Vol. 6, No. 12 Printer Friendly PDF version

THE FUTURE OF IT VALUE CREATION IN A GLOBAL ECONOMY

Domain

Assertion 145

Contents

• Opinion by Rob Austin
  
• Concurrence by Tim Lister
  
• Dissent by Ken Orr
  
• Partial Concurrence by Lynne Ellyn
  
• Partial Concurrence by Ed Yourdon
  
• Concurrence by Christine Davis
  
  
  

OPINION BY ROB AUSTIN

The future belongs to those who know how to create new things.

This is the theme that I present in my final classes with MBAs and executives at the Harvard Business School. If they remember only one thing, I hope it's this. It's worth repeating, with emphasis added: "The future belongs to those who know how to create new things."

I said this to a friend of mine, a world-class product development manager, one of very few people in the world who really understand how to turn research into salable products, and he had this to say (he's from Texas): "Damn straight! We've got to get manufacturing back in this country!" But that's not what I mean by "new."

There is, of course, a sense in which a manufactured product -- say, a new car rolling off an assembly line -- is new. That particular car has not existed in the world before. But there is also a sense in which that car is not at all new. Before anyone performs the first operation involved in making a car on an assembly line, the car and the process for making it are completely prespecified in exacting detail. No one builds anything until they are sure they can build everything. If there is anything surprising about the car that results -- if it is different from the product prespecification in any way -- we have a phrase for that: we call it a "quality problem." In this world, surprises are generally bad, and we devote much effort to avoiding bad surprises.

What I mean by "new," though, is something different. By "new" I mean novel -- that which obtains value because of its difference from what has come before it or what has been previously imagined, not because it conforms to a predefined idea of what it should be. I mean things that are valuable in large part because they are surprising, in delightful ways. New, never-before-seen or experienced products or services. New, never-before-exploited markets or strategies. The future belongs to those who know how to create things that are new in this sense, not in the manufactured new sense. Knowing how to create things that are novel and valuable is quite a different matter from knowing how to create a high-quality manufactured good. It requires different ways of thinking, different management principles.

Creating things that are novel and valuable -- this is the capability that is most essential to generating value in developed economies of the future. Why am I so convinced of this? I can best explain by repeating something that a major US company's CIO said to me about a year ago. He was explaining to me the gist of what he'd been doing for the past two or three years since taking his position. As he said it, I could tell that he himself was at least a little bit surprised that so much of what he'd been doing could be summarized so succinctly. What he said was this: "Chunk it, routinize it, digitize it, automate it, and send it offshore."

His company had discovered something that the company Despair, Inc. (http://despair.com; check out their wickedly funny posters) expresses this way: "A company that will go to the ends of the earth for its people will discover that it can hire them for about 10% of the cost of Americans."

This CIO reckoned that there were only about two operations in services his company provided that could not be sent offshore. One had to be kept local because of a legal requirement, and another, it was determined, was best done locally because it benefited from close customer contact. The rest could go the China, Ghana, India, the Philippines -- wherever. And an awful lot of it had.

Although I know others on this Council disagree with me, I assert that this trend toward offshoring is pretty much unstoppable. If you can prespecify work in detail, and quality can be reasonably well ensured via conformance to process specifications, why -- as a business matter anyway (that is, setting aside for the moment public policy concerns) -- would you hire expensive labor to do the work? The first wave of this movement of work has been startling in developed economies, but the next wave will be breathtaking. Even if it's only a percentage of work done in developed economies, it's a percentage of an increasing absolute number. And we should be wary of "reassuring" words like "Some things can't be offshored."

I have a favorite example I trot out when people start talking about things that can't be offshored: a company that makes plastic brackets that substitute for the wired braces orthodontists put on people's teeth to straighten them. The process for making these practically invisible plastic brackets is very sophisticated. Your dentist makes a mold of your mouth, which then gets digitized and transmitted over the Internet to offshore (though often US-trained) orthodontists who work for two or three dollars an hour. Working with software engineers who are paid even less, these orthodontists create a digital movie that describes the trajectory of your straightening teeth from starting point to end point. The movie is transmitted to a factory in another low-labor-cost country, where more fancy technology is used to create the plastic brackets from the digital specification embodied in the movie. A few days after your dentist sticks that gooey mold into your mouth and asks you to bite down, a suitcase shows up in his office with plastic brackets for you to wear over the next couple of years, a slightly different shaped bracket for each week.

I mention this example not to prove anything, but to be provocative -- if you were going to make a list of people whose jobs probably couldn't be offshored, wouldn't "orthodontist" make the list? You'd think an orthodontist would need to be close to the patient, inside his or her mouth in fact. But no, not after some clever entrepreneurs and some interesting IT get involved. As a marketing matter, I suspect this company would never profess an intention to offshore orthodontists' jobs. But I'll let you decide what this amounts to and whether the offshore label is justified. Hopefully my point is clear: many things you think can't be offshored probably can be.

To continue to develop the implications of the shift in the location of many forms of value creation, let's pause to make a couple observations:

1. In the formula "chunk it, routinize it, digitize it, automate it, and send it offshore," only the very last part is at all new. The "chunk it, routinize it, digitize it, automate it" is the bread and butter of what we have done with IT in the last three decades or so. We sometimes beat ourselves up for project failure rates and suboptimal investments in IT, but the fact is that business in developed economies has been dramatically transformed by IT managers busy at chunking, routinizing, digitizing, and automating. As a profession, we have created immense value in this way. It is what we really -- really -- know how to do.

2. In the future, however, that work is likely to happen increasingly in low-labor-cost environments. Businesses in developed economies will capture much of the value of having work done in lower-labor-cost places, but if you are an IT manager who doesn't plan to move to Bangalore or Beijing, you'll eventually have to figure out other ways of using IT to create value.

Specifically, you'll have to learn how to create value by supporting the creation of novel and valuable things, and this will not be about chunking, routinizing, digitizing, and automating. Creating value by creating new things is not about routinization or automation in any traditional sense. If you automate a process, you ensure your ability to re-execute it. But if you execute the same thing twice, you'll get the same result. Creating new things is not about value extracted from consistent re-execution of the same processes. It is about new processes, with surprising characteristics and unexpectedly valuable outputs. Our automation reflexes will not serve us well in efforts to create anew.

Early Days for Innovation Managers

Figure 1 shows the historical evolution of the labor force from 1850 through 2010 (an estimate). This picture is for the US labor force, but other developed economies show similar patterns. There are several things to notice about this picture.

Figure 1 -- Agrarian to industrial to information economy. (Source: Compiled from numerous sources, including [1] and reports from the US Department of Labor, Bureau of Labor Statistics, www.bls.gov.)

First, the ways in which people are employed shifts rather dramatically over time. If you were working in 1850, you were likely, with 50% probability, to be working on a farm. By 100 years later, in 1950, that 50% had shrunk to 14%, and a category that had not even existed in the 1850 statistics -- "manufacturing worker" -- was the largest at 29%. By 2010, agrarian employment will have shrunk to a miniscule 2%, and manufacturing workers will be down to 11%. The new largest category then will be something we don't even have a good name for now, people who create value primarily by innovating, often through manipulation and transformation of intangible materials, such as ideas, symbols, and brands. Call them "knowledge workers" if you like, or maybe "innovation workers."

Second, realize that when we observe shrinkage in a job category like "agrarian worker," we are watching a management learning process in action. The 2% of people who will work in the agrarian sector in 2010 will make far more food than the 50% in that sector in 1850 ever did. The absolute numbers underlying the percentages are increasing as well, but that's not the main reason for the increase in the amount of food. The main reason is that we grew a lot more capable in managing the production of food. Ditto for manufactured goods. The fact that so many people worked in factories in 1950 and that relatively few work in manufacturing in 2010 shows how much better we've gotten at managing factories through six decades.

Third, when the workforce transitioned from agrarian to manufacturing orientation, managers were not able to simply transfer the lessons of state-of-the-art farming into the factory setting. Some learned practices from farming were no doubt transferred into factory settings, but surely much could not be. Farms are not factories, and superb farm managers were not necessarily great factory managers. The shift in the mode of value creation generated a new need for management know-how.

Which leads me to some conclusions:

1. These are still very early days in the management of those knowledge or innovation workers who produce new value by creating new things. Any management understanding we have that concerns factory management is many decades more developed and refined than our understanding of managing, say, software developers. Hence, we have much to learn about managing innovation-based value creation.

2. Just as agrarian managers and workers probably first tried to transfer their understanding of farms to factories, so are we inclined to try to apply our hard-won understanding of how to manage factories to innovative work. It's a natural human tendency to want to use the knowledge you already have, to do what you already know how to do, rather than admit that you must learn something new and different.

3. The chunking, routinizing, digitizing, and automating that we have done so well in IT is part of our "factory" mindset; much of it will not help us as we move forward into innovation-based value creation. The very success we have experienced in cost reduction and efficiency improvement in IT has been giving us the wrong feedback and has helped us form the wrong reflexes for an innovation-based future.

The challenge for the IT manager in a developed economy who wants to continue to produce business value with IT, then, is to develop a broad new strategy for supporting business value creation via innovation. Unlike the traditional approaches to creating value with IT, which were mostly aimed at the cost side of the income statement, these new ways of supporting value creation with IT will often be focused on the revenue side of the income statement.

To build on our theme: The future belongs to those who know how to use IT to support innovation processes that are as reliable at producing value by creating anew as past uses of IT have been at generating cost reduction and efficiency. But if that's not about chunking, routinizing, digitizing, and automating, what is it about? Fortunately, the answer to this question is becoming clear.

Supporting Cheap and Rapid Iteration (with a Human Touch)

Some of the most instructive examples of the future of IT taking shape have, in recent years, been in the pharmaceuticals industry. Companies in this industry have long understood the importance of revenue-side IT investments. Many firms have invested billions in what is sometimes called "industrialized drug research."

The idea behind these investments is simple and compelling: Once upon a time, it took a lab technician an afternoon to test a promising compound; the number of lab technicians limited the number of tests performed in a day. But with computerization and robotics available, this need not be true. Industrialized drug research has involved huge investments in automating this kind of experimentation, so that many more tests can be performed, much more quickly, carried out by robots and analyzed by computers. By building IT systems to make tests "cheap and rapid," drug makers can overwhelm the new drug discovery process by brute force, explore an "experimentation space" much more quickly, and thereby discover more and more blockbuster drugs at an accelerating rate. Payback is not measured in terms of cost savings, but rather in terms of new revenue sources -- new products to take to market.

That's the theory, anyway. In practice, it hasn't worked out exactly that way. The blockbusters have stubbornly refused to appear in large numbers from this process. Instead of a brave new world full of many new and amazing drugs, we have what the industry calls a major "research productivity problem." There has been much soul-searching about why this is true. Some say we simply haven't given the approach time enough to bear fruit, but another explanation often posed by those within the industry is also quite interesting. An article in the Wall Street Journal illuminates this explanation:

In 1991, Schering-Plough scientists were looking for a drug that would block a certain cholesterol-producing enzyme in the body. They noticed in a test on hamsters that one molecule, while failing to block that enzyme, nonetheless lowered cholesterol. If a robot had tested the molecule ... it would have caught the failure but missed the serendipitous side result ... scientists stumbled onto a new approach for reducing cholesterol. [2]

The problem, propose many, is that industrialized drug research removes too much of the "human element" from drug discovery. It makes implicit assumptions that the "experimentation space" programmed into the automated approach is the right one. The history of blockbuster drugs (and other great discoveries, for that matter) suggests that we often notice the most important results in a surprising way, along dimensions orthogonal to those we thought of in planning the experiment. In a way, we are back to questions of what "new" means: If we find something in the exact experimentation space where we expected to find it, how new can it really be? To be truly novel, perhaps a thing must surprise us. Not all things that surprise us will be valuable, of course, but if our process rules out the surprising (as does the automated experimentation described above), then we will have trouble producing big value.

What does this mean for IT? If we analyze the industrialized drug research process in accord with our earlier thoughts about chunking, routinizing, digitizing, and automating, we could say that they got things half right. Pharma firms focused not on cost reduction and efficiency but on revenue-side enhancements to justify their IT investments. But alas, they did not completely break away from the cost-side mindset. They applied the idea of automation -- preprogrammed and prespecified process execution -- and the outcomes were reliably consistent but not all that novel. Their reflexes were to chunk, routinize, digitize, and automate, which works very well in creating "new" products in the manufacturing sense but not so well in the novel and valuable sense. They shook off their industrial reflexes halfway (in thinking about the justification and domain of application of IT) but not all the way (they fell back on old automate-the-process inclinations). In this example, we see the clash between Industrial Age reflexes and the need to create value in a new way in the age of innovation-based work.

The way out of this difficulty is to think in terms of supporting the human capacity to try new things, to notice unexpectedly important outcomes, and to build upon those outcomes to create new value. Reducing the cost of trying things, through computerization, is a sound inclination; this is what the industrialized drug research investments do right. They make it cheap and rapid to try new things. But the human element needs to be built into the process, and computerization needs to be aimed at supporting not repeated and consistent execution of the same processes, but easily reconfigurable execution of different processes, from iteration to iteration. When this is done correctly, the overall "shape" of value creation changes. Figure 2 contrasts the shape of reliable innovation with the classical shape of processes aimed at producing outcomes that are new in the manufacturing sense of that word. In the future, IT managers in developed economies will need to focus their attentions on the new, iterative shape and try to defeat their reflexes to structure work in the old, more sequential ways.

Figure 2 -- The "shape" of reliable innovation.

Recommendations

1. Make a list of ways your company might use IT on the revenue side of the income statement.

2. Review your company's portfolio of in-progress IT initiatives and see how many of them are primarily cost-side versus revenue-side in terms of hoped for benefits. Ask yourself whether there are enough revenue-side investments in your portfolio.

3. Budget iteratively. Think of revenue-side IT investments as experiments or bets you are placing. Don't make them disastrously large where uncertainty is high, but don't back away from uncertainty either. Try to structure investments so that you "buy information" that helps you reduce uncertainty as you explore potential new revenue sources.

4. Look for opportunities to make trying things more cheap and rapid, but make sure you keep the human element present in those processes. Keep in mind that no automated solution, however sophisticated, is as flexible as the human organism. Design applications to magnify the benefits of that flexibility, not drive it out of the process.

5. If you work in one of those companies in which everything has to be justified in terms of cost savings or headcount reductions, you must immediately start a campaign to educate senior managers about the importance of expanding the criteria for project justification.

6. Take a marketing or product development class at a local business school. Try to take on a more revenue-oriented outlook.

7. Be more open to suggestions from those employees who drive you nuts by never wanting to do the same things twice or by hating to do repetitive activities. These people have the motivation you need to tap to create novel and valuable outcomes.

8. Keep in mind another deep truth from a Despair, Inc., poster: "If a pretty picture and a cute saying are all it takes to motivate you, you probably have a very easy job -- the kind robots will be doing soon."

References

1. Kutscher, Ronald E. "Historical Trends, 1950-92, and Current Uncertainties." Monthly Labor Review, Vol. 116, No. 11, November 1993, pp. 3-10.

2. Landers, Peter. "Drug Industry's Big Push Into Technology Falls Short." Wall Street Journal, 24 February 2004.

Back to Table of Contents

---

CONCURRENCE BY TIM LISTER

My concurrence to Rob's opinion takes the form of an additional recommendation to his list.

An Added Recommendation

Add a deliverable to every IT project -- that is, one or more proposals for new projects that increase value. The aspect of the role of analyst, whether a business analyst or a systems analyst, that is most often missed is that of creator/inventor. Analysts are brought onto an approved project that often has a set scope. Analysts, and their managers, feel the need to stay in those confines as they determine requirements. After all, the project usually already has a tight deadline.

Great new products and services come from a marriage of a business opportunity or insight with an available technology to realize the product or service. Both components have to fit in order to deliver value. Who is better positioned to have this insight than an analyst?

I am not saying that the analysts should deliver their proposals for new projects to the clients, but only back to IT management. It should be the responsibility of IT management to determine whether the proposal should go forward. Many probably won't, but the exercise alone is worth the cost, for it sets the tone that all analysts are expected to be on the lookout for opportunities at all times.

This proposal does not need to be expensive. One of my clients that practices this just has the project team members give a presentation of their new ideas. The cost-benefit work is done only if a proposal is deemed worthy of follow-on.

People who are finishing projects have just spent weeks or months consumed in some aspect of the business or the product. They also are reasonably tuned into what technology can currently offer. They are at the "ripe" stage for ideas. Don't lose that opportunity. If IT in your organization is going to thrive, it needs to be a major contributor to the product and service mix, not just a reactive participant in development work initiated by others. Try this proposal practice for a while, and I am willing to bet that some proposals will bring real value to your company or organization.

Back to Table of Contents

---

DISSENT BY KEN ORR

"What are you doing, Arthur?" he asked quietly.

Arthur looked up with a start. He suddenly had a feeling that all this might look slightly foolish. All he knew was that it had worked like a dream on him when he was a child. But things were different then, or rather would be.

"I'm trying to teach the cavemen to play Scrabble," he said.

"They're not cavemen," said Ford.

"They look like cavemen."

Ford let it pass.

"I see," he said.

"It's uphill work," said Arthur wearily, "the only word they know is grunt and they can't spell it."

He sighed and sat back.

"What's that supposed to achieve?" asked Ford.

"We've got to encourage them to evolve! To develop!" Arthur burst out angrily.

-- Douglas Adams, The Restaurant at the End of the Universe [1]

One of the most useful bits of information I picked up in school was the observation that professions are self-selecting. My professor, who was a sociologist, pointed out that studies have shown that surgeons like to cut, accountants like to count, psychologists have issues, and programmers, typically, like dealing with computers more than they do people. Being creative is like that. The only surefire way you have of knowing whether someone is creative is if they create.

Like brown eyes, creativity is an attribute that people are born with. Some people have it; lots of people don't. On the borderline, training can help make some people who are inclined to be creative as well others who aren't very creative more creative. In addition, it turns out that bad experiences in life, education, and jobs can make people who are creative by nature lose their edge.

I'm kind of a student of creativity. I've read everything I can read about being creative, how creative people think, how to teach creativity, and the like. I also study creative companies, or at least companies that come up with creative, innovative products. For that reason, I'm a fan of Steve Jobs. Throughout his long career, Jobs has time and again come up with really creative products. Moreover, Apple is known as a creative place. But you shouldn't get the idea that Apple is a free-wheeling, democratic environment. Friends of mine who have worked with Jobs tell me he is one of the most controlling people in the world. For a huge company, he makes an enormous number of the key decisions. But he is still creative enough that other creative people want to work for him.

The same thing was true of Walt Disney. Disney who gave the impression of being laid-back and democratic with his animators would steal into the studios at night and check out the work that his folks were doing. Lots of world-famous, creative architects are rumored to be that way as well.

I really support Rob's idea that we ought to be more creative, but maybe we want to be better at bringing innovation to the marketplace, for a little creativity goes a long way. We don't know an awful lot of Eli Whitneys or Tom Edisons or Steve Jobs to make a big difference. Maybe what we ought to be encouraging is "fast following." I think it is possible to teach not-so-creative organizations how to scan for good ideas and how to take those good ideas and get them to the market faster.

Creativity is important, and if we believe Richard Florida, ¹ we need to promote our creative class, but culture changes take a long time to take hold, and we don't have a long time. Our economy is being hollowed out in the middle. After the bubble, we lost a lot of jobs. Now we are beginning to put more people to work, but those jobs are not paying enough to allow people to be middle class, to afford healthcare, and to send their kids to college. Even if we get more creative, we're going to have to do lots of other things if we are to have a balanced economy, a less polarized political environment, and the kind of education and management system to point to the future.

A final note that most people looking at the future of outsourcing forget: in the world of low-cost- labor, there is little incentive to pursue automation or better processes. Developing substitutes leaves one other way for the "overdeveloped" world to keep from being washed away in the rush to cheap labor. Indeed, that seems to be the way Japan is moving. The Japanese, with higher labor costs and a declining population, are pushing ever harder to develop robots that can supplant people in more and more jobs. Who knows -- maybe the robots will work for even less?

Reference

1. Adams, Douglas. The Restaurant at the End of the Universe. Del Ray, 1995.

NOTES

¹Richard Florida is author of the best-selling book The Rise of the Creative Class (Perseus Books Group, 2002).

Back to Table of Contents

---

PARTIAL CONCURRENCE BY LYNNE ELLYN

Let me start by saying I agree with Rob's assertion that "creating business value with information technology will soon be less about reducing costs ... and more about ... revenue-side value creation." Actually, this is a bit like Rob saying that in the future the sun will rise in the east and set in the west. Creating new business value is about creating the new product, process, or service that someone will pay for; it has been this way since the first human picked a turnip and traded it for a basket. Cost reduction, operational excellence, and efficient process are about preserving business value or extending the economic life of a business operation.

I believe that the future belongs to companies that innovate successfully and operate effectively. People wanting a successful career in IT need to affiliate with companies that innovate and operate well. The successful IT person will likely possess some blend of both innovation skills and operational skills. Few individuals will excel at both. Fortunately, this is the potential strength of the corporation and the reason that corporations have come into being. Corporations exist because blending diverse talents and orchestrating a multitude of skills enables the large-scale creation of economic value. The history of the human race has been individuals clustering together to become families, families becoming clans, clans creating villages, villages evolving into cities -- because humans succeed more often in organized groups than as isolated individuals. It should be obvious that business is another manifestation of this same phenomena. Business innovators cannot achieve significant success without marketing, distribution, accounting, legal, and IT. Business success is a fusion of diverse contribution. A successful business embraces innovators and operators. Successful IT departments need innovators and operators. IT people come in both flavors.

I do not fully endorse Rob's opinion, however. First of all, I disagree with the implication that only innovators will be successful. Rob is asserting that everything else should be chunked, routinized, digitized, automated, and outsourced -- probably to India and China. While I am deeply troubled by the potential rapid destruction of the American standard of living, I think we are missing the obvious. The folks providing the operational stuff in India or China are being successful with chunked, routinized work and have innovated new, albeit cheaper, business models. For them, operating efficiently is the model. And like the Japanese who began their encroachment on the American auto industry by first building cheap trinkets and then building cheap cars, the newly successful Indians and Chinese are likely to move from chunked, routinized work to a blend of innovation and operation -- if they are to succeed in the long run. As their standard of living improves, they will become like us and their companies will be subject to the same need to innovate and operate effectively.

The relentless chunking, routinizing, and outsourcing that Rob envisions sounds like a cancer that will destroy all (American?) employment in business operations and leave only creative innovators with jobs. Rob cites the sensational example of Western-trained orthodontists residing in India who are providing orthodontic care for approximately two dollars an hour as compared to the thousands of dollars required for care by the local orthodontist. Rob says this is a cautionary tale and that we should not comfort ourselves with the idea that any work is exempt from being chunked, routinized, and performed by someone for a fraction of today's cost. Of course, in time, all work that can be done cheaper or better will be, but this sensational example is an anomaly. How many people will be able to afford an education that costs more than $100,000 but results in a job paying two dollars an hour? How sustainable is that model? If this story is true (I know, I know -- Harvard has a case study), how can anyone believe this model will scale? Do you believe that there are large numbers of people who can and will expend the money and effort required for an advanced dental education but are willing to practice for two bucks an hour? Think about this -- seven or more years of effort and more than a $100,000 spent on education for a job that pays less than McDonalds? Not likely. Furthermore, the orthodontia story isn't a story of chunked, routinized, outsourced work; it is the story of innovation -- the innovative new product and process for straightening teeth. And at the beginning of most innovations, there is a period of selling the product for cheap to get people to try it. For example, the doctor who believed he could test for and treat sleep apnea began by handing out brochures offering a free medical exam and tests. From those patients who accepted "free" medical care, the basic research was completed, the treatment protocol developed, and the C-PAP machine invented. Today, sleep clinics around the country offer testing and treatment for thousands of patients afflicted with sleep apnea. And trust me, the treatment is not free, and the people working in those clinics are not paid two bucks an hour.

The innovation of plastic appliances to straighten teeth is likely to displace the soldered-on braces in prevalent use today, but I suspect that Americans will seek the new, innovative plastic appliance at a local orthodontist whom they trust. The new appliance will be cheaper, and much of the savings will be passed on to the patients. The orthodontist will make up the difference in volume, with new patients who couldn't afford the older, more costly, more time-consuming method. Perhaps all of this will lead to an innovation that has parents preventing misshapen teeth with new appliances used at earlier and earlier ages (or some other innovation).

Innovation is the future. It is also the past and the present. IT people can expect that IT jobs will be available in both operational and innovative flavors. The risks and the rewards are more dramatic on the side of innovation, and there has never been a better time for IT people to hone their inventive skills. However, companies still need excellence in operational aspects if they are to survive to innovate another day.

Back to Table of Contents

---

PARTIAL CONCURRENCE BY ED YOURDON

I was intrigued by Rob's opinion on the future of IT value creation and the importance of creativity and innovation -- perhaps because, as Ken has suggested, it's a self-selected preference. I like to create new things out of nothingness, and I've gotten a great deal of personal and professional satisfaction -- and occasional financial rewards -- from the entrepreneurial activity of creating new companies, new products, and new ideas. And it's very hard to work in the IT profession without being seduced by the folklore that we all have the opportunity to become the next Bill Gates or Steve Jobs.

But that may be just the personal prism through which I viewed Rob's opinion, and my perspective may not be the same as the average CIO or high-level IT executive who tries to make some sense of Rob's advice. Certainly, the average CIO is not dealing with the realities and constraints of the various entrepreneurial startup operations I've been involved with over the past 30-40 years: a couple of 20-something nerds sustained by pizza and Red Bull and working 18 hours a day has little or nothing in common with the examples that Rob cited from pharmaceutical research companies.

Yes, huge, global-scale corporations do need more innovation; and yes, their IT departments may be able to play a critical role. But I think it's critical to remember that Rob and all of the members of the Cutter Council, and most of the people who read our modest opinions, are part of a generation that probably won't be doing the formative work of innovative product development for the next generation. That may not be immediately obvious when you wander the halls of Corporate America today, but it is obvious when you wander through the outsourcing factories in India and China -- primary examples of countries that are doing all of the "chunk it, routinize it, digitize it, automate it" work today but that fully expect to move up the value chain to innovative product development tomorrow. Those folks are typically in their 20s and 30s -- not just the workers, but also the key managers.

I've gotten to know several of these young workers over the past decade during my trips to India, but even so, it would be presumptuous for me to say what they want, what they expect, what they really aspire to. Meanwhile, I've raised three kids in the US, and they're all fully grown, functioning adults ranging in age from 25 to 35, so I do know something about what this country's generation of young adult, college-educated workers aspires to. It should be no surprise that none of them are motivated by the notion of spending a career devoted to "chunk it, routinize it, digitize it, automate it" work. It might be preferable to unemployment or to a minimum-wage job flipping burgers, but it's not what they want to do. Just as was true when my generation graduated from college, today's young adults want to do interesting, challenging, creative, innovative work that will make a difference.

So that's one interesting corollary of Rob's opinion: the very generation of young engineers, IT professionals, and other knowledge workers who are likely to do the innovative work are all in favor of it. Whether they are encouraged, nurtured, and supported in such endeavors, while working for General MegaCorp, is perhaps the Big Question for Harvard Business School professors to ponder. But if the large American and European corporations are too conservative, bureaucratic, stagnant, or incompetent to provide such support, the young innovation-oriented knowledge workers have the same option that my generation did: go out on their own and start their own business.

Lynne made an interesting comment in her response to Rob's opinion: "Business innovators cannot achieve significant success without marketing, distribution, accounting, legal, and IT." Yes, of course, that's true -- but it's a moot point if the innovators didn't come up with something interesting in the first place, and if they didn't have the persistence to make it self-sustaining and profitable enough (or at least potentially profitable enough) that the marketing, distribution, accounting, legal, and IT infrastructure could be justified. And all of that stuff is a lot cheaper and more readily available now than it was 25 years ago, partly because of cheap technology (PCs, Internet, etc.) and partly because, ironically, so much of it can be outsourced on an as-needed basis.

So I'm not worried about a scarcity of innovation in this country; I'm convinced that the current generation and the next generation will have just as much of it as my generation and the generation before. Yes, we now face a lot more competition from equally innovative and ambitious knowledge workers in other parts of the world, and, yes, perhaps the young knowledge workers in India and China are even more ambitious than our young knowledge workers. And I know that the problems in this area are exacerbated by the decline in technical/engineering studies at the university level in this country. But in the meantime, I think there's a much larger issue that we need to focus on.

Rob's example of innovations in pharmaceutical research is a good example of what might be called a "universal" or "generation-independent" marketplace: we're all concerned about curing cancer, diabetes, heart disease, and a long list of other problems. But at the same time, more and more of the potential services and products that might be created by our innovators are influenced by the needs and preferences of specific cultures and generations. And, quite frankly, my generation doesn't have a clue about the next generation's preferences.

Let me offer a couple of examples. Ten years ago, when the Web was quite new, I was an enthusiastic advocate of services like Amazon.com; and five years ago, I was one of the most enthusiastic fans of Google ("Google what?!?" my friends used to ask). But I never did figure out what eBay was all about, because it was never part of my culture or generation to barter or sell personal possessions. I'm not saying that that's good or bad; it's just something that I fundamentally don't understand. Neither does my wife and neither do any of our friends within our culture and age group. We're simply clueless about eBay, and thus we would never have seen it coming, would never have thought to endorse it, recommend it, nurture it, invest in it.

A more recent example is craigslist (www.craigslist.org). I'd heard of it, but the first time I actually visited the Web site was five minutes ago, when I typed this paragraph. Yet two of my three children run significant parts of their lives on craigslist: finding apartments, roommates, jobs, dates, Good Samaritans who will return the cell phone that my absentminded kids left in a New York City taxi, technicians who will repair their broken iPods (they'll meet you at the local Starbucks and fix your device for $20), and God only knows what else.

And this is not just an underground Web site. According to a recent article, craigslist gets 3 billion page hits a month, from 10 million users per month [1]. It's cannibalizing the hugely profitable classified-ad revenues of local newspapers across the country, and most newspaper publishers have never even heard of craigslist founder Craig Newmark. How's that for innovation?

Here's the key point: I don't need craigslist, so it would never have occurred to me to create it -- or to provide any kind of support or investment for someone who did. I don't need a girlfriend; I've already got a wife. I don't need a roommate; my wife and I have our own apartment. If I lose my iPod, I would never think to advertise in the lost-and-found section of craigslist; I would simply get another one. But my 25-year-old son sublet his apartment in Brooklyn for two months and found a two-month sublet in Montreal during a short sabbatical -- all arranged with a couple of visits to craigslist. It's part of his life, and he would be the sort who would support it, nurture it, and invest in it.

All of which leads me to add one more item to Rob's list of suggestions: Be on the lookout for the new college graduates -- as well as the summer interns, part-time employees, and admin/clerical kids who exhibit some originality and creativity -- and pay attention to their opinions, their criticisms, their suggestions, and their lifestyles. They may be entirely antithetical to your lifestyle, preferences, and opinions, but they may be the ones to give you clues about the next wave of innovative products and services.

Reference

1. Weiss, Philip. "A Guy Named Craig." New York Magazine, 16 January 2006 (www.newyorkmetro.com/nymetro/news/media/internet/15500/index.html).

Back to Table of Contents

---

CONCURRENCE BY CHRISTINE DAVIS

I agree that IT management must shift its focus to the revenue-generating needs of the company to continue to create business value. It will not be easy to make this shift; it will require members of the IT staff to learn about new aspects of the business, to connect with new functions, and to develop new skills. It will also require executive management to open doors and be more inclusive as they organize their marketing, product, and strategy teams.

Rob is concerned that IT managers have cost- and efficiency-based management reflexes that poorly prepare them for this shift. This may be true; however, I do not see this as the only limiting factor. IT management and their technical staff normally do not work closely with those working on the strategy and R&D for the company. IT provides support for everyone in a corporation, but this is not about providing the typical IT support. To become a valued contributor to the revenue-generating part of the company, IT technical staff and management must get very close to those who are developing the new markets, products, services, and strategies in order to understand their challenges and propose solutions. It is not adequate to simply have the CIO be included in product and R&D reviews at the executive level. IT has to spend quality time with the engineers, marketing people, customers, and strategists while they are creating their solutions and working on challenges regarding the product itself. IT technical people need to be involved in real time so they can see how the work is being done and then offer IT technical solutions. A fresh look at the problem is required in order to see ways IT can increase value. R&D management is probably not going to be walking over to the IT management offices and handing over their investment dollars unless IT has some great ways to add value to their product or service.

IT has been in existence long enough to be stereotyped like every other function in the company (engineering, human resources, legal, etc.). Organizations have a way of keeping everyone in their place, doing what they are "supposed" to be doing. For example, the leader of the R&D group, who is developing a new process for creating the next-generation focal plane array detector, is not going to invite the HR person to the technical meetings. HR is invited only when they are needed to hire or fire someone or to take care of personnel issues. Equally so, the IT technical support person is normally not invited to the meetings unless there is a technical problem with the tools, computer, or the network. I worked on the product development, strategy, and marketing side of Fortune 500 companies for more than 25 years, so I know firsthand: IT technical staff did not attend product development meetings or spend a lot of time with the R&D people. Many IT people do not have the technical or marketing background to understand the issues well enough to offer creative solutions.

Creating inclusive teams that involve diverse functions is a major culture change for many companies. Those who have spent their entire career in IT may have a difficult time understanding critical aspects of R&D. Likewise, those in R&D may not see the value in taking the time to educate an IT person on their efforts. So how does IT get close enough to the creation side of the business? This is a huge management challenge that requires some creative thinking in itself. Diverse teams need to be formed that include nontraditional functions like IT that look at the market opportunities, new product approaches, innovative services, and the best strategies. I imagine that a different set of eyes focused in these areas would bring out some creative ideas that would not have been envisioned otherwise.

IT management and staff have to get out of their "lane" if they want to shift to the revenue side. IT has responded when called upon in many domains, but shifting lanes is tricky and risky. An IT shift to the revenue side will be successful only if there is major support and direction from the right leaders in the corporation.