Technology and Leadership: The IT Innovation Gap

Technology and Leadership

Jonathan P. AllenUniversity of San Francisco

blog.jpedia.org

Technology

Leadership

Innovation

Three Points on Technology

1. The ‘classic view’: Technology leadership as wise investment – internal productivity, ROI, and competitive advantage.

2. Today’s ‘IT innovation gap’: Legacy systems, enterprise systems, and software economics.

3. The emerging world of ‘open innovation’, and its new demands on leadership.

(Brynjolfsson and Hitt, 1998)

Technology as incredible hardware

A framework for economic value

(Dedrick et al., 2003)

The ‘classic view’: What we know

• IT investments show higher gross marginal returns than non-IT investments.

• IT-productivity link is strong in developed economies, but not developing.

• Productivity impacts of IT vary widely among different companies.

• Possible factors: IT management, strategy alignment, employee involvement, decentralized decision-making.

Labor Productivity Growth by Industry, 1989–1999

Industry 89-95 95-99 Change

Agriculture, forestry, fisheries 0.34 1.18 0.84 Mining 4.56 4.06 −.50 Construction −.10 −.89 −.79 Manufacturing 3.18 4.34 1.16 Durable goods 4.34 6.84 2.51 Nondurable goods 1.65 1.07 −.59 Transportation 2.48 1.72 −.76 Trucking and warehousing 2.09 −.78 −2.8 Transportation by air 4.52 4.52 0.00 Other transportation 1.51 2.14 0.63 Communications 5.07 2.66 −2.4 Electric, gas, sanitary services 2.51 2.42 −.09 Wholesale trade 2.84 7.84 4.99 Retail trade 0.68 4.93 4.25 Finance, insurance, real estate 1.70 2.67 0.97 Finance 3.18 6.76 3.58 Insurance −.28 0.44 0.72 Real estate 1.38 2.87 1.49 Services −1.1 −.19 0.93 Personal services −1.5 1.09 2.55 Business services −.16 1.69 1.85 Health services −2.3 −1.1 1.26 Other services −.72 −.71 0.01

Industries by intensity of IT use Intense IT use 2.43 4.18 1.75 Less intense IT use −.10 1.05 1.15

Value added per full-time equivalent employee; average annual percent change. Source: Council of Economic Advisors [2001].

Contribution of IT and non-IT capital investment to labor productivity growth (Jorgensen, 2001)

(Brynjolfsson and Hitt, 1998)

All IT-using companies do not get the same results...

eWeek: Top 100 CIOs1 ExxonMobil Reduced operating costs by $1 billion.

2 amazon.com Becoming software/hardware service provider.

3 General Electric Integration of all business units.

4 google Adapting google technology for internal use.

5 Boeing Product lifecycle management for 787.

6 Toyota USA 1,200 dealer inventory network.

7 FedEx Logistics and transportation infrastructure.

8 Merrill Lynch Professional organization leadership (SIM).

9 UPS Internet-based shipping tools and ups.com.

10 PepsiCo Unify IT across global divisions.

So, what’s the problem?

Three Points on Technology

1. The ‘classic view’: Technology leadership as wise investment – internal productivity, ROI, and competitive advantage.

2. Today’s ‘IT innovation gap’: Legacy systems, enterprise systems, and software economics.

3. The emerging world of ‘open innovation’, and its new demands on leadership.

Almost all IT spending is just to “keep the lights on”

Other20%

Maintenance80%

Gartner, 2006

“Dead money”

“Just to sustain”

“IT leaders need to start spending their money differently.”

Enterprise systems: Inflexible?

This?iwaysoftware.com

Or this? workday.com

Software economics is ‘broken’Typical software company budget

• 15% spending on R&D• 2.5% writing new software

• 1.25% new versions• 1.25% updating old versions

• 5% requirements• 7.5% testing

• 20% support• 30% sales and marketing• 35% profit margin

Claim: Out of the 3/4 Trillion US$ spent per year on software, only $1.25 out of every $100 goes to innovation (new code).

Three Points on Technology

1. The ‘classic view’: Technology leadership as wise investment – internal productivity, ROI, and competitive advantage.

2. Today’s ‘IT innovation gap’: Legacy systems, enterprise systems, and software economics.

3. The emerging world of ‘open innovation’, and its new demands on leadership.

Open innovation

The new innovation

‘division of labor’

‘Mass collaboration’

• ‘Crowdsourcing’: The Goldcorp Challenge; P&G InnoCentive.

• Open Source: A new mode of production.

• Democratizing innovation: ‘Prosumer’, ‘homebrew’, ‘remix’.

• Participation platforms: Web APIs, collaborative spaces.

• The ‘wiki workplace’: Social networking on the job.

The Next Generation Web

• The extension of open source and ‘peer production’.

• The rise of ‘Software-as-a-Service’ and a new economic model for software innovation.

• The rise of ‘Web 2.o’: The participation web.

• The opening of legacy & enterprise systems to the outside world: SOA (service-oriented architectures).

Embracing ‘open innovation’:

The Apache Web Server story

“You have to stop here and imagine this. The world’s biggest computer company decided that its engineers

could not best the work of an ad hoc open-source collection of geeks, so they threw out their own technology and decided to go with the geeks!”

Friedman, The World Is Flat

EXAMPLE: Microsoft Skills Planning and Development (SPuD)

• Develop a structure of competency types and levels

• Define competencies for each job• Supervisors rate employees in

each competency• Implement knowledge

competencies in custom online system

• Link competency models to learning offerings

Closed vs. open innovation example: Knowledge Management

Classic challenges:

Getting people to

share

Protection against people

leaving

(Alavi and Leidner, 2001; Becerra-Fernandez, 2006)

Lightweight Knowledge Sharing

A lightweight alternative to traditional Knowledge Management

Two components:1) Simple syndication 2) Simple ‘social graph’

Business ‘ecosystems’

“Strategy is becoming, to an increasing extent, the art of managing assets that one does not own.”

Iansiti & Levien, The Keystone Advantage

“The function of ecosystem leader is valued by the community because it enables members to move toward

shared visions to align their investments and to find mutually supportive roles.”

Moore, The Death of Competition

Your challenge:Create a leadership position in a large and vibrant innovation space, using your mastery of the latest innovation technologies.

Three Points on Technology

1. The ‘classic view’: Technology leadership as wise investment – internal productivity, ROI, and competitive advantage.

2. Today’s ‘IT innovation gap’: Legacy systems, enterprise systems, software economics.

3. The emerging world of ‘open innovation’, and its new demands on leadership.

Technology and Leadership

Jonathan P. AllenUniversity of San Francisco

blog.jpedia.org