Goodbye IT, Hello Digital Business

It's not about information technology anymore. It's about digital business. The new description is a testament to IT's advancement from a back-office, support-the-business role into a developer of products and apps that customers use directly. It's also a reflection of the central role of data analytics in letting companies see and anticipate customer tastes more quickly than ever before.

This digital business movement is becoming an imperative in the retail industry. Retailers have been doing e-commerce for years, but they now face a more intense customer expectation for a digital relationship that crosses store, Web and mobile channels. How important is that integration? Drugstore giant Walgreens finds that a shopper using mobile, Web and store channels spends six times more than the typical store-only shopper.

But the digital business trend goes well beyond retail, to manufacturing, healthcare and other industries where technology is becoming a vital link to the customer. That link might be through an online app -- in healthcare, for instance, "Meaningful Use" rules give doctors subsidies based in part on having a percentage of their patients access their medical records online. Or the customer tie might come directly through a tech-based new product, such as Nike's fitness-monitoring FuelBand. What does Nike know about writing apps? It's learning fast, including hosting a dozen development startups in Oregon in a three-month "accelerator" to bring in new ideas.

Digital business calls for a customer-facing CIO. One finding of our fifth annual InformationWeek Global CIO Survey suggests that about one-third of IT leaders are embracing this customer-facing role. The big question is whether the other two-thirds will follow suit or sit on the sidelines as other executives drive toward the digital business goal line.

"I raised my hand," says Bentley Curran, CIO of $1.3 billion-a-year manufacturer Brady Corp., who added VP of digital business to his title a year ago. Brady is a classic business-to-business company, a maker of industrial supplies from reflective vests and safety signs to cleanup products for chemical spills, and its executive team realized it needed to improve its digital ties to end customers.

Brady's surveys found that more than 90% of its direct customers in the U.S. and U.K. prefer a digital entry point to start a purchase, but far fewer actually used the digital channels Brady offered, relying instead on paper catalogs or call center reps. "Marketing said, 'We need more out of IT. We need the engine to go faster,'" Curran says.

That realization led to Curran's new digital business role. It also put Brady's IT pros into some new roles. For example, they've worked with business unit colleagues to create "customer journey maps" of five prototypical customers, laying out their current and future digital needs.

Forty percent of Curran's budget is now focused on sales and marketing initiatives. He has eight Scrum teams, trained in agile development, focused on six areas: mobile, search, analytics, product content, platform and custom content. Each team consists of four to five people who deliver code to business units in two-week sprints. Teams from IT, marketing and other areas are looking at the first 60 days of a new customer's experience to map out every interaction and whether the technology supports it well. Sometimes, that amounts to 20 touch points. "We've got to be a customer-facing IT organization," Curran says.

Variations of Brady's digital business story are playing out at companies as different as Walgreens, Vail Resorts, Kaplan, Procter & Gamble and True Value. But before we get into those stories, let's look at our research to see where a broader spectrum of technology leaders are.

CIO Focus

Only 23% of the 118 CIOs and VPs of IT we surveyed say they regularly visit customers; a third have other key IT leaders doing so. More promising, 41% have leaders on the team shaping mobile strategy, and 38% have IT intimately involved in product development.

One trend we've watched closely in the Global CIO Survey is where CIOs expect to innovate in the coming year. Back in 2010, 36% put "new IT-led products and services" among their top three priorities. Three years later, it's stuck at 35%. The concern is if a majority of IT execs see the tech-as-product trend applying only to certain kinds of companies, when in fact examples are sprouting across industries.

While cutting costs is still the area of innovation cited most by survey respondents (39%), that percentage is the same as a year ago. Next come two kinds of growth initiatives: introducing an IT-led product (35%) and creating a new business model or revenue stream (31%). The fourth highest innovation priority among IT leaders, another cost cutter, is making processes more efficient -- though at 28%, it's down 11 points from a year ago. Rounding out the top five is a customer-centric priority -- engage customers in new ways -- cited by 20% of the execs in our survey, up from 13% a year ago.

chart: Which platforms are important to building customer ties?

What A Digital Business Looks Like

Becoming a digital business changes how a company interacts with its customers, but it also requires companies to break down old operating silos and bring in new expertise.

A Walgreens app now lets a customer order a prescription refill from home by scanning the bar code on the bottle using an iPhone or Android smartphone. More broadly, the company made a conscious pivot in late 2009 to make mobile central to all its development, CTO Abhi Dhar says. That meant moving one of its most senior e-commerce people to lead mobile development and putting people from mobile engineering, mobile consumer experience and mobile marketing together with financial planning in one location.

Starting this month, Nike is hosting 10 tech startups in Portland, Ore., to spark innovation around its digital platforms, including its Nike+ FuelBand, a wristband that tracks movement throughout the day. Kaplan, the college exam prep company, is using the same accelerator model -- both are run by Colorado-based TechStars -- to attract startup developers to its digital platforms and bring in ideas company developers wouldn't consider. "It's an opportunity to give us a little bit of fresh air," says Bernardo Rodriguez, chief digital officer at Kaplan's Test Prep group. The risk with mobile, he says, is that "we tend to apply our old models to the new experience."

Disney is working on an RFID wristband system it plans to launch this year at its theme parks. Called MagicBands, it will let guests pay for goods, check in at rides to map their day's activity and even send data to characters in the park -- so that Snow White or Mickey Mouse can address a child personally.

Disney's following the work of Vail Resorts, which for the past three years has used RFID in its lift tickets to let people track where and how much they skied during the day and share their achievements on Facebook. Vail CIO Robert Urwiler warns other IT leaders that customer-facing apps face a much higher standard of performance and style than employee-facing apps, and he's had to add talent to meet that standard.

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At United Stationers, the office supply wholesaler, CIO Dave Bent has led IT into digital business by becoming a service provider. It acquired a marketing services company and launched a business to help its retailer customers provide a digital platform to reach their customers. At the same time, Bent added the title of senior VP of e-business services.

The emergence of digital business is even changing how some companies talk to Wall Street. Last month, Macy's stopped breaking out online sales as a separate financial category, saying the channels are too blurred. "It's getting so hard to know what's a store sale and what's a mobile sale and what's Internet," Macy's CFO Karen Hoguet told analysts last month while discussing the retailer's 2012 results. "... Sometimes, it's being bought on a mobile device sitting in a store. So I'm not sure how to define that."

Mobile is the most powerful force blurring business lines (more on that later), but it takes advanced data analytics to make sense of this digital business world. Increasingly, the focus of analytics is on customer understanding -- assessing the sentiment of comments on Twitter, Facebook and Web pages to know if a product is a hit or flop, or using clickstream data to understand customer behavior.

When we asked in our survey what the main opportunity for CIOs is, 32% -- the largest single percentage -- cited using customer or business data to influence new products and drive growth. That's up 8 points over last year, when the data answer ranked second after driving company-wide process innovation.

Procter & Gamble is one of the most sophisticated users of analytics. CIO Filippo Passerini says there's "nothing more important" to P&G than being able to predict the customer response when it launches a new product, package or marketing campaign. Passerini thinks analyzing the online discussion around new products should let P&G predict sales well before actual sales data comes in. While "we haven't cracked this nut yet," he cautions, he considers this type of customer-focused analytics to be the next "breakthrough opportunity."

chart: What is the main opportunity for CIOs today?

Walgreens Goes Mobile

Almost 70% of the IT executives we surveyed see mobile apps as important to building customer ties.

Walgreens decided in 2009 to make a concerted mobile push. First came a simple text message service: Text me when my prescription's ready so I can roam the store rather than sit and watch the pharmacist count pills. More ambitious was the smartphone app to let people order a prescription refill from home and then pick it up in the store.

But initial adoption lagged. "The worst sound is silence," says Dhar, the CTO. The problem, the team decided, was that the app required customers to log in. Why? Well, because that's what apps do. But people don't need to log in to anything before they phone in a refill. "We said, let's make it ridiculously easy," Dhar says. Gone is the refill login, and today 52% of Walgreens' online refills come via its mobile app.

Photo printing is another place where mobile has blurred the lines between channels and spurred new approaches for Walgreens. Last summer, it released an API and SDK to let independent developers embed Walgreens' printing service in their photo-editing smartphone apps. Developers get a cut when an app user sends a photo for printing at a Walgreens store. In 2010, less than 1% of Walgreens photo prints came from mobile devices. Today it's 15%.

Sona Chawla, Walgreens' e-commerce president, has a "digital customer experience" team looking at what people want in this store-online-mobile world. Walgreens is testing a service that lets people order online and pick up at a store within an hour. But there's more to do. As at most retailers, there's no simple, automated way for customers to "tell" the store they're there, perhaps to receive a customized promotion or reminder on their smartphones. Walgreens has experimented with Foursquare check-ins, donating flu shots for people who checked in to say they were getting vaccinated at a Walgreens.But Chawla knows that the company needs to do more to build digital ties with customers using customer data. "If you know me, show me you know me," she says.

Brady's first mobile app, which is in pilot tests, again shows the blurring of new and old sales channels. A customer can order a product just by snapping a picture of it, and the app sends that picture to a Brady call center rep, who can quickly find and order it. The app doesn't need to link to a product catalog. And if the customer is ordering a rival's product, the rep can suggest an alternative that Brady carries.

The People Challenge

Brady's experience shows how a more customer-focused IT organization often requires retraining as well as new hires, and often layoffs of people who don't make the transition.

Among our survey respondents, hiring is on the rise: Just over half say their companies expect to staff up across many areas (20%) or for specialized skills (32%) this year. Just 3% are more likely to lay off than hire, while 29% have frozen hiring.

Brady went to the cloud for many of its enterprise applications -- Salesforce.com CRM, Workday HR, Google Apps collaboration -- in order to move people from app support roles to more innovation work. But it still needs people with expertise in SAP. If it's going to expose inventories to customers through Web and mobile apps, it's on-premises SAP applications become customer-facing systems. Still, some people will feel like they're doing yesterday's IT instead of the new and cool customer-facing tech. "It's hard," Curran admits.

Walgreens, which has its headquarters in the north Chicago suburb of Deerfield, opened a downtown Chicago office to attract the creative talent it needs for its digital initiatives. "You want to be where the talent is," Chawla says.

True Value has been moving from a wholesaler mindset to a retail focus, and IT is part of that cultural shift, says CIO Rosalee Hermens. It lets shoppers buy online and ship to the store, since the retailer's research finds that online shoppers will typically spend three times more money if True Value can get them to visit a store. Now its IT team is working on being able to tell customers the inventory in each store.

To do all this, Hermens needs people who understand the True Value customer and are comfortable getting out and working with store owners to learn what they need. That work is different from the IT development for store owners and employees. "We operate in this realm of our work like a software development company," Hermens says.

Across industries, companies are learning how different developing software for customers is from developing software for internal users. Employees "have an obligation to use your software," Walgreens' Dhar says. "There's something very different when there's no obligation to use your software."

Is IT up to this customer-centric challenge? Sixty-one percent in our Global CIO Survey say their companies have a rising number of growth-oriented projects, compared with 13% who see a declining number or no such projects. In terms of total IT spending, 57% of execs expect to spend more this year than last, while only 14% expect to spend less. What's changing is where companies spend those tech dollars. "We're in the customer age," Curran says. "The 'standardization of process' and the 'upgrade of ERP' age is past." Those activities are still necessary, of course, but the energy is around customer-facing tech.

chart: How does your IT team interact with customers?