10 IT Pro March ❘ April 2004 1520-9202/04/$20.00 © 2004 IEEEP u b l i s h e d b y t h e I E E E C o m p u t e r S o c i e t y

C I O S A N D M A N A G E R S

SuccessfulCIOs:Pushing theIT BusinessValueEnvelopeJohn D. Hwang and Simon Liu

S uccessful businesses understand theneeds of customers and their markets,and execute business strategies to estab-lish their competitive positions. Con-

sistent with their business goals, these businessesuse extract commodities, make goods, deliverservices, and provide other tangibles and intangi-bles to stay competitive. They also reevaluate

their business vision, increasebusiness values, and changeto gain advantage over theircompetitors. IT not only hasbeen essential to businessmanagement and operation,but has also provided signif-icant strategic leverage tobusinesses.

For example, Dell’s earlyinnovations—applying IT tostreamline its manufacturingand delivery of computerequipment, and then offeringits business online—have pro-

vided it with a competitive edge. FedEx with itspackage tracking system has added significant valueto its business.Wal-Mart’s success depends greatlyon applying IT innovations to its supply chain.Amazon depends totally on IT for its e-business.

Here, our goal is to provide a frameworkexhibiting the essence of IT in relation to theenhancement of business value. IT has become apervasive term encompassing technologies, envi-ronments with information systems and infra-structure,and business applications.Similarly, thisatmosphere challenges the CIO not only to add

value to the business and lead IT,but also to be anexecutive partner in fostering business strategy.

IT CAPABILITYFigure 1 depicts a practical framework that

organizes the essential elements of IT capabilityin an enterprise. It shows various technologies andcapabilities, and how they tend to build on oneanother and become interdependent. IT capabil-ities toward the framework’s bottom tiers aremore technology oriented, while capabilitiestoward the top tier are more business oriented.In addition, capabilities toward the framework’sbottom tiers are more ubiquitous, while capabil-ities toward the top tier are more specialized.Asa result, capabilities toward the framework’s bot-tom tiers have less strategic business value, whilecapabilities toward the top tier have more.

Customized business applicationsCustomized business applications are specific to

a particular enterprise.Such applications typicallymodel elements of an enterprise’s domain of activ-ity or business processes.These are areas that pro-vide the most strategic business values and createcompetitive advantages. Over time, customizedbusiness applications can become common busi-ness applications, if they become sufficiently ubiq-uitous, interoperable,and general purpose to serve

Any IT system should add value to the business.Frameworks help you determine whether your IT investments make sense.

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a broad range of enterprise IT users.Examples of customized business applica-tions might include the following:

• Knowledge management projects lever-age a company’s internal intellectualcapital.

• Supply chain management integrates acompany’s internal systems with thoseof its suppliers or integrates systemsamong a company’s internal businessunits.

• Globalization services position an orga-nization’s people, processes, resources,and technology to communicate, oper-ate, and interact regardless of culture,location, or language.

Common business applicationsCommon business applications provide

general-purpose business functionality fororganizations.These areas can present the opportunity forbusinesses to reengineer their processes, improve the effec-tiveness of their operations, and increase productivity.Examples of common business applications might includeenterprise resource planning, customer relationship man-agement, financial management, accounting, human re-sources management,e-mail, calendaring,word processing,and spreadsheet systems.

Development environmentThe development environment depends on three generic

types of servers.Application servers are deployment and exe-cution environments for business logic execution,data accessand integration, and/or application integration. Web serversare software programs dedicated to retrieving Web pagesupon request; they serve Web pages to clients across theInternet or an intranet.Database servers manage sets of struc-tured data that multiple applications typically share. Usersaccess data through services supplied by a database man-agement system (DBMS) using a data manipulation languageor an application programming interface (API).DBMSs usedefinitions for data structures and constraints along with rulesgoverning data integrity, validity, and security.

Common services encompass several service categoriesand can reside on a single computer or on a collection ofhomogeneous or heterogeneous computing platforms.Typical service categories include security, user interfaces,data interchange, and multimedia/graphics. Middleware isa loaded, vaguely defined term, encompassing independ-ent system software, services, and runtime environments.

Computing environmentOperating systems represent the core services needed

to operate and administer the application environment.

They also provide an interface between the applicationsoftware and hardware platform. Application program-mers will use operating-system services to access operat-ing-system functions. These services include kerneloperations; real-time extensions; fault management; andshells and utilities.They also include services for clocks orcalendars, operating-system objects, and media handling.

The hardware platforms represent the general physicalservices required in an application environment, includ-ing,but not limited to,hardware processing resources,datastorage services (tape and disk format standards), inter-connect services (backplanes and buses), power supplies,temperature control, and the mechanisms required toimplement a computing environment.

Networking environmentNetwork services provide connectivity and basic services

to foster communications across work groups and sites.These services make up the network infrastructure, whichprovides the capabilities and service components to sup-port distributed data access and interoperability in a het-erogeneous environment. Service components for thiscategory include network devices (such as routers, switches,and bridges);network management;address management;the Internet Protocol (IP) suite and routing protocols; andother services.

IT BUSINESS VALUETo gain advantage over other companies in the industry,

firms seek competitive advantage by changing the waysthey operate. Michael Porter, in his book CompetitiveStrategy: Techniques for Analyzing Industries and Com-petitors (New York, Free Press, 1980), provided a modelshowing business executives how to analyze their business

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Technical

Customized business applications

Common business applications(ERP, CRM, financial, accounting,

and human resources)

Development environment(application, Web, and database servers;

common services; and middleware)

Computing environment(operating systems and

hardware platforms)

Network environment(communication software

and devices)

Figure 1. IT capability framework.

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• primary, which includes inbound logis-tics, operation, outbound logistics, mar-keting and sales, and services; and

• support, such as human resources man-agement, technology development, pro-curement, and internal infrastructure.

IT innovations can provide opportunitiesto enhance various functions in the valuechain.For example,computer-aided design ormanufacturing,robotics,project managementsystems, and expert systems can supportresearch, engineering, and manufacturing.Transaction processing systems, associateddata models, and telecommunications cansupport just-in-time logistics, marketing, andsales. Diagnostics, business channel integra-tion,and customer relationship managementtools can facilitate ordering and customerservice.

Figure 2 shows that business can add valueby capitalizing on IT offerings from the ITcapabilities presented in the previous sec-tion. Technologies continue to evolve, andthe values associated with each technologycan be short lived or long term. You gener-ally divide business functions into primaryand support functions.

Foundational functions rely on the networkand computing environments for support.Astechnologies evolve, the development envi-ronment can provide the extended supportand sustain the operation in the long term.For primary functions, common business

applications ensure an integrated and enhanced capability inthe business firm. Such applications are likely to extendbeyond the firm itself to interorganizational enterprise link-ages for customized business applications and for strategic-level,value chain and supply chain applications to maximizebusiness values.

IT MANAGEMENT STRATEGYIf you consider the IT business value framework dis-

cussed earlier, one of the surest ways to push the businessvalue envelope is to manage IT capability according to thebusiness impact, as shown in Figure 3.The IT managementstrategy framework offers ways to analyze IT spending byrelative improvement in competitive advantage and per-formance. It also helps you think about how IT enhancesbusiness and customer values.

RenewalFor foundational IT capabilities, such as network and

computing environments, the management strategy shouldbe continuous renewal to achieve operation efficiency and

and achieve competitive advantage. His five forces modelfocuses on relationships with the following external agents:suppliers, customers, rivals, new entrants, and substituteproducts or services.

IT has provided various means to strengthen the rela-tionships and to gain competitive advantage, such as barri-ers to entry,switching costs, lower production costs,productdifferentiation,distribution channel control, innovation,andquality control. For example, specialized information sys-tems linking to suppliers and customers can make it diffi-cult or undesirable to switch to a competitor. If suppliers orcustomers moved, they would have to learn and adapt tonew systems, a potentially significant switching cost.Technology can provide lower costs in production and dis-tribution, enable new products, or help increase the qualityof products or services.The need for costly and sophisticatedinformation systems can be an effective barrier to entry.

One area in which change might yield competitiveadvantage is the business’ value chain.Generally, the valuechain for a manufacturing firm consists of two types ofbusiness functions:

Foundational(network and computing

environments)

Extended(developmentenvironment)

Strategic(customized business

applications)

Short-term Long-term

Primary

Support

(common businessapplications)

Enhanced

Figure 2. IT business value framework.

Renewal(foundational—

network and computingenvironments)

Transformation(extended—

development environment)

Competitive advantage(strategic—

customized businessapplications)

Sustainment Innovation

Business

Technical

Reengineering(enhanced—

common businessapplications)

Figure 3. IT management strategy framework.

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cost effectiveness. Renewal goals include improving reli-ability; enhancing availability; increasing maintainability;upgrading performance; reducing support and trainingrequirements; or making the current capacity more flexi-ble, extensible, and scalable. In summary, the renewal offoundational IT capabilities is technically oriented and sus-tainment focused.

TransformationExtended IT capabilities include the development envi-

ronment; here, the management strategy should be trans-formation. Transformation is in order if an organizationfinds that its core development capability limits its abilityto develop applications critical to business success.

Development capabilities are essential but not differ-entiating.They can be mission critical, but do not directlycontribute to improved enterprise performance. Trans-formation goals include standardizing tools, increasing ITstaff productivity, speeding application development,maturing application development processes,and reducingapplication development risk. In summary, transformationof development IT capabilities is technically oriented andinnovation focused.

ReengineeringFor enhanced IT capabilities, such as common business

applications, the management strategy should be reengi-neering. Common business applications can deliver prof-itability through process reengineering and improvements.These applications enable better enterprise performanceas measured by speed, convenience, cost of business oper-ations, working capital requirements, and quality. Byenhancing business performance, the enterprise can poten-tially differentiate itself from the competition.

Reengineering goals include reducing business processcost, increasing business process speed, increasing busi-ness user productivity, and adhering to required businessor regulatory standards. In summary, the reengineering ofcommon business application is business oriented andimprovement focused.

Competitive advantageFor strategic IT capabilities such as customized business

applications, the management strategy should focus on cre-ating competitive advantage. New technologies presententerprises with opportunities—or sometimes impera-tives—to adopt new business models. Successful innova-tion might ultimately lead to major organizational changesor to more incremental process improvements.These cus-tomized applications produce a major change in businessperformance that can alter the competitive landscape.

Competitive advantage goals include increasing infor-mation access; elevating information timeliness; improv-ing information accuracy: increasing collaboration andsharing;and improving customization and personalization.

In summary, creating competitive advantages through cus-tomized business application is business oriented and inno-vation focused.

ESSENTIAL ROLES OF CIOWe can sum up the role of CIO in a broad four-P state-

ment, illustrated in Figure 4:The CIO builds partnerships,leads capable people,practices mature processes, and deliv-ers useful IT products and services to push the IT businessvalue envelope.

PartnershipsBuilding internal and external partnerships is at the core

of a CIO’s role in an enterprise. Partnership is the work-ing relationship among internal and external stakeholdersbrought together by a commitment to common objectives,bonded by good experiences in working together, and sus-tained by subscription to a common vision. To lead suc-cessfully, CIOs must join forces with internal and externalCxOs—chief executive officers, chief financial officers, youname them—to build a coalition and community of inter-est. To build effective partnerships, CIOs should do the following:

• Invite the willing first. Engage those who you can reachfirst. It isn’t as important to have an ideal mix of partic-ipants as it is to start the partnership. Demonstrated suc-cess will increase participation.

• Establish shared goals. Jointly develop objective per-formance metrics or milestones.This is essential to devel-oping shared ownership of the decision and outcome,and to manage expectations.

• Coordinate, facilitate, and integrate. The key is to bringpeople together to start the dialogue, provide informa-tion to facilitate the discussion, share knowledge andperspective to develop common interests, and integratecommon interests to reach the decision.

• Think beyond IT. Balance advocacy for the CIO posi-tion with the understanding of others’ perceptions and

Partnerships

Products

Peop

le

ProcessesFigure 4. CIO’s role,

a four-P perspective.

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interests.The best IT answer might not be the right onefor the organization. It is through integrating differentperspectives that you realize the truly best answer.

PeopleCIOs are as good as their supporting staff. Building

strong IT leadership teams with capable support staff is amajor CIO function. Recruiting and retaining qualified ITsupport personnel, and the training and retraining of exist-ing staff present major challenges.Of the many factors thatwill influence the development of competent IT work-forces, CIOs should consider several actions:

• Improve recruiting and hiring processes to eliminate orminimize hiring barriers and to attract the workers thatthe enterprise needs.

• Establish a pay-for-performance compensation systemto determine base pay, performance-based incentives,and appropriate pay adjustments and increases for ITworkers.

• Promote work-life balance programs and provide flex-ible work arrangements and other non-pay-related ben-efits, such as child care centers, subsidies, casual dress,and casual work environments.

• Support technical currency and continuous learning toattract and retain IT professionals, facilitate professionalgrowth, and update professional skills.

ProcessProcess is the key to how modern enterprises function.

Used correctly, IT can serve as a catalyst for improvingorganization processes and employee productivity.Specifically, to enable IT success, CIOs should addressprocesses of several types:

• Technical. Software development, systems engineering,and other IT-oriented activities fall into this category.

• Mission-related business. These processes support thecore business. For a governmental agency, for example,mission-related processes might include criminal inves-tigation, health data monitoring, or grant management.

• Administrative. Most businesses have various processesrelated to the management of human resources andbudgets.

• Procurement. Basic IT procurement processes includethose for acquisition, licensing,and contract tracking andmonitoring.

ProductsRapid technological change and innovation have given

enterprises unprecedented opportunities for leveragingIT to create competitive advantage, improve operationalperformance, reduce costs, and enhance customer serviceresponsiveness. Competitive organizations in today’s busi-ness environment have little option but to pursue business

innovation in ways that lead to enterprise benefits andcompetitive advantages. We believe that IT will continueto play a profoundly significant role in such innovation.Todemonstrate how IT matters to business and customervalue, CIOs should:

• Develop the enterprise IT capability portfolio. The ITcapability portfolio should depict all enterprise IT prod-ucts and services. You should map IT capabilities intothe capability framework discussed earlier.This frame-work offers CIOs a systematic way to organize the port-folio and lay a foundation for effectively managing ITinvestments and the systematic delivery and operationof IT products and services.

• Invest in IT products and services with the best businessleverage.Also map the IT capability portfolio into the ITbusiness value framework. Reviewing and analyzing theIT investment distribution using the business value frame-work can help CIOs to determine how much the businessis allocating to create competitive advantages, generatenew revenue, or improve company performance.

• Manage and operate IT products and services with effec-tive strategy. You can accomplish this by mapping yourportfolio into the IT management strategy framework.Using the management strategy framework can helpCIOs to effectively deliver IT products and services thatincrease the value of IT,both to the customer and to oth-ers within the business.

A DEBATE ON IT VALUENicholas Carr, a Harvard Business Review editor, wrote

a controversial article “IT Doesn’t Matter,” which thatjournal published in May 2003. His theme is that

As information technology’s power and ubiquity havegrown, its strategic importance has diminished. The wayyou approach IT investment and management will needto change dramatically.

In other words,he sees IT as becoming a commodity,mean-ing all businesses will be equally competitive within IT.

In Table 1, we highlight three key points from this arti-cle.First,Carr believes that IT has lost its strategic value.Hedefines IT as denoting the technologies used for processing,storing, and transporting information in digital form.Accordingly, as a transport technology open to everyone,IT offers no advantage,because it is an infrastructural tech-nology—a commodity offering no competitive distinction.

Second, Carr suggests that widespread adoption of best-practices software makes IT-based advantages disappear.This action will homogenize IT functions as corporationsadopt generic applications.Therefore, says Carr, businessprocesses will become uniform and without competitiveadvantage.

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Third,Carr suggests that IT risks now exceed advantages,requiring shifts in executive attention and new rules for ITmanagement: spend less; follow, don’t lead; and focus onvulnerabilities, not opportunities.

Numerous academicians and CIOs responded to Carr’sarticle. We have selected some letters to the editor whichappeared in the Harvard Business Review, June 2003, com-menting on Carr’s assertions, and have summarized their

views in the table. Contrary to Carr, these respondentsbelieve that IT development has not reached a plateau,because new technologies continue to provide opportuni-ties to differentiation by service, product features, and coststructure.

These respondents stated that extracting value from ITrequires innovations in business practices, and, at the sametime, IT changes rules and assumptions about competition.

Table 1. Contrasting viewpoints on the value of IT.*

Commentator Viewpoint

Nicholas Carr, Commodity or not?: IT has lost its strategic value; a transport technology, open toHarvard Business everyone; an infrastructural technology, easily acquired and copied; a commodity with noReview editor competitive distinction.

Connection to business practice: Widespread adoption of software makes IT-based advantages disappear; IT functions homogenized, and proprietary applications doomed; corporations will adopt generic applications; and business processes will be uniform.Risks exceed advantages: IT risks exceed advantages, requiring shifts in attention. New rules for IT management are spend less; follow, don’t lead; and focus on vulnerabilities, not opportunities. IT is arriving at the end of its growth cycle and reaching saturation.

John Seeley Brown, Commodity or not?: Strategic impact of IT comes from sustained initiatives; strategic formerly with Xerox differentiation emerges over time based on innovations.Palo Alto Research Connection to business practice: Extracting value from IT requires innovations in Center; and John business practices. Many executives have not thought aggressively about new business Hagel III, author practices. Differentiation is not in IT but in the new practices it enables.

Risks exceed advantages: IT’s economic impact comes from incremental innovations, not big-bang initiatives. Successful companies harness IT’s power by proceeding in wavesof short-term initiatives.

Warren McFarlan Commodity or not?: IT changes rules and assumptions on competition; new opportunitiesand Richard Nolan, to expand customer value proposition by intangible information-based services.Harvard Business Connection to business practice: Management should understand about IT and its School associated economics. Reduced transaction costs enable new economics and products

and services. Company boundaries are permeable, organic, and global through IT.Risks exceed advantages: New technologies present opportunities to differentiation by service, product features, and cost structure; improve cost savings and efficiencies; incrementally improve organizational structure, products, and services; and extend scope, partnerships, and IT-based services.

Paul Strassmann, Commodity or not?: Deploying IT to reduce marginal costs can generate strategic value.US National IT improves management of information intelligence and collaboration. CompetitiveAeronautics and advantage is the result of effective management by skilled and motivated people.Space Administration Connection to business practice: Best practices signals more competition, with more IT.

Through data and protocol interoperability, firms can combine applications and software offerings. Standardization is a value enhancer, not a detractor.Risks exceed advantages: No evidence to IT development reaching a plateau; software-enriched global network has no boundaries; and cutting cost should address IT problems and the replacement of legacy systems.

* We drew these comments from the article “IT Doesn’t Matter” and the published responses to that article (from Harvard Business Review,May and June 2003 issues).

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Also, they believe that the strategic impact of IT comesfrom sustained initiatives. They thought that what man-agement should understand about IT and its associatedeconomics was that the widespread adoption of best prac-tices signaled more competition, requiring even more ITsupport.

CIO’s and their precursors—executives in charge ofinformation resources management (IRM) and the man-agement of information systems (MIS)—have engaged insimilar debates throughout history. It is incumbent onevery CIO to recognize pertinent issues and appreciatethe different perspectives. The framework we present inthe table might further clarify the context and issues underdebate. For example, Carr defines IT to denote technolo-gies used for processing, storing, and transporting infor-mation in digital form. Others tend to focus IT athigher-level business applications.Are Carr and those whodisagree with him debating about the same issues and con-text? Perhaps they simply have different perspectives:Carris perhaps looking at IT from the lowest, most fundamen-tal, technological level; the others, from the higher, execu-tive and business decision level.

OUR VIEWWe see the preceding debate as underscoring that it is

essential to understand the various IT perspectives, froma fundamental technological level to an executive, busi-ness decision level. IT is an all-encompassing disciplineand consists of technologies; environments with informa-tion systems and infrastructure; and business applications.Through our framework, we have attempted to clarify theinterrelationship among technologies, environments, and

business applications and how these relate tobusiness operation and decision-making.

Similarly, to be successful, the CIO must, onthe one hand, add value to the business andassume the lead role in IT. On the other hand,the CIO must be an effective executive part-ner in helping to steer the business towardstrategic advantage. The debate about IT’svalue further challenges CIOs to recognizethat the essential task of IT is to enhance busi-ness value.

I n his book, Good to Great (Harper, 2001),former Stanford University Professor JimCollins made several key observations

about technology in good-to-great organiza-tions.According to Collins, such organizationsthink differently about technology; avoidtechnology fads and bandwagons; andbecome pioneers in the application of care-fully selected technologies.They use technol-ogy as an accelerator of momentum, employa “crawl, walk, run” approach, and respond to

technological change with thoughtfulness and creativity.Even if competitors had the same leading-edge technolo-gies, they would fail to produce the same results.

Perhaps CIOs should ponder these points in designingIT management strategies to maximize the chance of suc-cess in pushing the IT business value envelope. �

John D. Hwang is a professor of information systems atCalifornia State University, Long Beach. He formerlyserved as general manager of the Information TechnologyAgency for the City of Los Angeles. Contact him atjdhwang@csulb.edu.

Simon Liu is director of computer and communicationssystems at the National Library of Medicine. He is also anadjunct faculty member at Johns Hopkins University. Con-tact him at simon_liu@nlm.nih.gov.

For further information on this or any other computingtopic, visit our Digital Library at http://www.computer.org/publications/dlib.

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➤ “A 12-Step Program for Aspiring CIOs,” Steve Williams, CIOMagazine, Apr. 2003.

➤ “IT Doesn’t Matter,” Nicholas Carr, Harvard Business Review,product no. 3566, 2003.

➤ IT Portfolio Management and Survey Results, Bill Rosser andKurt Potter, Gartner, June 2001.

➤ Priority Resolutions for CIOs in 2004, John Mahoney andMark Raskino, Gartner, Dec. 2003.

➤ Pushing the Value Envelope: How IT Matters to Business andCustomer Value, Margaret Tanaszi, IDC, Oct. 2003.

➤ Real IT Strategies: Steps 1 to 4—Laying a Foundation, RobertMack, Gartner, Dec. 2003.

➤ Real IT Strategies: Steps 5 to 8—Creating the Strategy, RobertMack, Gartner, Dec. 2003.

➤ “Time to Create a CXO Coalition,” Patricia Wallington, CIOMagazine, Aug. 2001.

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