly aligned to the business strategy, is designed to address the major disruptive forces in the “new normal,” and is future-oriented. Organizations need to develop tomorrow’s leaders, today. That needs to be on top of a CIO’s personal agenda as well.

Acknowledgments Korn/Ferry International would like to express its sincere gratitude to the following CIOs, who generously shared their insights and experiences as we researched this white paper. Oliver Barthel DB Schenker

Dr. Jens Güthoff Axel Springer

Axel Schier EWE TEL

Hansjörg Bausch Kaufhof

Dr. Michael Kollig Deutsche Telekom

Michael Schmelmer Boehringer Ingelheim

Holger Blase Gerresheimer

Dr. Lars Ludwig Donner & Reuschel

Olaf Schrage Douglas Holding

Dr. Ricardo Diaz Rohr EnBW

Wolfgang Lux

Dr. Walter Sinowski

Michael Nilles Schindler

Riccardo Sperrle Kaiser’s Tengelmann

Dr. Lars Olböter Rieter Automotive

Dr. Wolfgang Standhaft Heidelberger Zement

Dieter Geile Refratechnik

Dr. Hans-Joachim Popp Deutsches Zentrum für Luft- und Raumfahrt

Dr. Volkmar Weckesser Deka Ban

Christoph Grewe-Franze Weleda

Till Rausch Thales Deutschland

Kai Finke K+S Dr. Hans-Günter Gaul ThyssenKrupp

About the author Hagen Schweinitz is a Client Partner and a member of the Global Technology Markets practice. He is based in the firmâ&#x20AC;&#x2122;s Frankfurt office. hagen.schweinitz@kornferry.com

Contributors John Atherton is a Principal with Korn/Ferry Leadership and Talent Consulting, based in London. Katrin Ghaliai is a Senior Associate supporting the CIO Centre of Expertise. She is based in Frankfurt. Additional research by Alexandra Podewils of Fresenius University.

About The Korn/Ferry Institute The Korn/Ferry Institute generates forward-thinking research and viewpoints that illuminate how talent advances business strategy. Since its founding in 2008, the institute has published scores of articles, studies and books that explore global best practices in organizational leadership and human capital development.

About Korn/Ferry International Korn/Ferry International is a premier global provider of talent management solutions, with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa. The firm delivers services and solutions that help clients cultivate greatness through the attraction, engagement, development and retention of their talent. Visit www.kornferry.com for more information on Korn/Ferry International, and www.kornferryinstitute.com for thought leadership, intellectual property and research.

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