Are The CIO And IT Organization Replaceable?

The new conventional wisdom is that the CIO and IT organization are becoming relics, as business technology decision-making and purchasing move into marketing, sales, HR, and other departments. Who needs a big IT organization, the reasoning goes, when tech-savvy line-of-business workers and their managers can buy the server capacity, storage, applications, and devices they need with a few clicks and a credit card?

In a column titled "New Face Of IT: Line Of Business Execs," InformationWeek contributor Patrick Houston relates the example of LivingSocial, a Groupon-like startup whose HR chief, Jennifer Trzepacz, ramped up cloud-based recruiting, payroll, and employee performance-management systems in next to no time--all without an IT department. Concludes Houston: "Trzepacz and others like her--managers who know their disciplines more intimately than IT could--are destined to command ever bigger shares of enterprise technology budgets."

Adding fuel to the debate are two recent reports that conclude that marketing departments, whose spending on IT already is growing two to three times faster than other IT spending, are taking matters into their own hands. Gartner predicts that by 2017, marketing departments will spend more on IT than the IT organizations at those companies. And IBM, in a survey of 1,700 CMOs, found that 23% of them now rely extensively on external partnerships for IT initiatives--but 61% think they'll rely extensively on them over the next three to five years.

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The findings of a recent InformationWeek survey of IT and non-IT pros seem to pile on. Close to three-fourths of the respondents to that survey said they consider their IT department to be an also-ran when it comes to innovation, lending credence to the notion that other departments will fill the void.

And it's not just a bunch of navel gazers who see a shift coming. InformationWeek contributor Larry Tieman, a former senior IT executive at FedEx, thinks the IT organization of the future "will be a smaller, more externally focused, higher-expertise IT organization, with most of the infrastructure and operational expertise outsourced. What the internal IT pros will be doing, what their expertise will be in, and what role the CIO will play (if there is one) are still undetermined."

But before we start laying a wreath for the IT organization and dedicated IT professional, let's step back. A few caveats:

-- Not every company is a startup. LivingSocial may function fine (for now) without an IT department, but companies with myriad legacy systems to manage, competitors to one-up, and regulations to comply with need in-house IT chops--in integration, security, application development, analytics, networking, and much more. "Just put it all in the cloud" works for only the smallest companies. And it's not necessarily an old world vs. new world divide. Consider the extensive in-house IT infrastructure work (servers, storage, networking, data center cooling, power) done by Google, one of the biggest cloud proponents.

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-- The challenge before IT organizations is to earn a position at the center of innovation, not just plod along in a support and maintenance role--a role that 39% of the IT pros and 54% of the non-IT pros in our survey see as their IT organization's main focus. IT is uniquely positioned to lead that innovation charge, as it's already intertwined (or should be) with every other company department. But CIOs must establish formal partnerships with other department chiefs, not just get on a conference call with them from time to time.

For example, Allstate runs crowdsourced "innovation blitzes" out of its IT organization, whose executive VP, Suren Gupta, also sits on an innovation council that includes top execs from the insurer's product, claims, financial, operations, investments, and sales departments. USAA, under its Agile Labs, puts developers together with subject matter experts and customer service reps to create fast prototypes of new products and product enhancements. USAA estimates that the initiative lets it go to market 40% faster than before. Beth Israel Deaconess Medical Center, the No. 1 company in the 2012 InformationWeek 500 ranking, pulls IT and business leaders together under fast-track committees that develop business priorities and match IT resources. "These leaders are working to formalize tech innovation as part of everyday business, because the reality is that business units aren't always going to ask for IT's help anymore," writes my colleague Eric Lundquist.

-- Meantime, CIOs need to take on roles outside of the IT organization. Among our InformationWeek 500 companies, 34% of CIOs are responsible for innovation, 33% for business process management and improvement, 13% for operations, 13% for procurement, 12% for business services, 5% for logistics and supply chain, and 30% for some other function. Only 15% of those IW 500 CIOs have no official responsibility outside of IT.

In the end, though, technical expertise is still critical. Asked to respond to the question "What's the fastest way into my doghouse," Richard Thomas, CIO of biopharmaceutical services company Quintiles, which ranked No. 6 on the 2012 IW 500, said: "Working in IT but not understanding technology. If you work in IT, I expect you to know what you're talking about."