Gary Hamel: One of the things I talk about in the book is a hierarchy of innovation. At the bottom is operational innovation, the kinds of things that companies do to run leaner or be quicker or deliver 24/7 customer service. A step up from that is product innovation that delivers the next wonderful flat-screen television. A level up from that you have business model innovation. Dell, at one time, was a business model innovator. And a level up from that you have what I'd call architectural innovation. This is when you get a whole industry thinking differently -- what Apple did with iTunes to get all these music companies to agree to a new digital rights management system.
At the top you have management innovation. All of my research suggests that it's management innovation that has created the most enduring source of competitive advantage. But the distribution of IT effort is in inverse proportion to the potential to create value. Most of it's at the bottom and almost nothing at the top. If I were a CEO, the first question I'd ask in every budget meeting and in every review meeting with my CIO would be what percentage of our total budget and time is going into projects that will allow us to do something unique in our industry.
So many companies are now running the same software platforms, whether Oracle or SAP or whatever. Increasingly, we rely on the same handful of offshoring companies or IT service companies. There are a whole lot of things that IT folks have to do to keep up as part of the IT arms race, but in the end the only thing that's really going to make a difference is whether you're using IT in a unique way to do unique things where you don't find any other benchmarks. If you ask the average CIO what percentage of his total budget and headcount is devoted to things that are unique to his industry, I think it's probably too small a number.
CIO: What should the number be?
Gary Hamel: Given the size of IT budgets, I think it should be somewhere between 30 and 50 percent, and anyplace where we don't think we can't create competitive advantage, let somebody else do it.
CIO: IT leaders learn that the key to success is to collaborate with business managers who will champion their projects. But you say that "people with the boldest most useful ideas...are probably not the folks managing those processes right now." That sounds like a big disconnect.
Gary Hamel: It is a disconnect. If I'm an IT person and I want to raise my value-added in the organization, one way is by being responsive to and solving the problems of the VP core. But if that's my view of how I'm adding value, then my capacity to add value is limited by the imagination of those folks.
As a CIO, you need to be bringing ideas to the party. You have to be more than merely responsive. You have to be in there with your ideas, with your point of view and bring opportunity to the table that those business leaders would have never thought of. If you're a CIO, you need to spend a lot of time out on the fringes of the Web because that's where the innovation's taking place. You need to spend a lot of time with people under 25 years old.
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