IT Strategist on Alignment and ‘Creative Destruction’

Richard Nolan is the William Barclay Harding Professor of Management of Technology at Harvard Business School. Nolan was co-founder and chairman of Nolan, Norton & Co., the premier IT strategy firm of its time. What follows is an edited transcript of Dr. Nolan’s remarks to attendees of the September CIO Insight/Balanced Scorecard Collaborative Strategic Alignment Summit in Chicago.

What we’ve all been going through during the last 30 years or so is this fundamental transition from the industrial economy with very well-known management theories and principles for accounting and organization and so forth, and we’ve been going through a creative destruction process, moving into the information economy.

And we haven’t been able to just cast off the old and embrace the new. We’ve had to essentially invent and create the new. I think the notion of creation is a very, very difficult recursive process, and we’re not done with it yet.

Consider the notion of the Renaissance CIO. These are very balanced people. They’re very, very good in technology, and they’re also very, very good in business. What is important about the Renaissance CIO is the idea of the fiduciary responsibility that he or she actually has. I call it “assume and assert.” When you’re working with the business people, you can’t simply react. You must be the experts in technology.

Today, technology is changing extremely rapidly, and therefore, there are opportunities that CIOs need to seize. They need to help their companies internalize technology opportunities and get the buy-ins required to incorporate them into the execution of business strategy.

Today, we are in a business malaise, which is very dangerous for CIOs. It’s very easy to discount the power of the Internet, given the fall of the dot-coms, but it would be gravely wrong to do so.

It’s very important for Renaissance CIOs to maintain a long-term view about the benefits of information technology to the corporation, because they’re in a long-term type of business. It’s also important that CIOs don’t overreact to these huge cost-cutting kinds of actions that are going on in IT right now and do damage to the organization. Take the long-term view.

And remember—it’s not the computer, it’s the information that’s valuable. Information is enabled by the computer, therefore, information has economics that are driven by Moore’s Law. The costs continue to drop.

In the past 10 years, we really have taken advantage of that in the economy, and let me illustrate. Consider Wells Fargo bank. Their technology target initially was to automate transactions. When it applied the technology, we saw the economics of computers take the cost of the transaction in the bank from the physical branch of $1.50 down to 50 cents down to a penny, and that has led to the restructuring of the banking industry. Before this started, there were 30,000 banks in the United States, and now there are around 5,000. And this has happened in every industry.

So there have been the economic effects of the lowered transaction cost that IT has enabled, and this has resulted in a huge restructuring of industries. Consider steel-making. From 1960 to 1999, employment in that industry in the United States went from 600,000 down to 230,000, yet in both of these periods, U.S. steel companies made roughly the same amount of steel. What we saw here was the power of technology to make revolutionary changes.

CIO Insight Staff
CIO Insight Staff
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