The service-fulfilment model for IT is dying. A new philosophy of innovation and productivity is being born. Here's what CIOs need to do to usher in a new age of IT

Reader ROI

• Why reporting to the CFO is a barrier to success
• Why the federated model of IT governance will dominate
• What skills CIOs will be looking for and why they won't find them

If there's anything harder than predicting the future, it's reaching a consensus about it. The trends affecting IT today are easy enough to spot - outsourcing, globalization, increased regulation, increased complexity and never-ending demands from the business for growth and revenue - but it's much more difficult to figure out how all these trends will converge to determine the size, composition and strategy of the IT department over the next few years.

So we read the research - not only our own State of the CIO surveys (see CIO March for the full report) but also studies by other organizations - and talked to some of the more thoughtful and visionary CIOs we know to come up with a portrait of what we call the Post-modern IT Department.

The executive summary goes like this:

The Post-modern IT Department will be smaller, more distributed and dependent on a tightly integrated supply chain of vendors. It will be in desperate need of multitalented specialists who have in-depth technology knowledge but who can also create new products and capabilities that businesspeople might never have envisioned.

CIOs will need to transform themselves into innovation leaders, not merely infrastructure stewards, and they will have to remake their departments in that image.

IT will need to be a full partner, if not a leader, in business process innovation.

Now let's get granular and see what the Post-modern IT Department will look like and how it will work.

1. IT Will Assume Responsibility for Business Innovation Across the Company.

IT has spent the better part of 40 years automating business processes. It could do more, but that's not what the business is asking for. "The discussion that the business wants to have today is: How are you going to partner with me to win in the marketplace?" says Shaygan Kheradpir, CIO of telecomms giant Verizon. "They see that the world is full of IT innovations that the customer never asked for. When did a customer ever ask for the iPod or Google? Yet once they get them, they can't live without them."

IT can envision what the business can't by combining broadband connectivity, the Internet, software, and even gadgets like mobile phones and PDAs into new processes and capabilities that solve the problems of the business and its customers. "IT departments can't be focused simply on making internal customers happy any more," says Ann Senn, national managing director of strategy and innovation for Deloitte Consulting US. "They have to be focused on what's going to deliver value for the enterprise and external customers. It's not about just getting the marketing department to stop yelling at me."

The ongoing shift to service-oriented architecture (SOA) will improve IT's ability to innovate because it requires that IT understand how the business does its work. SOA represents the highest order of business process innovation: a set of tasks (termed services) such as "credit check" or "customer record" that are expressed in technology and can be combined quickly and repeatedly into new combinations. SOA could be the fastest-growing enterprise IT strategy in history. It became practical only with the arrival of Web services in 2001; yet by the end of 2004 a Forrester Research survey found that 70 percent of large companies had adopted SOA, with 19 percent saying they are using it for "strategic business transformation" - a promising percentage of the total considering the gaps that remain in Web services standards and the lack of proven, standardized methods for implementing a SOA.

IT's role in process innovation will only increase, say CIOs, because the demand for process innovation among businesspeople is permanent now, thanks to the Total Quality Management and Six Sigma movements of the 80s and 90s. "Process change has become embedded in individual functions and business units, and they have seen the benefits to their bottom lines," says Judith Campbell, CIO of insurance company New York Life. "So they come to IT because they want to know what other parts of the company have done. We've gone from being the engineers of new processes to being the movers of innovation across the company."

This shift from providing services to innovating new ones is coming in baby steps at New York Life. The number of staff devoted exclusively to process design and innovation is small. There are 10 innovation experts within a total programming staff of 600, which reflects the shortage on Campbell's staff of people with relationship and management skills, as well as a lack of interest in this kind of work among programmers who grew up loving their ones and zeros. Moving to the innovation group "isn't a natural career path for many people", says Campbell. "They tend to like technology more than they like processes."

Yet demand for IT people who can innovate shows signs of picking up over the next few years. In a survey of 82 companies that began in 2005 and is continuing, a team of academic researchers at the Society of Information Management (SIM) asked which skills IT leaders thought were most important to keep in-house today. With the exception of system analysis and system design, the top skills were all related to business process or project management. The IT leaders' projections for their internal needs for 2008 were nearly identical - except that business skills got even higher rankings.