A Blended Future: The changing mix of IT service delivery and consumption

A blended future:The changing mix of IT service delivery and consumption

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A report from The Economist Intelligence Unit

© The Economist Intelligence Unit Limited 20141

A blended future: The changing mix of IT service delivery and consumption

About this report 2

Executive summary 3

Drivers of change 5

Business-unit needs 7

case study: Test and learn at Expedia 9

CIO response 10

Building a shared model 13

case study: IT service delivery at Kaiser Permanente 15

Conclusion 16

Appendix: survey results 17

Contents

1

2

3

4

5



About this report

A new global survey of executives confirms a changing mix in how IT services are delivered and consumed both currently and over the next three years. The survey was conducted by The Economist Intelligence Unit (EIU) in December 2013 and sponsored by EMC. Respondents include chief information officers (CIOs) and line-of-business executives (LOBs). The findings and insights complement an earlier EIU study that assessed the emergence of CIOs as strategic leaders in a setting of continuous business and technological change.

The report draws on two main sources for its research and findings:

l A survey that included responses from 205 executives worldwide whose responsibilities involve the delivery and consumption of IT services. A large majority of respondents are personally located in Europe (40%), North America (29%) or Asia-Pacific (23%). Nearly 50% of the companies represented in the survey have more than US$500m in revenue, while about one-third have US$5bn or more. Respondents hail from 19 different industries, with financial services (17%), manufacturing (15%) and IT/Technology (13%) leading the pack.

l A series of in-depth interviews with senior executives and academics. We thank them for their valuable insights.

Interviewees

John Kim, senior vice-president global products, Expedia

Edward Mesrobian, chief technology officer, Expedia

Phil Fasanso, chief information officer, Kaiser Permanente

Julie Vilardi, executive director of emerging technologies and clinical informatics, Kaiser Permanente

Jeroen Tas, CEO informatics, solutions and services, Philips Healthcare

Judith Spitz, senior vice-president and CIO, Verizon IT Strategy and Planning

Klas Bendrik, group CIO, Volvo Cars

Jeanne Ross, director and principal research scientist, Center for Information Systems Research, MIT Sloan School of Management



Information technology (IT) has a decisive impact on what a modern organisation can do. So more line-of-business executives (LOBs) want to control IT directly to run their current businesses and innovate for competitive advantage. “Technology has advanced to the point where it is less expensive to experiment with radically new experiences,” says John Kim, senior vice-president of global product development at Expedia, the world’s largest online travel agency.

At the same time, chief information officers (CIOs) and other IT professionals understand in depth how technology and business processes function and relate to each other, not only at the departmental level but for the organisation as a whole. “Almost any core capability in a modern organisation involves mixing data with some kind of business process,” says Dr Jeanne Ross of MIT’s Sloan School of Management. “That’s where the IT unit becomes so valuable. They understand what technology can or cannot do.”

Both LOBs and CIOs acknowledge they must work more closely, according to the EIU survey and interviews, but not necessarily under the same rules that governed in the past. LOBs want the flexibility to use whatever technology and services help them achieve their business goals. CIOs are realistic about giving LOBs more influence and control over IT decisions and resources. The result is a changing mix of internally developed and externally sourced technologies and third-party IT services.

This Economist Intelligence Unit study, sponsored by EMC, analyses the emergence of a “blended future” of IT service delivery and consumption in which the enterprise IT function proactively markets its services to business-unit customers, bringing the full range of internal and external IT expertise to bear on business-unit needs. In this scenario, IT and business organisations collaborate closely to create common service definitions and performance metrics to gauge the real impact of IT on business outcomes. The blended model transitions the roles of both CIOs and LOBs away from just overseeing IT assets towards managing risks and opportunities.

Key findings of the report include the following:

l CIOs and LOBs agree that the growing availability of easy-to-use technology services from third parties, along with employee expectations for greater control over the technology they use at work, is driving this trend towards supplementing internal IT capabilities with external resources.

l At present, LOBs are sourcing more technologically mature third-party IT services for their business units—services that are easily, quickly or inexpensively acquired in the market but are not ultimately responsible for a firm’s competitive advantage. Communications (59% of surveyed respondents), storage and back-up

Executive summary



(54%), servers (48%) and web hosting (44%) comprise the lion’s share of third-party IT infrastructure spend for business units.

l Greater adoption of external IT capabilities—whether directly by the IT organisation or by the business unit—will change the focus for CIOs going forward. One-quarter of participants say that CIO responsibilities for security, risk and compliance management will increase substantially over the next three years. Similar percentages of respondents expect significant expansion of CIOs’ roles for information management and analytics (25%), IT services management (23%) and vendor management

(21%). Only 12% of surveyed executives anticipate that traditional CIO functions such as technology infrastructure management and internal applications development will increase substantially over the next three years.

l The survey findings and interviews suggest a service-centric rather than asset-centric vision for enterprise IT, in which the internal IT department acts more as an advisor and broker of best-of-breed solutions to business units. Sixty-three percent of LOBs surveyed say third-party technologies and services brokered from external providers but managed on the inside will increase over the next three years.



Drivers of change1Organisations increasingly engage with their customers and business partners through digital channels and technologies. Therefore, how IT is accessed and managed has a material effect on what a modern organisation can do. It is not surprising that more LOBs are looking to wield technology as a native capability.

At the same time, because technology underpins the vast majority of contemporary business processes, IT leaders have unique insight into how an organisation really executes its business. IT professionals understand in depth how information systems and business processes function and relate to each other, not only at the departmental level but for the organisation as a whole.

Until recently, both CIOs and LOBs lived in largely separate camps. CIOs focused on back-office efficiency and stability of organisation-wide IT systems, while most LOBs looked to IT for business applications but not for competitive advantage. But the rise of mobility, computing-as-a-service, social media, and other technology and consumer trends has transformed how CIOs and LOBs deliver value to the organisation.

To gain more flexibility to respond to rapidly changing conditions, both LOBs and CIOs are moving towards a blended model of IT service delivery that merges internal IT capabilities with third-party services. Success under this new paradigm requires at least as much organisational

Source: Economist Intelligence Unit survey, December 2013.

Q Which of the following statements best describe the main forces driving changes in the CIO’s role in your business? (% respondents)

Business units and functions have increasing options and opportunities to acquire technology services from third parties

The consumerisation of IT and proliferation of easy-to-use technology services have complicated compliance with enterprise IT policies

Employees increasingly expect greater control over the way they use technology in their work

The consumerisation of IT and proliferation of easy-to-use technology services have reduced the need for centralised control of IT resources

The consumerisation of IT and proliferation of easy-to-use technology services have driven the IT organisation to serve more as a provider of guidance and less as a provider of services

The company is trying to leverage IT in revenue generation or other strategic initiatives

45

40

38

26

22

21



innovation as technology innovation. The EIU survey and follow-on interviews reveal

that business units are taking greater control over the IT solutions used in their operations and decision-making. A little more than 80% of LOBs say that they currently obtain IT services directly from third-party providers or develop them on their own, and more than half do both. Many LOBs are bypassing internal IT channels to source external technology and IT services because comparable services are not available from corporate IT, or are not timely enough in their delivery. This comes in addition to the fact that IT capabilities have become simple to buy on the open market. CIOs and LOBs agree on the two primary drivers towards supplementing internal IT capabilities with external resources. Forty-three percent of CIOs and

45% of LOBs cite the growing availability of easy-to-use technology services from third parties, while 41% of CIOs and 42% of LOBs mention employee expectations for greater control over the technology they use at work.

However, this doesn’t mean that LOBs and CIOs intend to neatly divide IT responsibility in half with the CIO focused on back-office efficiency and LOBs on innovation. Instead, both LOBs and CIOs recognise the need to work more closely together at both the tactical and strategic levels. “It can’t just be an IT innovation or a business-unit innovation for the organisation,” says Klas Bendrik, group CIO for Volvo Cars in Sweden. “Collaboration is about creating a corporate asset that contributes to both top-line growth and bottom-line efficiency.”

❛❛ It can’t just be an IT innovation or a business-unit innovation for the organisation❜❜Klas Bendrik, Group CIO, Volvo Cars



Business-unit needs 2LOBs do not seek to own or control IT for its own sake. LOBs seek agility. Faced with customers who can review products and prices with their mobile phones and share positive or negative experiences on social networks, business units must pivot to become more oriented towards customer experience. In such a rapidly changing environment, LOBs want the flexibility to use whatever technologies and services are necessary to achieve their goals.

According to the survey, 46% of LOBs say they obtain external technology services because comparable services from internal IT are either not available or take too long to deploy. Another 46%

of LOBs want an IT services catalogue that lists both internal and external capabilities that can be tapped by business units. Most important, nearly two-thirds (63%) of LOBs expect that the use of external IT resources brokered by internal IT departments will grow over the next three years—far more than any IT services delivery mode.

The dramatic expansion of third-party IT offerings is one reason why LOBs are increasingly requesting external IT sourcing, according to Dr Jeanne Ross, director and principal research scientist at the Center for Information Systems Research at MIT’s Sloan School of Management. “The IT supply side is not the major limiting factor anymore,” she says.


Q Which of the following statements best describe your motives for obtaining IT services from outside of your corporate IT function? (% LOB respondents)

Comparable services are not available from corporate IT

Corporate IT is too slow in delivering services

Corporate IT is too expensive

External IT providers have a more client-centric approach to IT solutions

Solutions from external providers are technologically superior

Corporate IT is not adequately familiar with emerging technologies

Corporate IT imposes too many restrictions

Corporate IT does not understand the needs of our business/industry

46

29

28

28

26

19

16

10

❛❛ The IT supply side is not the major limiting factor anymore. We can use our own resources. We can use somebody else’s resources …The question is whether an organisation can absorb the necessary changes to use these capabilities effectively❜❜Jeanne Ross, Director and Principal Research Scientist, MIT Sloan School of Management



“We can use our own resources. We can use somebody else’s resources. We can outsource. We can use cloud. Basically, if we want to do something with IT, we can do it. The question is whether an organisation can absorb the necessary changes to use these capabilities effectively.”

The survey reveals that, for now, LOBs are sourcing more technologically mature third-party services for their business units. LOBs are typically focused on business-unit-specific solutions and services that are easily, quickly or inexpensively acquired in the market but are not ultimately responsible for a firm’s competitive advantage.

Concurrent with greater demand by LOBs for external sourcing is a re-evaluation of the metrics for gauging IT value by CIOs and other management. For most of its history in the enterprise, the value of IT was measured largely by operational-level metrics such as cost per stored megabyte, cost per transaction, or IT availability

metrics such as uptime and mean time between failures. These metrics were important for maintaining IT efficiency and resiliency. But they were too removed from measuring the value of IT for business outcomes in terms that could be understood by most LOBs.

A focus on operational metrics was not unusual for many large organisations. Much of the past decade’s enterprise IT spending was aimed at automating and streamlining existing business processes to go online. Only in the past five to seven years have many large organisations completed the process of transitioning to digital channels as a primary means for interacting with customers and business partners.

According to Judith Spitz, senior vice-president and CIO for Verizon IT Strategy and Planning, that heavy lifting has enabled the company to change its view of IT from primarily a transactional partner that delivers operational efficiency to a strategic partner that improves customer service and drives


Q Which of the following IT services does your business unit develop locally or obtain from third-party providers?(% LOB respondents)

Communications (e-mail, messaging, telephony, videoconferencing)

Storage and back-up

Servers and computing

Web hosting

Analytics

Employee collaboration and file sharing

Information or data services

Mobile applications

Customer relationship management

Other business process applications

Social media

Partner/Supplier collaboration

59

54

48

44

42

40

38

36

34

34

30

25



revenue growth. That switch has changed the metrics against which IT value is judged. “Years ago, IT was measured in transactional terms—how often did we deliver projects on time and on budget, what percentage of the requirements did we deliver? Those metrics are nothing more than table stakes now. Today, IT is measured by whether

we are enabling a competitive advantage for Verizon—are we delivering shareholder value in terms of the customer experience, simplifying the businesses, helping to win and retain customers? We are strategic partners in the business’s success and are measured by the same yardstick as our marketing and operations teams.”

Expedia Inc is the largest travel company in the world with an extensive portfolio of online travel brands, including category leaders like Expedia.com and Hotels.com. Collectively, Expedia brands operate across 150 travel-related websites in more than 70 countries. In 2013, the company recorded nearly US$40bn in gross travel bookings on over 400 airlines, more than 260,000 properties, and dozens of cruise lines and rental-car companies.

According to John Kim, senior vice-president of global products, Expedia enables its millions of users to navigate complex choices related to travel within an interface that is both intuitive and fast. In such a massive, high-speed environment, product development decisions involve a balancing act in which innovation must be justified against the investment of talent and resources required to bring a new feature up to Expedia-level scale. “For example, we know that customers would love to see new ways to view pricing for flights, hotels and other travel services. We also know that building these types of experiences can be both very complex and very expensive. What makes this a complex problem is there are infinite possibilities for how we do it. But we don’t know if it is worth our time and effort, for any given option, unless we go out and test it,” he says.

Testing, in this case, means that multiple

versions of the Expedia.com website are running live with a portfolio of features across the globe at any one time. Not only must these websites function properly for booking travel, but the websites must also generate data and insight that help guide product development decisions.

Moreover, effective product innovation involves more than experimenting with the user interface. Edmond Mesrobian is Expedia’s chief technology officer in charge of ensuring that back-end performance enhances the front-end customer experience. According to Dr Mesrobian, there are infrastructure and back-end operations decisions that can’t be boiled down to simple business decisions. For example, Expedia procures fraud control services from a third party, but not necessarily because of lower cost. “The goal is to partner with best in class, especially when you’re trying to crack a problem that is not core to your business model and yet you need to be world class at executing against it,” he says.

Both executives collaborate closely because any new product or feature results from highly interconnected IT systems in which innovative work on the front end must be understood in the context of how it affects the back end. In that sense, the test-and-learn methodology runs through one continuous fabric.

case study: Test and learn at Expedia

❛❛ We are strategic partners in the business’s success and are measured by the same yardstick as our marketing and operations teams❜❜Judith Spitz, Senior vice-president and CIO, Verizon IT Strategy and Planning



CIOs are realistic about a certain level of external IT procurement by LOBs. Increased consumerisation of IT means that employees, customers and business partners will bring in IT assets and capabilities that have not undergone an explicit approval process by the organisation. And some CIOs are embracing external IT solutions as aggressively as their LOB counterparts.

Although automotive manufacturing and healthcare seem worlds apart in terms of industry concentration, both Klas Bendrik, group CIO of Volvo Cars, and Phil Fasanso, CIO of healthcare company Kaiser Permanente, told the EIU that their organisations start with the assumption that the first place to look for IT solutions is the

external market. “Today, we get the best IT capabilities into our business when we mix internal and external resources,” Mr Bendrik says. Mr Fasano concurs that once an organisation reaches a certain size, it is virtually impossible to generate internally all of the needed IT solutions. “We start with the bias that we are going to buy our IT capabilities,” he says.

Greater adoption of external IT capabilities—whether directly by the IT organisation or by the business unit—will change the focus for CIOs going forward. Policy-setting for how data are secured and made legally compliant is becoming more top-of-mind. One-quarter of survey participants say that CIO responsibilities for security, risk and

CIO response3


QIncrease substantially or moderately Decrease substantially or moderately

Security, risk and compliance management

Information management and analytics

Business strategy and consulting

Services management (including provisioning, metering and billing)

Vendor management and services brokering

Technical consulting

Infrastructure management

Applications development and management

How will traditional CIO responsibilities change over the next three years? (% CIO respondents)

68 1

64 3

63 4

62 5

57 3

51 7

50 12

49 12

❛❛ Today, we get the best IT capabilities into our business when we mix internal and external resources❜❜Klas Bendrik, Volvo Cars



compliance management will increase substantially over the next three years. Similar percentages of respondents expect significant expansion of CIOs’ roles for information management and analytics (25%), IT services management (23%) and vendor management (21%). Only 12% of surveyed executives anticipate that traditional CIO functions such as technology infrastructure management and applications development will increase substantially over the next three years.

Taken together, the survey data suggest that CIOs are expanding their role to manage a portfolio of IT capabilities that include internal infrastructure assets, local and externally developed applications, and third-party IT services. Some of these capabilities will originate from the IT organisation. Perhaps just as many IT capabilities will be developed or sourced directly by LOBs.

The broader sharing of responsibility by CIOs and LOBs for IT service delivery is driving increased cross-fertilisation of human resources among IT and business units. Says Dr Ross: “Back in 2000, we coined the phrase, ‘download IT to the field’, which captured our push to get IT professionals out of their cubicles and into the call centres, the trucks and the business offices to truly understand how work was done and what the user and customer experience was really like. Requirements documents are far inferior to first-hand observation and real-world experience. We also recognised that to deliver value, the technologists and their business partners needed to be comfortable in each other’s back

yards.”Nearly every CIO the EIU interviewed agreed that

exchanging talent across departments is a key factor in making a blended IT delivery model work. That exchange happens at the executive level as well. More LOBs are participating actively in enterprise IT governance, and CIOs are playing greater roles in business strategy formulation, injecting more technology-driven opportunities into the strategic mix. In these and other leadership forums, LOBs and CIOs work together to understand the flow of data, work, decisions and analysis across the enterprise.

According to Dr Ross at MIT, business-unit leaders need a “technical friend” who both understands technology and can access the resources and talent necessary to execute projects. LOBs must also provide a clearer vision of how a business process must function, what are the critical workflows, how decision rights are determined and what analytics need to be installed to ensure that the adopted rules are actually good business practices. “LOBs and CIOs need to design the high-level flow of work and data in the organisation, so somebody can build all of the connecting parts,” she says. “At some level, this isn’t new. It has just become so much more important.”

Important, too, are a cluster of key skills that CIOs need according to survey respondents. Communications skills to collaborate more effectively with business stakeholders (49%) and


QEssential or important Somewhat unimportant or unimportant

Innovation skills to serve as a change agent and propose business solutions outside of traditional boundaries

Communication skills to collaborate more effectively with business stakeholders and lead by persuasion

Organisational knowledge to understand the needs of diverse business units and integrate those into enterprise-level strategies

Business skills to participate in high-level strategic decisions across the enterprise

IT security skills to mitigate the risks of a more decentralised IT delivery model

How important will the following skills be to enable CIOs to lead IT adoption and deployment across the enterprise under evolving service delivery models? Please rate each skill from “essential” to “unimportant”. (% CIO respondents)

81 2

80 4

79 1

78 5

74 1

26 33

❛❛ LOBs and CIOs need to design the high-level flow of work and data in the organisation, so somebody can build all of the connecting parts❜❜Jeanne Ross, MIT Sloan School of Management



the ability to innovate solutions outside of traditional boundaries (42%) emerged as the most essential for adoption of new models of IT service delivery. These skills will be at a premium as CIOs anticipate even greater demands from LOBs in areas such as mobility, Big Data and social media that cut across IT service delivery models.

In addition to technology forces that are pushing from the outside, it has become increasingly difficult for large enterprises to develop internal IT for just departmental or business-unit use. According to Jeroen Tas, CEO of informatics, solutions and services at Philips Healthcare, the fact that multiple business units must collaborate to develop a complete solution for the customer means the desired skill sets for IT leaders have evolved from focusing mainly on systems analysis and application development. “The IT skill emphasis has shifted internally to

more business process modelling, configuration and integration expertise,” he says.

Where does “shadow IT” fit in the blended mix of IT delivery? Neither CIOs nor LOBs are in favour of having business-significant information systems initiatives outside the purview of central or local IT organisations. However, they are also realistic about the growing capability of individuals and teams to meet many of their own information needs. The survey reveals that while 68% of CIOs regard shadow IT as counterproductive and actively discourage it, 78% are mitigating risks by taking a more proactive approach to information and security across their organisations. Equally important, slightly over half (55%) of CIOs say their organisations are assisting lines of business to make external IT procurement decisions by disseminating catalogues of preferred external services and providers.


Q

Agree Disagree

We are mitigating the risks of shadow IT by promoting a more informed and proactive approach to information and security across the company

We regard shadow IT as counterproductive and we actively discourage it

We explicitly forbid the use of shadow IT and we prevent or stop its use wherever we find it

We want to discourage shadow IT and we believe we can do so in positive ways by offering assistance from corporate IT

We assist LOB decision-makers to make their own IT decisions by disseminating a catalogue of services/providers

We dislike shadow IT but we recognise that LOBs sometimes adopt it for good reasons

We have liberalised our policies concerning shadow IT on the grounds that it is inevitable

Our policies do not encourage or discourage the use of shadow IT

Do you agree with the following statements about your company’s policies towards IT that is implemented without informing or seeking support from corporate IT (“shadow IT”)? (% CIO respondents who agree)

78

68

61

61

55

54

43

38

❛❛ The IT skill emphasis has shifted internally to more business process modelling, configuration and integration expertise❜❜Jeroen Tas, CEO of informatics, solutions and services, Philips Healthcare



Building a shared model4Going forward, CIOs and LOBs point to partnerships among internal IT, lines of business and third-party providers as the standard way to do business. The survey findings and interviews suggest the emergence of a shared vision: an enterprise IT function that proactively markets its services to business-unit customers, bringing the full range of IT expertise—including brokered third-party solutions—to bear on business-unit needs. While 50% of LOBs surveyed say they expect to rely increasingly on enterprise systems, storage and networks deployed by internal IT over the next three years, 63% say that third-party technology services brokered by the IT organisation will also increase over the same period.

Thirty-one percent of CIO respondents say their organisations intend to adopt a service model that offers fee-based services to business units and

operates in parallel with external providers. Internal IT transitions to a service-centric delivery model by pooling assets that had formerly been devoted to specific business units (and severely under-utilised). With the help of virtualisation and cloud computing, IT can deploy a general pool of data, application and infrastructure resources drawn upon by multiple business units that pay for usage. The shared asset and services approach drives up utilisation, drives down cost and gives LOBs a better understanding of the relationship between their units’ IT consumption and business outcomes.

Of course, the challenge for organisations will be to figure out what constitutes effective brokering and delivery of IT services—whether internal or external. Expertise in this area could become a point of advantage in a world where IT


Q

Third-party IT from external service providers, brokered by the IT function

Enterprise IT systems, storage and networks deployed by the corporate IT function

Third-party IT from external service providers, sourced by LOB IT specialists

Local IT developed internally by LOB IT specialists

IT solutions developed or sourced by individuals or small teams without control from either corporate or LOB IT

How will your business unit’s reliance on the following IT service delivery methods likely change over the next three years?(% LOB respondents)

Increase substantially or moderately Decrease substantially or moderately

60 10

49 9

42 13

35 18

28 23



costs and capabilities are far more transparent. In addition, this evolution will require new skill sets for both IT and lines of business. Organisations will need to develop an innovation and collaboration mindset at the top of CIO and LOB ranks, not simply for cracking business problems at the enterprise level, but also for operating at the ecosystem level as more technology-based opportunities require collaboration in the marketplace.

In the automotive space, the race to connect cars to online services has become a strategic imperative for every global player. Recently, Volvo Cars and Ericsson struck a far-reaching arrangement that includes communications and information services managed by Ericsson for Volvo cars. The driver signs up for various digital services

without knowing that Ericsson is running the back end. Making this collaboration work starts with the human resources mix, says Volvo Car group CIO Klas Bendrik: “From an IT perspective, roughly one-third of the staff working on connected cars come direct from Volvo, one-third are coming from Ericsson or a telecoms background, and one-third are being recruited from outside industries such as retail and customer service.” Such a diversity of talent not only brings the right skills to bear on the current challenge, but also sets the stage for further innovation, says Mr Bendrik. “When you apply different capabilities from different industries to serve the customer, you open up pathways for creating new experiences and benefits that feed back to the ecosystem,” he says.


Q Which of the following statements best describe your company’s strategy for transforming its IT delivery model over the next three years? (% CIO respondents)

We will increase the use of IT and business process outsourcing to reduce the need for enterprise IT services

We will transform our IT function to adopt an IT service model that offers fee-based services to LOBs and operates in parallel with external providers

We are satisfied with our current IT service delivery model and we do not currently plan to revise it

We will work to compete effectively against third-party solutions

We will devolve many IT functions to business units

We recognise the need to re-think our IT service delivery model but we have not yet established strategic directions

32

31

25

24

21

15



Headquartered in Oakland, California, Kaiser Permanente (KP) is one of the US’s largest not-for-profit health plans with more than 9m members and nearly 17,000 physicians. KP’s information systems range from life-critical clinical systems to insurance billing systems to patient self-help and marketing systems to the corporate IT infrastructure that serves KP’s 170,000+ employees.

According to CIO Phil Fasano, KP’s service delivery strategy uses high tech to enable high-touch human delivery of healthcare services for its members. Reaching that point requires sustained, significant automation and innovation in IT. The lynchpin for much of that automation has been electronic medical records (EMR). EMRs have emerged as the core data currency for all of the various KP systems. However, the deployment of EMR constitutes more or less table stakes for modern health organisations. “All of the basic elements of healthcare have changed over the last seven years because of all the automation that has been put in place. Now, we’re building on that investment to take it to a new level for our members,” says Mr Fasano.

One way that KP evolves its IT capabilities is embedding IT executives at the division level across various business units. According to Mr Fasano, there are division-level CIOs for care delivery systems, health insurance, corporate systems and so forth. These IT executives participate in

business-unit meetings and are in effect part of the staff of the LOB leaders. Their mission is to deliver technology capabilities, whether developed in-house or sourced externally, against the charter and objectives of a business unit.

Goals and reality for IT innovation merge in the area of new-product development. Julie Vilardi is KP’s executive director of emerging technologies and clinical informatics. According to Ms Vilardi, over the past few years the consumerisation of IT has penetrated even the highly regulated borders of healthcare. For example, external providers are now offering texting solutions designed for physicians. Although most of these systems are compliant with patient privacy laws (also known as HIPPA in the US), the ease with which physicians can download and use texting solutions required KP to jump in front of the trend rather than trying to restrict it.

“We pulled a group together to perform a market scan of all the solutions out there towards making a recommendation,” says Ms Vilardi. “We also communicated with selected vendors what we believe should be our enterprise standard for texting solutions. The other piece is that every solution must go through security, compliance and risk assessment before it’s officially accepted into the organisation. Back in the office, we don’t tell clinicians that they must install texting. But if that’s a direction they’ve decided to go, we will tell them which vendor they should use and why.”

case study: IT service delivery at Kaiser Permanente

One way that Kaiser Permanente evolves its IT capabilities is embedding IT executives at the division level across various business units.



Conclusion5In an environment of pervasive technology and non-stop technological innovation, more organisations are looking to CIOs to be architects and strategists who can collaborate with LOBs across the full range of business processes. At the same time, lines of business are investigating external technologies and services on an ongoing basis rather than relying on a central IT department to propose them first.

The goal of both parties’ evolving roles is business agility. Agility means more than just using new technologies. Agility requires an IT asset or service brought inside of an organisation to be integrated with the flow of data, decisions and business processes that define how a modern firm does business. “Success demands as much operational innovation as IT innovation,” says Kaiser Permanente’s Julie Vilardi.

The EIU survey and interviews pointed out that progressive organisations are taking concrete steps to adopt a blended IT service delivery model:

l CIOs and LOBs define target outcomes in business-value language with business-relevant metrics.

l CIOs and LOBs participate in leadership meetings to determine which parts of an IT portfolio comprise an organisation’s competitive

advantage and which execute the general operating model.

l CIOs and LOBs directly embed specialists within each other’s departments in order to learn each other’s needs and capabilities.

l CIOs and LOBs develop common policies for security, compliance and other organisational standards for information systems and data to aid internal IT development or external IT sourcing.

l IT generates catalogues of approved technology resources and services for LOBs, some of which are internally developed and others that are available on the open market.

The survey and interviews demonstrate that an innovative mindset is the most important shared skill for CIOs and LOBs moving to a blended model for IT service and delivery. “It’s about having people inside who can use all of these technology capabilities to design and deliver a superior customer experience,” declares Jeroen Tas of Philips Healthcare. “And it doesn’t matter if we’re talking about the CIO or the LOB. Business and IT must craft the customer experience together. That’s when the magic happens.”

❛❛ Business and IT must craft the customer experience together. That’s when the magic happens❜❜Jeroen Tas, Philips Healthcare



Appendix: survey results

Several survey questions were posed to CIOs only, several to LOBs only, and the remainder to all respondents.

Percentages may not add to 100% owing to rounding or the ability of respondents to choose multiple responses.

Well above average

Somewhat above average

Average/On par with peers

Somewhat below average

Well below average

Profitability

Revenue growth

Market share

Innovation

Effective use of IT

Regulatory compliance

In your opinion, how effective is your company in each of the following performance indicators compared with its peers? Please rate on a scale from “well above average” to “well below average”. (% respondents)

18 40 33 7 1

15 38 38 9

17 34 35 12 2

15 39 33 12 1

11 27 40 20 2

19 42 33 4 2

CEO CFO CIO CTO Heads of business units

Other

Internal business infrastructure technologies

Technologies that focus on customer-facing functions

Technologies related to product/service functionality

Which role in your company has primary decision-making authority for allocating resources to integrate new technologies into the enterprise? (% respondents)

24 9 41 11 12 3

20 6 30 9 29 5

18 7 28 14 28 4

Centrally provided IT (developed and delivered by corporate IT)

Locally provided IT (developed and delivered by business-line IT)

IT procured from third parties, brokered by corporate IT

IT procured from third parties, managed by business-line IT

Don’t know/Not applicable

If your company had to choose a single delivery model for all of its IT needs, which one would be most effective from your perspective?(% respondents)

40

19

25

11

6



The CIO is viewed as a key member of the executive team and participates fully in business-wide strategic decisions beyond matters that involve the use of IT

The CIO participates in business-wide strategic decisions, but only when these involve the use of IT

The CIO is seen mainly as a provider of IT services and is only consulted about strategic business decisions in which IT is considered a critical component

The CIO is seen mainly as a provider of IT services and is not consulted about strategic business decisions


Which of the following statements best describes the role of the CIO in formulating your company’s business strategy? Please select one.(% respondents)

38

31

19

7

5

The CIO exercises control over all IT systems across the enterprise and must approve all additions and modifications to the IT infrastructure

The CIO is responsible for ensuring the smooth operation of the centralised enterprise IT infrastructure but does not control IT procurements by business units for use entirely within their own operations

The CIO is the company’s principal IT strategist and leads the identification, selection and implementation of new technologies throughout the business

The CIO is the company’s top IT advisor and collaborates with LOB executives to help them make critical decisions regarding the use of IT systems

The CIO collaborates with the CTO to align IT strategies with broader business objectives


Which of the following statements describe the role of the CIO in managing your company’s IT resources? Please select all that apply. (% respondents)

51

41

41

30

21

5








Other

Which of the following statements best describe the main forces driving changes in the CIO’s role in your business? Please select up to three.(% respondents)

45

40

38

26

22

21

6

2



LOB executives require corporate approval to acquire IT solutions for their business units

LOB executives can acquire IT solutions for their business units as long as they do not contravene corporate policies

LOB executives can acquire IT solutions for their business units, but they cannot duplicate or ignore core elements of the enterprise IT infrastructure without corporate approval

LOB executives have complete freedom to acquire IT solutions

Other


Which of the following statements best describes the role of LOB executives in managing your business units’ IT resources?Please select one.(% respondents)

41

22

22

9

3

3

LOB executives do not fully participate but are consulted about business-wide corporate IT strategy whether it directly affects their business units

LOB executives participate fully in high-level, business-wide decisions concerning corporate IT strategy

LOB executives are consulted only about corporate IT strategy that directly affects their business units

LOB executives play little if any role in development of corporate IT strategy

Other


Which of the following statements describes the role of LOB executives in developing corporate IT strategy? Please select one.(% respondents)

33

25

25

13

0

4







Other

Which of the following statements best describe the main forces driving changes in the role of LOB executives in IT decisions? Please select up to three.(% respondents)

42

40

34

32

26

26

2



Increase substantially

Increase moderately

No change Decrease moderately

Decrease substantially



Third-party IT from external service providers, brokered by the corporate IT function



How will your company’s expenditure on the following IT service delivery methods likely change over the next three years? Please select one in each row. (% CIO respondents)

19 46 28 5 2

14 26 44 8 8

14 39 40 5 1

11 24 51 6 8

18 27 39 8 7

We will increase the use of IT and business process outsourcing to reduce the need for enterprise IT services

We will transform our IT function to adopt an IT service model that offers fee-based services to LOBs and operates in parallel with external providers

We are satisfied with our current IT service delivery model and we do not currently plan to revise it

We will work to compete effectively against third-party solutions

We will devolve many IT functions to business units

We recognise the need to re-think our IT service delivery model but we have not yet established strategic directions

Other


Which of the following statements best describe your company’s strategy for transforming its IT delivery model over the next three years? Please select all that apply.(% CIO respondents)

32

31

25

24

21

15

4

2


Increase moderately



Services management (including provisioning, metering and billing)

Vendor management and services brokering

Infrastructure management

Applications development and management

Information management and analytics

Security, risk and compliance management

Technical consulting

Business strategy and consulting

How will traditional CIO responsibilities change over the next three years? Please select one item in each column. (% CIO respondents)

23 39 33 4 1

21 36 39 2 1

12 38 39 11 1

12 37 39 10 2

25 39 33 2 1

25 43 31 1

13 38 42 5 2

16 47 33 2 2



We are mitigating the risks of shadow IT by promoting a more informed and proactive approach to information and security across the company

We regard shadow IT as counterproductive and we actively discourage it

We explicitly forbid the use of shadow IT and we prevent or stop its use wherever we find it

We want to discourage shadow IT and we believe we can do so in positive ways by offering assistance from corporate IT

We assist LOB decision-makers to make their own IT decisions by disseminating a catalogue of services/providers

We dislike shadow IT but we recognise that LOBs sometimes adopt it for good reasons

We have liberalised our policies concerning shadow IT on the grounds that it is inevitable

Our policies do not encourage or discourage the use of shadow IT

Do you agree with the following statements about your company’s policies towards IT that is implemented without informing or seeking support from corporate IT (“shadow IT”)? Please select one from each row. (% CIO respondents)

78

68

61

61

55

54

43

38

Essential Important Neutral Somewhat unimportant

Unimportant

Communication skills to collaborate more effectively with business stakeholders and lead by persuasion

Innovation skills to serve as a change agent and propose business solutions outside of traditional boundaries

Organisational knowledge to understand the needs of diverse business units and integrate those into enterprise-level strategies

Business skills to participate in high-level strategic decisions across the enterprise

IT security skills to mitigate the risks of a more decentralised IT delivery model

Other

How important will the following skills be to enable CIOs to lead IT adoption and deployment across the enterprise under evolving service delivery models? Please rate each skill from “essential” to “unimportant”. (% CIO respondents)

49 31 16 4

42 39 16 2

41 38 20 1

39 39 18 5

28 46 25 1

13 13 42 2 31



Communications (e-mail, messaging, telephony, videoconferencing)

Storage and back-up

Servers and computing

Web hosting

Analytics

Employee collaboration and file sharing

Information or data services

Mobile applications

Customer relationship management

Other business process applications

Social media

Partner/Supplier collaboration

Other


Which of the following IT services does your business unit develop locally or obtain from third-party providers?Please select all that apply.(% LOB respondents)

59

54

48

44

42

40

38

36

34

34

30

25

2

2

Yes

No

Don't know/Not applicable

Yes

No

Don't know/Not applicable

Does your business unit develop IT solutions internally?(% LOB respondents)

Does your business unit obtain IT solutions or services directly from third-party providers?(% LOB respondents)

57

40

3

81

81

18

2

81



Third-party IT from external service providers, brokered by the IT function



How will your business unit’s reliance on the following IT service delivery methods likely change over the next three years?Please select one in each row. (% LOB respondents)


Increase moderately



Don’t know


Increase moderately



11 39 41 8 1

2 34 46 10 8

10 53 27 10 1

4 39 43 12 2

7 22 47 11 14



Comparable services are not available from corporate IT

Corporate IT is too slow in delivering services

Corporate IT is too expensive

External IT providers have a more client-centric approach to IT solutions

Solutions from external providers are technologically superior

Corporate IT is not adequately familiar with emerging technologies

Corporate IT imposes too many restrictions

Corporate IT does not understand the needs of our business/industry

Other


Which of the following statements best describe your motives for obtaining IT services from outside of your corporate IT function? Please select up to three.(% LOB respondents)

46

29

28

28

26

19

16

10

5

3

Corporate IT offers advice and assistance in identifying, selecting and implementing third-party IT solutions

Corporate IT actively brokers all arrangements with external IT providers

Corporate IT offers an optional brokering service to manage relationships with external providers

Corporate IT is not involved in our internal development of IT solutions nor acquisitions of IT from third-party providers

Other


What role does corporate IT primarily play when your business unit obtains IT solutions from third-party providers? Please select one. (% LOB respondents)

44

30

16

6

1

4

IT services catalogue that incorporates both internal and third-party offerings

Technical advice and recommendations

Guidelines for using third-party services

Staff from IT function embedded in our business unit

Brokering services for third-party services

Other

What additional services would you like to be available from your corporate IT function that are not currently provided? Please select all that apply. (% LOB respondents)

46

44

39

39

27

3



Strongly agree

Somewhat agree

Neither agree nor disagree

Somewhat disagree

Strongly disagree

Every business unit in our company has timely access to the latest IT solutions

Our corporate IT function is seen as an enabler of innovation

Our corporate IT function is open to new technologies and approaches

Our corporate IT function provides solid infrastructure for our core business processes

Our corporate IT function allows flexibility for business units

Our corporate IT function actively supports the acquisition of specialised solutions from third-party providers

Do you agree or disagree with the following statements about the outcomes of your company’s IT delivery methods? Please select one in each row. (% respondents)

Strongly agree

Somewhat agree

Neither agree nor disagree

Somewhat disagree

Strongly disagree

Don’t know

13 45 18 18 6

16 33 29 16 6

25 38 21 13 4

24 36 27 12 3

17 33 26 20 4

19 35 27 15 4

Encouraging the IT function, LOBs and third-party providers to work in partnership to develop innovative solutions to business needs

Convincing LOB executives that the centralised IT function understands their needs and is in the best position to address them

Lack of business knowledge on the part of corporate IT specialists

Finding new ways of ensuring IT security in a more decentralised IT delivery model

Lack of technical knowledge on the part of LOB executives

Lack of necessary technical skills within the corporate IT function

Lack of senior management vision

Lack of financial resources

Other

What is the single most important challenge that your company faces in developing the optimal IT service delivery strategy? Please select one. (% respondents)

33

19

13

11

6

5

5

4

2



CIO or equivalent

SVP/VP/Director

Head of Business Unit

Head of Department

Which of the following best describes your job title?(% respondents)

41

35

13

10

General management

Strategy and business development

Marketing and sales

Finance

Operations and production

Risk

Customer service

Supply-chain management

R&D

Human resources

Procurement

Legal

IT

Other

What are your main functional roles? Select no more than three.(% respondents)

42

37

25

19

16

13

12

8

6

5

5

3

0

3

Yes

Are you involved in your business unit’s purchasing and consumption of IT services? (% respondents)

100

Yes

Do you have budgetary or profit-and-loss management responsibilities within your area of the business? (% respondents)

100

Less than $500m

$500m to $999m

$1bn to $4.999bn

$5bn to $9.999bn

$10bn or more

What are your company’s global annual revenues in US dollars?(% respondents)

20

21

27

11

21

Western Europe

North America

Asia-Pacific

Latin America

Africa

Middle East

Eastern Europe

In which region are you personally located?(% respondents)

38

29

23

4

2

2

2

United States of America

United Kingdom

India

Singapore

Australia, China, Germany, Hong Kong, Italy, Japan

Austria, Bahamas, Barbados, Belgium, Brazil, Canada, Malaysia, New Zealand, Nigeria, Norway, Oman, Pakistan, Sweden, Switzerland, Thailand, Turkey, Uruguay

In which country are you personally located?(% respondents)

28

25

5

3

2

1



Financial services

Manufacturing

IT and technology

Professional services

Healthcare, pharmaceuticals and biotechnology

Chemicals

Energy and natural resources

Automotive

Consumer goods

Retailing

Aerospace and defence

Education

Entertainment, media and publishing

Government/Public sector

Logistics and distribution

Telecoms

Transportation, travel and tourism

Construction and real estate

What is your primary industry? (% respondents)

17

15

13

9

6

5

5

4

4

4

3

2

2

2

2

2

2

1



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information, neither The Economist Intelligence Unit Ltd. nor the

sponsor of this report can accept any responsibility or liability

for reliance by any person on this white paper or any of the

information, opinions or conclusions set out in the white paper.

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A Blended Future: The changing mix of IT service delivery and consumption

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