The CIO’s Balancing Act
During the MS&E 238 Week 1 lecture, Dr. Daniel Barreto introduced the class to the balancing act that CIOs face, as illustrated below1:
This balancing act is part of a broader set of common strategic tradeoffs facing all firms and their executive teams. The CIO must not only effectively balance technology tradeoffs, but also:
- Align technology balance decisions with the firm’s overall strategy
- Inform the firm’s executive team on risks and opportunities vis-à-vis these tradeoffs
- Make choices that minimize or eliminate the tradeoffs altogether
- Maximize the firm’s agility in the face of internal and external change
Aligning Technology Strategy with Firm Strategy
The leadership team of every firm must make strategic decisions to navigate through market, competitive and regulatory forces to reach its objectives. In the book The Three Tensions2, the authors call out some of the strategic tradeoffs that leadership teams face: growth vs profitability, whole vs part and present vs future. The choices that a leadership team makes along each of these strategic axes (or, when possible, the choice to eliminate a tradeoff) form an important part of the firm’s strategy. A leadership team that fails to optimize along these dimensions effectively chooses to move slowly along many competitive fronts and leaves the firm vulnerable to competitive threats. Similarly, if any of a firm’s major functions, including IT, is misaligned with the overall strategy, the firm will lack the focus and speed required to compete effectively.
It follows that the CIO must not only balance the technology tradeoffs for the firm, but also align those tradeoffs with the overall needs of the firm. For example, if a firm’s strategic focus is on growth (rather than profitability), a reasonable strategy might include flexible configurations of its products and services to expand the serviceable available market. This strategy could be supported by a CIO choosing to maximize flexibility and team needs over centralized control and enterprise standards. On the other hand, if the CIO chose to maximize centralized control and enterprise standards, the firm’s execution would likely be delayed by change control processes and lengthy enterprise purchasing agreements.
Providing Risk and Opportunity Insights to Executive Team
The CIO is in a unique position to understand risks and opportunities related to technology. Company risks involving security and scalability are often best understood by the IT team. Opportunities to leverage new technologies such as deep learning to replace large and complex hand-written rule sets or virtualization to improve infrastructure utilization usually stem from the IT department. A forward-thinking CIO that works proactively to avoid risks and exploit opportunities can significantly contribute to successfully steering the strategy of the firm.
Minimizing and Eliminating Tradeoffs
While firms regularly face the tradeoffs mentioned above, the CIO can often minimize those some of those tradeoffs through creative approaches. In fact, leveraging certain technologies could even eliminate some tradeoffs. For example, effective use of cloud computing to achieve “elasticity of resources, without paying a premium for large scale”3 converts the low cost OR flexibility tradeoff to a low cost AND flexible approach that small- and mid-size companies couldn’t otherwise achieve. The benefits are obvious when a CIO creates a win-win situation out of an either-or tradeoff.
Maximizing Firm Agility
Firms operate in an ever-changing environment. Leadership teams must continually adjust their strategies, including decisions about the tradeoffs mentioned above, to remain relevant. In fact, the rate of change is accelerating rapidly. In a recent article, Klaus Schwab, the Founder and Executive Chairman of the World Economic Forum, stated “We stand on the brink of a technological … its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before.”4 In regards to technology’s impact on business, he stated in the same article that “the acceleration of innovation and the velocity of disruption are hard to comprehend or anticipate.” This means that the CIO’s balancing act is not a static one. The effective CIO will not only calculate the balance required to optimize for the current environment, but will also hedge for likely changes in the future, whether from the firm’s own progress or from external factors.
Conclusion
Like Dr. Barreto stated in class, the CIO needs to make big tradeoffs all of the time. While this is true, the whole picture is even more complicated. The effective CIO must align those tradeoffs with the strategic tradeoffs of the whole firm, proactively influence the strategic direction of the firm, creatively find ways to minimize and eliminate tradeoffs and prepare for required changes in firm direction.
References
- Daniel Barreto: MS&E 238 Lecture 1 – IT Fundamentals, 6/30/2017
- Dominic Dodd and Ken Favoro: The Three Tensions: Winning the Struggle to Perform Without Compromise, 2007
- Armbrust et al: Above the Clouds: A Berkeley View of Cloud Computing, 2009
- Klaus Schwab: The Fourth Industrial Revolution: what it means, how to respond, 2016
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7 comments on “The CIO’s Balancing Act”
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Hi Elon,
Indeed a very informative and enlightening article. But don’t you think that with ever changing technology and rapid rise of AI and automation, the skills a CIO required back in the day and what is expected of them now has changed drastically ? After being in the industry for so long, do you think that such a skill gap exists ? If yes, what can be done to overcome this ?
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Hi Dhruv – Great question. I do think there is a danger for CIOs to fall behind, but I also think that they are in a great position to stay on top of technology changes if they are diligent about doing so. Technology is certainly driving change at an accelerated pace, which means that there are more things to learn now than there used to be. That can be daunting. However, CIOs only need to know enough to make informed decisions about adopting technologies, leading internal transformations and protecting their companies from disruption. They don’t need to be the hands-on expert on every technology. Also, learning new technologies and approaches is easier for people who already have an extensive base to build on, which is the case for most CIOs. CIOs are in a position to build a large network of team members and advisors (including vendors) that they can leverage to stay informed. CIOs can also enroll in courses (like this one!) to stay relevant.
Of course, all of this is moot if the CIO doesn’t make a continual effort to learn. I have seen that happen many times with technology leaders. While many new technologies only require an incremental adjustment to adopt, some are truly disruptive. If you miss one of those, it could cost your job as a CIO and/or put your company at a significant disadvantage. I see Deep Learning as one of those fundamentally disruptive technologies that completely change the playing field across many industries. With the recent hype of DL and AI in general, the battle for talent in the field is escalating at an extreme pace, and the assets required to win (e.g. data and the means to form feedback loops) are getting gobbled up as well. It will be a lot harder to catch up for those who are late to the game.
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That’s correct. I think a college degree is just not enough to keep you relevant in the market. Today’s market dynamics require us to keep learning constantly.
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Hi Eldon,
Thanks for a very informative blog, you have provided us the insight of CIO role in an organization. I have a follow-up question which Dhruv Arora asked before. What are the challenges a CIO face when there is need to train existing manpower to adopt completely new technology such as AI? what can be done to overcome this
Hi Ramdev – Adopting transformative technologies like AI should be viewed as a broad change for a company. A great template for managing change can be found at https://www.kotterinternational.com/8-steps-process-for-leading-change/.
Here’s a few key components of how we’re doing it at Recondo with ML/AI/NLP:
– Create urgency and a vision through discussions at leadership meetings and company town halls
– Prepare technology team through external training, twice-weekly internal training, prototype projects and SDLC/QA updates. Once we have more experience, we will standardize architecture and acquire/build frameworks to facilitate development at scale.
– Ensure that the company can create value from the technology by creating a robust ML/AI/NLP feature/product roadmap through focused sessions (involving product management and broader management team) and dedicating development bandwidth to these initiatives
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Hi Eldon,
Thanks for such a helpful article, I have leant a lot from it.
Also, I have a question while I was reading. In the article, you mentioned that “…….effective use of cloud computing to achieve ‘elasticity of resources, without paying a premium for large scale’ converts the low cost OR flexibility tradeoff to a low cost AND flexible approach that small- and mid-size companies couldn’t otherwise achieve. The benefits are obvious when a CIO creates a win-win situation out of an either-or tradeoff.” In terms of effective use of cloud computing, is there a either-or tradeoff between security & availability from in-house system(such as the issue of AWS happened recently ) and low cost & flexibility of using cloud service?
Hi Yijue – Great question. For most companies, I don’t think there is much of an either-or tradeoff between security and availability for using cloud services, the recent AWS outage notwithstanding. It is true that by leveraging the cloud, a company is putting information security (confidentiality, integrity and availability) at least partially in another entity’s hands, and may be introducing additional failure points by doing so. However, there are scale benefits with security that cloud providers leverage on behalf of their clients that most of their clients can’t. To get the same availability as the big cloud providers, a company would need to invest in a lot of redundant hardware, monitoring tools, monitoring staff, security solutions, etc.
I think you’ll find that the big cloud players have a better security record than most of their clients. That said, if a company felt that they couldn’t afford an AWS outage to affect them, they could choose a hybrid or multi-vendor cloud solution to improve availability (although confidentiality and integrity would be a bit harder and more expensive in those configurations).
As a point of reference, I worked at Unitedhealth Group for a number of years, which has significant scale. They had over 10,000 physical servers in their data centers at the time and over 3,000 in-house applications to run the business. The availability target for their top ~30 applications was 99.85% uptime (for the applications – not the infrastructure alone), which they almost always achieved. They didn’t set a higher SLA because the cost to guarantee it would have been significantly higher (and this is for applications that cost the company millions of dollars an hour if they were down). To achieve 99.85% uptime, they still had high-availability architectures and hot DR sites for each of them, as well as armies of staff monitoring and supporting the applications and the infrastructure supporting them. While I was working there, we had a catastrophic failure due to a power failure (despite 3 redundant power systems for the data center that was affected), which took about 24 hours to resolve for those top applications and about 72 hours for all applications to be brought back up and tested.
My point is, while companies do have some exposure when outsourcing to a cloud provider, very few organizations have the scale and maturity to do better on their own.