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CIO Role: Avoiding Risks While Positioning a Company for Innovation and Growth

By April 18, 2012Article

Editor’s Note: Five years ago uptime was the top metric for CIOs, but today it’s just table stakes. I spoke with Tony Young, senior vice president and CIO at Informatica. In this interview, he shares his perspective on today’s CIO role in contributing value to a company and managing risk while creating a sustainable competitive advantage. The role of a CIO has changed dramatically. What are the top three to five things a CIO needs to do to position a company for growth?
Tony Young: There are no generic three to five top things to do; the strategies vary by industry. I believe that first and foremost, at the highest level, the most important metric of a CIO is whether he/she maximizes the contribution to innovation. Is that simply a matter of making sure the IT spend on innovation priorities is more than the typical 20 percent (with 80 percent spent on keeping the lights on)?
Tony Young: It’s more than the commitment to the IT bucket for innovation. An executive committee would want to know how that spend actually impacts the business. So the CIO needs to know what Wall Street cares about. For a software company, the Street cares first about revenue growth or new license revenue growth. The second thing they care about is profitability – the operating margin. So, in addressing an executive committee’s question on how the spend on innovation impacts the business, the CIO needs to show how it helped increase sales, bookings, license revenue and increased profitability. Investing in disruptive technologies is certainly a contribution to innovation. But how can the CIO ensure the company won’t be vulnerable to the risks associated with quickly evolving technologies?
Tony Young: I think you have to know where your risks are. If you invest in technologies that are evolving quickly or are quickly disrupted, the risk is that you’re not dealing with the mega vendors at that point. You’ll typically be dealing with startups, small technology companies and midsized technology companies because they are much more agile than any of the mega vendors.
The mega vendors are running legacy cash-cow businesses, so you quite handily don’t turn to those guys for innovation. In my opinion, the technology from the mega vendors is really about keeping the lights on. ERP, networks, firewalls, storage – those don’t provide a sustainable competitive advantage because, if you customize them, it hurts the upgrade path.  You have to bend your business processes to work with vanilla ERP.
SaaS doesn’t provide a sustainable competitive advantage either as you can’t customize it; it’s almost less flexible than an on-premise application. With SaaS you really just create business parity.
Don’t get me wrong; ERP, CRM, storage, etc. are highly valuable because you can’t run business without them. But if you want to invest in things that will help you innovate or help you drive the business, it will involve technologies from small or midsize companies. Big Data is an area of investing in innovation today. Is it the biggest area that will result in the revenue growth that the Street and the executive committee care about?
Tony Young: I’m reminded of a 2003 article by Nicholas Carr where he said that IT doesn’t matter. I remember a bunch of my peers getting upset about that. But the reality is he’s right in many respects. IT doesn’t matter if you think of the commoditization. Carr used an analogy of the railroad. When the rail opened things up, people who had access to railroads had an advantage. But it then became no longer an advantage.
What I think Nicholas Carr misses in his argument is that the executive team doesn’t necessarily care about the railcars or the rail itself; what they really care about is the payload on those railcars – which is their data. Data is the most important asset and runs the business.
There’s a ton of innovation going on now around data. People are trying to figure out how to create customer intimacy with single views of a customer and how to look at the data holistically across the enterprise. They’re starting to figure it out. They’re not quite there yet, but they’re getting there.
Innovation is really needed around the data in a business, but it’s probably the hardest thing for a CIO to do. Why is it so difficult?
Tony Young: The challenge for most CIOs is having to spend the vast majority of their time focused on ERP and other applications in the alphabet soup and on keeping the lights on. They spend very little time on data. How can you avoid the risk associated with investing in products from smaller startups that might be really innovative but may not be there in a couple of years?
Tony Young: We personally have experienced this at Informatica. We were using a professional services app that was bought by another company that also had a professional services app. They essentially decommissioned the app that we were running, and we were forced to migrate over to the other system.
The CIO has to know where to take calculated risks. At our company, we have architectural principles that say there are certain aspects of our business where we don’t take risks – things that might have to do with booking revenue or reporting revenue, for instance. But there are other things where we’re open to taking risks because we realize that taking a risk can be more meaningful for our business.
As an example, we were going through a data clean-up exercise, and there was a really interesting startup where we could give them our data and they could securely federate our data out to over a million people who would clean up our data in minutes at a very low cost. That was extremely valuable and is an idea where we would take some risk. If the startup goes out of business, it won’t kill our business.
It’s all about managing the risk. You don’t want to take unmitigated risks in areas that will hurt your business. Is there a process you use when evaluating smaller tech companies and startups with innovative ideas?
Tony Young: When you engage with a smaller company, you have to look at a lot of things. You have to look at whether they have good investors and what kind of executives they have. You have to scrutinize the company and make sure they are worthy of doing business with them. Is there anything different about the way you manage risk today than you did five or 10 years ago? Is this changing along with the role of the CIO?
Tony Young: Yes, I actually think it is changing because of the way we compete with IT nowadays. Speaking for myself, we are willing to take more risks today than we were in the past. But it’s still calculated risks. Why are you more open to that now? Is it because it’s a more competitive marketplace?
Tony Young: Yes. Everything is hyper-competitive. We look for where we can get a competitive leverage, so we’re now open to look at new ways of doing things. I think it really depends on the value the executive team puts on IT and how they want to leverage it. For us, we want IT to make a difference in our business, so that’s how we execute our function.
But there are other companies who look at IT differently, and their CIOs jobs are to keep the lights on. This is really based on industries. For example, a company that makes fish sticks. It’s not looking for its CIO to innovate. Is the variance among industries based on business that are not very competitive, or is it like healthcare that has resisted change for many years?
Tony Young: It’s more the former. Different kinds of industries have different kinds of leadership and think differently about innovation. Some companies are in a slow-growth industry, and the Street’s okay with that.
The financial services industry is just the opposite. They trade on data, so data loss has to be a low risk. But some financial institutions are willing push the envelope, trying to figure out how to innovate to get a sustainable competitive advantage with their data. Is there anything that software vendors can do to help CIOs in their customer companies understand where to invest for innovation?
Tony Young: For software vendors, I think the thing that really is important is to articulate the message of a strong return on value. It could be return on data – for example, how the innovation helps increase the value of the data or reduces the cost of the data.
As a CIO, my job is really like being a portfolio manager. Every year I have a bucket of money and I sit down and try to figure out how to get the best return for my investment for the shareholders. I don’t want to listen to a software vendor talking about features; I want to know about the value it will create for my company.
Tony Young serves as senior vice president and chief information officer of Informatica with responsibility for the strategic direction of Informatica’s global information systems and technology infrastructure. Prior to joining Informatica in 2002, he served at Mindcrossing and Converge where he oversaw product development and product management. Young began his career at HP where he served for 11 years in a number of information technology and marketing roles. Young has won prestigious industry awards including the 2006 CIO Decisions Midmarket Leadership Award, the 2006 Ventana Research IT Performance Management Leadership Award, the 2011 CIO 100 Award, finalist in The 2011 American Business Awards for Information Technology Executive of the Year and finalist in the 2011 MIT Sloan CIO Award.

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