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How the IT organization may regain its position as an innovation partner

Innovation can be learned

The internal IT organization that cannot meet the information demands of the business runs the risk of becoming marginalized and losing its right to exist. What can the CIO or IT manager possibly do to win back the confidence of the business and to (re)position his organization as a preferred partner for innovation?

Over the past few years, many IT organizations have rationalized their operations, especially with the aim to save on costs in times of economic decline. A side effect of this rationalization is that it becomes increasingly difficult these days to meet the new demands that the business makes on the IT organization with regard to innovation of products and services.

Recently, Giarte observed with regard to this that innovation in practice often gets stuck in replacement of written off infrastructure through the adoption of proven technology. And especially now the business views the support of innovation at the business side by capitalizing on new technologies and introduction of new service concepts as one of the main objectives of the IT organization.

A workstation migration from Windows XP to the Vista platform is apparently of a different order than exploring and successfully implementing a new distribution channel for online financial services based on Web 2.0 technology. Not just the focus but also the success of innovation projects leaves a lot to be desired: IDC research provides average success rates of only 50%.

From a business perspective, an IT organization that fails on innovation is not a new phenomenon. Repeatable results of the internal innovation partner based on intended elapsed time (time-to-market) and quality (time-to-value) have been on the agenda for quite a while. Over the last few years, however, a series of solutions from establishing a more process-oriented (ITIL®, ASL®) approach to adopting more transparent control mechanisms (COBIT®, Balanced Scorecard), to stronger access to the technology base of providers (through early adopter programmes), has not given any solace in this field.

In this light, it is no wonder that businesses in the year 2008 increasingly express their dissatisfaction with the contribution that the IT organization makes to the required innovation effort. This dissatisfaction becomes tangible in a study carried out by Biznez where innovation management comes forward as the lowest scoring responsibility of the IT organization.

An increasingly more often observed implication, especially in the run-up to outsourcing trajectories, is that the business considers to bypass the IT organization, and to place the burden for innovation with external partners. For some time now, external service providers have been called in as suppliers of partial solutions, but over the last few years, they are increasingly given integral responsibility as service integrators for the business.

The combination of a dissatisfied internal customer and the visible presence of more than adequate external substitutes makes IT organizations becoming more and more aware of the challenge of how to visibly improve its added value. In this field of tension, improving innovation in a way that makes a difference to the business is of the highest priority.

Only, where to start? Many of today’s IT organizations are set up to execute existing operations as efficiently as possible, operations that often have been taken care of by the organization for a long period. Improvement of operational tasks takes place in steps and with the utmost care in order to avoid technological risks. Therefore, extensive test procedures are in this case befitting. However, this method of working does not work well in the domain of business-oriented innovation.

When a new online service is developed, the team that is involved wants to be able to make changes on a daily basis in order to refine the service, preferably after regular consultation with (potential) customers. This demands different test procedures. Differentiation of procedures and policies for supporting both the existing operations as well as creating the flexibility for innovation activities beyond the known competences are required.

Uniform processes and procedures become seriously restrictive as the internal customer does not just expect predictable output of the existing IT services portfolio, but also requires a partner that supports technology-driven innovation of products and services for end customers. The preferred innovation partner of the business will have to make an enduring impression of its innovation power, which requires a focussed and committed investment in the areas of strategy, process and sourcing.

1. Innovation strategy

If the IT department really wishes to improve on supporting innovation initiatives, it will first have to recognize that innovation strategies have different domains: The exploitation domain where improvement is an ongoing process and where risks are avoided as a matter of principle and the exploration domain, which has a more discontinuous character and where risks are consciously sought out.

Exploitation is synonymous with service lifecycle management whereby the service provisioning is constantly worked on and improved, without the customer’s experience and the service provision concept drastically changing. The customer gets the service he expects, accustomed to an incrementally improving level of quality. Exploration is about entrepreneurship, about lifting the added value of the organization to another level and surpassing customer expectations.

The IT organization that recognizes the importance of this distinction also understands that these domains each require their own policy and procedures. When formulating the innovation strategy and establishing spearheads in the different innovation domains, it is essential to match the required innovation space in the IT services portfolio to the need for improvement and innovation as set by the business.

In this consideration, the dynamics of the market and maturity and life span of the business portfolio are the main benchmarks.

2. Innovation process

Innovation leaders view the transformation process of good ideas into valuable products and services as a funnel, and they know that the entrance to that funnel has to be wide and offer space for both business as well as supplier signals. They have also learned that the constant supply of good and not so good ideas has to be processed as soon as possible if they wish to use their staff’s brainpower effectively.

In our experience, professionals working for knowledge-intensive IT service providers are indeed natural innovators, as they constantly seek to improve the service portfolio. The innovative IT organization utilizes this positive quality, on the one hand by promoting the articulation of good ideas, while on the other hand by being very clear on possibilities and expectations.

Therefore, the innovation process deserves a higher level of formalization without killing creativity. Solutions such as an idea management process, incentives for innovative behaviour, different control mechanisms and rules for different innovation domains, and a limited but transparent set of decision-making criteria in the hands of a decisive innovation board contribute strongly to an effective process.

3. Sourcing innovation

Decisive innovation also demands a clever innovation sourcing strategy in which the core competencies of the IT organization (such as specific platform knowledge and insight in the functional side of business processes) are complemented by the competencies of third parties. The entire innovation process offers opportunities for external sourcing, for example when accessing market knowledge and new technology but also when executing projects.

An effective sourcing approach to sourcing for more explorative innovation is the partnership model, where the IT organization acts as the main contractor for the business and manages to challenge their partner into being more than just a provider and to share risks. ‘Smart sourcing’ is also a matter of clever use of available in-house human resources.

The mixture of required knowledge and motivations in the fuzzy entrance of the innovation funnel, in which ideas and concepts are processed and tested, is different from the one needed for the execution-oriented exit, where development, testing and project management are important skills.

The right way of sourcing innovation is of course strongly related to innovation strategy. An organization that is predominantly exploitation-oriented requires a different palette of competences than a business that focuses on value chain exploration. Business logic alone should dictate strategic priorities in the different innovation domains.

The IT organization that ignores this dogma and clings on to its historically acquired innovation style and preferences is doomed to loose its status as innovation partner of choice. The IT organization that has not only become competent in innovation, but is also driven by business innovation opportunities, will not let this happen.

How innovative is your IT organization? A maturity model

1. Innovation-averse

  • Innovation outside the comfort zone is preferably avoided, the disappointments are still too tangible, or the taboos too strong
  • The norm is cautious adoption of proven technology within a clear-cut service package

2. Innovation-conscious

  • A number of chance successes have resulted in innovation looking a very attractive proposition
  • Willpower alone often proves to be insufficient for implementing innovation projects within the expected time and quality

3. Innovation-competent

  • Success in innovation projects has become largely achievable and repeatable
  • The IT organization has gone through the growth process that enables it to be the regular innovation partner of the business. External competition, however, is still lurking

4. Innovation-prone

  • The IT organization constantly strives to increase its keenness in providing innovative services. Innovation efforts expand in breadth as well as in depth
  • Awareness of one’s own limitations in knowledge, skills and capacity result in a preference to seek cooperation with external partners

5. Innovation-driven

  • The collective awareness of the value, the challenge, but also of the ‘fun’ of realizing distinguishing and business-oriented innovation based on IT is strongly developed
  • The dividing lines between IT and business become faint, the IT innovation strategy is the business strategy

Each organization hopes that their internal IT provider offers maximum support in professional innovation. Internal partners are preferred over external ones but in case of prolonged disappointments, they rightly look for outside alternatives. In that case, outsourcing the IT function is the obvious choice.

A decade of mixed experiences with outsourcing teaches that in some cases the remedy is worse than the illness, especially when no cadre organization remains capable of effective governance of demand and supply flows.

Therefore, outsourcing is an indirect solution to the problem of a faltering innovation function. Direct investment in one’s innovation power is in most cases a more effective and a more permanent solution. Innovation can be learned.

IT Service Management Innovation Architecture

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