May 2006
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Think you've got a tough job? Consider the challenges facing virtually every CIO in a Chinese enterprise today: blazing economic growth, the restructuring of entire industries in the wake of government economic reform programs and the implications of China's membership in the World Trade Organization, all of which have combined to create powerful demand for new technology and, in many cases, wholesale IT replacement.
There's more at work here than macroeconomic forces, however. This demand for improvements in information technology—new investment; more capabilities; supply chain and customer interaction applications; new data centers; more servers; new and faster integration—is also mandated by China's business leadership. For Chinese companies, playing an integral part in global supply chains and financial markets means adopting global standards in data interfaces, management and security.
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Walk into the data center of any large telecommunications company or bank in China, and you can see the impact of recent IT investment: row after row of gleaming new hardware running new applications, both custom-developed systems and packages from local or global software providers.
Compare this with the continuing austerity faced by CIOs in much of the rest of the world. Although IT spending in many of these countries has stopped shrinking, tougher new regulatory requirements and the complexities inherent in legacy IT mean that most of the money in IT budgets is spent fixing and maintaining existing systems. Despite studies clearly linking the high levels of productivity growth in the United States during the past few years to IT investment, for the individual CIO, continuing fallout from high failure rates of major IT projects hampers efforts to convince management that discretionary investment in innovation and technology can deliver a competitive advantage.
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A Generational Leap
China's CIOs differ from their counterparts elsewhere in another respect. Accenture research shows that while CIOs in other major markets tend to be followers in technology, China's CIOs and business leaders are keen to be early adopters of the latest innovative IT tools.
This attitude, combined with the growing demand for new systems, means that at least from a technical perspective, Chinese enterprises are positioned to leapfrog several generations of IT hardware and applications, adding further momentum to the transformation of their businesses. If this happens, it could significantly alter the dynamics of relationships among IT suppliers, customers and joint-venture partners around the world.
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For China, however, new hardware and software are no guarantee of success. Highly decentralized governance structures across business units and business functions as well as a reluctance to implement large-scale process change mean that all too often, new technology investments in China automate existing fragmented and outdated processes rather than deliver new business capabilities.
Moreover, at this critical moment in the evolution of their IT departments, Chinese organizations face a real risk. If their CIOs do not dramatically and rapidly increase the skill and capabilities of their IT functions while they are investing in advanced technology, they will jeopardize the enormous progress this investment tantalizingly promises to deliver. In the worst case, the rapid expansion of IT systems without a simultaneous commitment to upgrading skills could mean that some Chinese CIOs may simply be on a fast track to creating the same problems that their global colleagues have taken decades to build and now haven't the resources to solve.
But if China's CIOs are to be successful, they can't act alone. To reap the full potential of IT investments made in the course of their ongoing transformation and expansion, Chinese organizations need to maximize the business alignment of their IT functions. An important first step is changing the status of IT from a back-office service to a fully fledged business capability that enhances competitiveness. Companies should also consider elevating the role of the CIO to a level comparable to other key business unit managers.
The goal in China should be to join the current generation in one step—that is, to get IT right the first time. Based on the analysis of more than 400 self-assessments done by CIOs from Asia, Europe and the Americas (see Sidebar), an Accenture High Performance IT research team identified the most important opportunities China's CIOs have today to increase the performance of their IT investments.
IT Security: Chinese Businesses Under Attack
According to a recent InformationWeek/Accenture Global Information Security survey, Chinese businesses are considerably more anxious than their US counterparts about their ability to protect their data systems from security attacks, questioning whether their internal operations are adequate to defend against potential threats. Only 16 percent of US companies surveyed feel more vulnerable to code attacks and security breaches than they did a year ago, but 46 percent of Chinese companies feel more vulnerable.
Technology leaders of Chinese companies seem to have good reasons for their concerns. Nearly 80 percent of Chinese companies surveyed reported virus attacks in the past year, while 70 percent had experienced worm attacks. Three-quarters of the companies that reported security breaches traced them to known vulnerabilities in their operating systems. Half of the organizations learned they had been attacked only after discovering damaged data or material.
Information confidentiality was compromised at almost 50 percent of the Chinese companies reporting breaches in the past year, and many also experienced damage to their systems. Security attacks are resulting in more and more identity thefts; in fact, Chinese businesses report more than twice the identity thefts that their US counterparts do.
Although safeguarding the privacy of customer data isn't as common as in the United States, Chinese operations are taking steps to protect customer information. However, few Chinese companies inform employees of privacy or behavior standards, post privacy policies online or use secure web transactions, all of which are common practices for US organizations.
When developing security priorities for the next year, companies should address the issues troubling current operations. These steps include investment in application firewalls and monitoring software, installation of intrusion-detection tools, better integration of security systems and enhanced application security.
Over the next few years, the decisions made by China's CIOs will have a significant impact on the future competitiveness of their organizations. The government has already acknowledged that IT will play an important role in securing the market position of China's leading companies over the medium and long term. The 11th Five-Year Plan, covering 2006–2010, specifically focuses on supporting the use of advanced technology to further the country's development as well as the growth of a strong homegrown high-tech sector. As the labor-cost advantage enjoyed by Chinese businesses grows thinner, productivity and product and service innovation will become more important.
China's CIOs face a formidable challenge: keeping up with business demand for new IT capabilities while at the same time boosting the architecture, delivery and management skills of their IT functions. Adopting an advanced IT management model will be only part of the solution, however. Senior management must recognize that building business capabilities through IT requires dramatic change within the entire organization, including governance, processes and behaviors. It also requires that IT leadership be given a seat at the table, to be integrated into the strategic decision-making process of the enterprise.
At the moment, China enjoys an advantage in manufacturing, leveraging the availability of a large skilled workforce. Imagine significantly enhancing this advantage with vastly increased IT capabilities across all sectors at a time when businesses in developed economies remain stuck with insufficient IT investment. If Chinese organizations can meet this IT transformation challenge successfully, the broader implications for global competitive dynamics will be profound.
1. Make Innovation Sustainable
Our research shows that Chinese CIOs and their business leaders are not afraid to be first in adopting innovative new technologies. While 53 percent of their global peers were content to follow the market, a full 73 percent of CIOs surveyed in China said they wanted to lead the market or be early adopters. Investment levels con-firm these claims: Chinese businesses spend a higher proportion of their IT budgets on innovation and make more regular IT investments than do their equivalents worldwide.
When investing in new technology, Chinese organizations pair their interest in innovation with a strong aversion to risk. This means that technology is usually introduced through limited pilot programs for extended periods of time rather than rapidly across the organization.
To get maximum leverage from innovative new technology, Chinese organizations should establish a clear, enterprise-level IT architecture that determines which investments are made and that prevents future complexity and unnecessary costs. In addition, the broad application of the new technology should follow the pilots to achieve process improvement rather than simply the limited, small-scale automation of existing processes.
2. Use Innovation to Transform the Business
With online transactions globally averaging one-tenth the cost of traditional business processes, the earnings upside of doing business on the Internet is substantial. Yet when we asked CIOs around the world what percentage of total customer, supplier and employee interactions took place online, the answers indicated underutilization of between 50 and 57 percent, across the board.
By their own estimate, Chinese businesses today could double the proportion of transactions they conduct over the Internet. Businesses would reduce costs for the transactions they move online by 90 percent, and also open up new opportunities to interact with their business partners; this could, in turn, drive entirely different business models. In such a diverse, geographically distributed environment as China, the impact could be a significant contributor to accelerating the transformation of the country.
3. Measure to Manage
One of the things Chinese IT executives have in common with their counterparts elsewhere is the need to develop cost-effective ways to bring the right governance models, quality, predictability, speed and reduced risk to IT delivery. Managing to specific productivity metrics is fundamental to this approach, as are repeatable processes, standards, tools and highly skilled resources for specific work. In other words, the lessons of manufacturing can apply to IT as well; this is what Accenture calls the industrial model of IT delivery (see "Breaking away: How to create value with information technology," Outlook Special Edition, May 2004).
However, our research suggests that today some Chinese CIOs don't value metrics as the foundation of management control. They also display less familiarity with industrialized IT delivery approaches, due to their country's historical low cost of labor and a shortage of highly skilled people who can act as multipliers for new management approaches.
4. Keep Complexity in Check
While their counterparts in the rest of the world are focused on rationalization, standardization and consolidation, China's CIOs clearly expect to further expand their infrastructures before starting to optimize them. High on the IT agenda in China is finding a way to build secure, flexible, scalable infrastructures that are also cost-effective.
But how do executives expeditiously add capacity without adding complexity? How do they prevent wasted investment in underutilized infrastructure while making sure the technology infrastructure they do have can cope with rapidly expanding volumes of data? And how can they provide secure and easy access to information, generating trust with investors and business partners? The answer: Standardize early, not after the fact.
5. Reduce Fragmentation
Chinese organizations, many of which are very large, historically decentralized and geographically dispersed, face enormous integration challenges. Since taxes levied by the central government vary from province to province, and business practices differ between geographies, business structures are highly localized. While Chinese organizations have several different integration tools in their suite, many appear to be waiting for a silver bullet in the form of web services and related standards to solve these integration problems. Integration, of course, is hardly a new issue in China, where a standardized dialect, Mandarin, holds together a patchwork of literally thousands of dialects. Without Mandarin, a company's employees in Guangzhou would be unable to speak with their colleagues in the Shanghai office. Yet even though large Chinese businesses avail themselves of a common language every day, IT system integration has to date tended not to be a high priority.
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A large provincial telecom operator in China provides an apt example of the enterprise integration challenge many Chinese firms face along two dimensions: vertical (integration across provinces and cities) and horizontal (integration of business functions such as network, customer services and revenue generation). The company operates almost a dozen local networks at the city level and has a rapidly growing subscriber base. Until recently, each of the city networks operated its own separate customer service and billing systems.
To achieve data and business process standardization and integration of account hierarchy, product and service applications, the operator decided to design and implement an integrated company-wide business-support system. The goals were to standardize and migrate the multiple isolated legacy business support systems at the city level into a single, integrated customer relationship management system and a single billing system at the provincial level.
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Organizations that integrate their systems, people and processes enable better decision making by understanding the real-time status of operations across the extended business network, including suppliers, distributors and customers. Unlocking customer data stored in functional and systems silos and data warehouses can produce superior products or services and reduce costs. Standards, service-oriented architectures and process orientation are central to mastering the integration challenge.
6. Stem the Information Flood
Like CIOs everywhere, Chinese IT executives are overwhelmed by both the current and the anticipated future demands for data. Finding ways to manage the information flood is their highest priority, with significant activity expected in data warehousing, integration of structured and unstructured information, business intelligence, portals, and enterprise applications to support the front office and operations. And as China continues its integration with the global economy, its organizations will need to address global requirements, standards and practices in data communications and storage.
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Finding powerful ways to collect and analyze internal and external data is necessary to counteract information overload, generate knowledge and, ultimately, create value. A company's information management strategy should encompass both structured data management through enterprise solutions and business intelligence, and unstructured content management.
7. Build Business Capabilities
According to our research, Chinese organizations capitalize on their enterprise systems investments faster than their counterparts elsewhere do. When, in the recent past, Chinese companies have invested in enterprise systems to build new capabilities, value realization has been achieved, on average, within 12 months of going live, while in other markets, the typical time frame has been 12 to 24 months.
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Chinese organizations continue to invest in enterprise resource planning, supply chain management and CRM to build new management and competitive capabilities. An example is China National Offshore Oil Corporation, one of the country's largest energy companies, which is implementing an ERP system to increase efficiency, reduce operational costs and improve performance, thus positioning itself to become a global oil and gas player.
For large Chinese companies, implementing enterprise systems is all about increasing management control and getting full visibility of operational data across the organization. The higher the level of consolidation and integration, the more control management can achieve.
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When China Everbright Bank first implemented its ERP system a few years ago, it consolidated approximately 300 siloed branch-based expense management units into 30 province-based units—an extraordinary achievement at the time. The bank is now moving to fold its 30 units into one to get to the next level of expense management control and flexibility.
Sidebar: Lessons for Multinationals
Companies investing in China, either directly or through joint ventures, need to keep IT issues in mind as they set their strategies.
This includes making IT sourcing decisions—for example, how much to build versus how much to borrow or buy. Acquisitions and joint ventures require IT integration. Whether setting up a greenfield operation or engaging in a joint venture, many business capabilities, such as supply chain planning, customer relationship management and sales force management, have to be built from scratch—and enabled by new IT
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applications. Of course, once the operations are established, the Chinese business units must join global application rollout programs.
Security issues are a greater concern in China than they are elsewhere. And integrating systems can be substantially more difficult. Fragmentation issues often result in computer networks that can't talk to one another, even within the same company. In the worst case, management ends up basing decisions on incorrect information.
Organizations should understand that despite its large and capable workforce, China has widespread skill shortages in some critical areas, especially in management. To counter this problem, some companies are introducing learning and skill development strategies for their staff. Developing and retaining local managerial talent for the long term is crucial, and will also give an organization a leg up in keeping abreast of government policies with regard to IT.
About the Research
Since 2004, Accenture has been studying the drivers of performance in managing and executing information technology. To date, more than 400 chief information officers and chief technology officers in the United States, the United Kingdom, France, Germany, Italy, Argentina, Australia, Singapore, China and Japan have taken part in the research, which is ongoing. Participants represented a wide range of industries as well as the public sector. Further research is under way in Korea, Canada and the ASEAN countries.
The research universe was made up exclusively of large companies and public-sector organizations in each market; both Accenture clients and non-clients were included. For publicly listed companies, the sample focused on those in the global Fortune 1000 or in an individual country's relevant top 100.
Our report provides specific conclusions for China derived by comparing the results of the 37 Chinese CIO self-assessments with the 386 self-assessments done by CIOs from other countries. The Chinese data collection was completed in September 2005. Thirty-five of the Chinese participants worked at Chinese-owned businesses, and the sample was split about evenly between state-owned enterprises and private companies. One joint-venture company and one foreign-owned business also participated. Minimum annual sales were $500 million. Industries represented in the China sample were transport, postal, travel, banking, insurance, steel, electricity, electronics, consumer goods and retail. For the complete results of the global study, please visit www.accenture.com/ciosurvey.
About the authors
Trent Mayberry is the Accenture vice president and general manager of technology and delivery in Greater China. Based in Shanghai, he is also the company's lead enterprise architect in the Asia Pacific region and a frequent public speaker on service-oriented architecture. For the past three years, Mr. Mayberry led one of Singapore's largest IT capability development programs; prior to that, he oversaw a multiyear IT transformation program for a multinational insurance company in Australia.
Shiping Wang is the Beijing-based senior director of the Accenture global Technology Consulting Group in Greater China. In this role, he helps large domestic and multinational companies in China build new business capabilities enabled by information technology. Mr. Wang's recent client work includes leading a four-year program to help a major Chinese financial institution establish an enterprise-level management information system, as well as providing support for a large Chinese telecom company's IT transformation effort.
Bob Suh, managing director of Accenture Growth and Strategy, oversees the company's High Performance Business and High Performance IT strategic initiatives. As Accenture's chief technology strategist, he is a member of the company's global Technology & Delivery Executive Committee, which governs Accenture's business in software, applications, core technologies, global software development and infrastructure. Mr. Suh is based in Boston.
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