05:19 PM
Bob Evans
Bob Evans

Global CIO: The Innovation Revolution And IT's Indispensable Role

MIT's Erik Brynjolfsson has a new theory on how leading companies are leveraging IT to unlock unprecedented waves of innovation -- and are reinventing R&D.

Welcome to our fourth installment in our week-long series on "IT's Golden Opportunity."

For all of its faults and shortcomings--its complexity, its cost, its fragility, and its runaway variability--strategically applied information technology has become the primary tool with which leading companies in many industries have begun to separate themselves from competitors, says MIT professor and global IT expert Erik Brynyolfsson.

And that momentous achievement, he says in a recent interview in MIT Sloan Management Review, might be only a hint of the IT-driven business value still to be realized. As Brynjolfsson (brin-YOLF-son) sees it, in addition to the surface-level operational and financial improvements IT has helped to create are some less-obvious but extremely valuable enhancements to the sought-after process every CEO wants to master: innovation. Here's a quote from the Review's interview with him:

"IT is setting off a revolution in innovation on four dimensions simultaneously: measurement, experimentation, sharing and replication. Each of these is important in and of itself, but, more profoundly, they reinforce each other. They magnify the impact of each other... By doing all four of these changes together, companies are, in essence, creating a new kind of R&D."

This is exactly the type of finding that needs to be more widely disseminated in today's challenging economic times as the hunt for scapegoats intensifies: Why do we have to spend so much on IT? We can't measure ROI, so how do we know what we're getting? Shouldn't all those systems have been able to tell us that a downturn was coming? IT is just a cost center--why don't we just get rid of the whole headache and outsource it to somebody who'll do a far better job for half the cost?

Of such assumptions are companies crippled and careers ruined. IT is far from perfect--heck, the proof of that is the existence of businesses like InformationWeek, whose sole mission is to help IT leaders strive to achieve something even remotely approaching IT perfection.

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So let's look at this from the opposite perspective, which is one that Brynjolfsson takes: how can companies leverage their IT assets and the output from those assets for maximum value? In the Review article, Brynjolfsson traces that question through his four dimensions of measurement, experimentation, sharing, and replication--and for each of those four elements I've extracted an excerpt from his comments.

(For much more analysis on the strategic role of IT and today's CIO, please see our "Recommended Reading" list at the end of this column.)

1) Measurement. "It's more like radically improved measurement, through the use of what I call nano data," he says in the Review article. "That includes clickstream data, Google trends, detailed e-mail data, the billions and trillions of bits of information that are thrown off by enterprise planning systems. Even without any conscious effort on the part of the designers, this information is just generated. But by studying these data very carefully, companies can have much better knowledge of their customers, of their business processes, of their product quality, and of defects of their supply chains. The field of business intelligence has been tapping into this explosion of data."

From measurement, on to experimentation:

2) Experimentation. "IT-based experimentation is most obvious in companies like Amazon, which regularly conducts what it calls "A/B experiments," tests of its Web pages that deliver different versions of the same page at the same time to different visitors, monitoring customer experience and follow-through. Google, similarly, does 200 to 300 experiments on any given day. But it's also quite common in catalog companies, like credit card companies and direct mail companies, and even in mainstream brick and mortar companies like the casino chain Harrah's... And that, of course, is the gold standard for being able to have actionable knowledge about what's really happening in your business, what innovations are paying off and which ones aren't."

3) Sharing. "We often think of grand innovations, like the invention of the light bulb, as what drives economic growth," Brynjolfsson says in the Review article. "But equally important, and perhaps more important, are the 1,001 small innovations that regular business managers and line workers do every day at their jobs. If we can find more effective ways of sharing those micro-innovations with one another so that each person doesn't have to reinvent the wheel or reinvent the printer routine, then we're much more likely to be able to get a faster, more steady pace of economic growth--and improved competitive advantage for the companies that make that easy."

4) Replication. "However, what we also see is that business processes themselves can be replicated by leveraging information technology. A nice example is what Andrew McAfee at our Center for Digital Business described in his study of CVS. The company implemented an improved business process for prescription drug ordering at one of its pharmacies, which improved customer satisfaction significantly. But what happened next is what's really important. Mangers took that business process and embedded it in an enterprise information technology system, and then they replicated it to 4,000 other pharmacies in 4,000 other CVS stores within a year. We're seeing that not just in retailing but also in manufacturing, in banking, in industry after industry."

The MIT Sloan Management Review Q&A with Brynjolfsson is compelling in several respects (again, you can read the whole piece here) but primarily for his unabashed contentions that IT has not only been carrying its own weight for the past decade but that it's been delivering far more value and improvements and capabilities than most companies are willing or able to grasp--and that trend, he says, will continue:

"What we're going to see in the coming decade are companies whose whole culture is based on continuous improvement and experimentation--not just of specific processes, but of the entire way the company runs," Brynjolfsson says in the article. "I think this revolution can be fairly compared to the scientific revolution that happened centuries ago. Great revolutions in science have almost always been preceded by great revolutions in measurement. Management historically has not had that kind of careful measurement or experimentation. But it's time that we catch up."

Indeed--time for many companies not only to catch up but to push ahead. For CIOs, that means leveraging the full thought-leadership Brynjolfsson is advocating here: driving the idea that the IT systems and processes for which the CIOs are responsible are not just linear and mechanistic devices that can handle lots of transactions, but instead can help create ideas and insights that enhance customer engagements and then increase revenue.

As Brynjolfsson says in his concluding comment: "And when historians look back on this era, I think many people will call it not just The Great Recession, but perhaps The Great Restructuring because of the way that businesses are changing how they're working and because of the central role that IT has in driving some of those changes."

Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO, or write to Bob at [email protected].

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