The CIO 'can't be an order-taker'

NEW YORK -- The global economy seems to be recovering, albeit slowly, and it therefore follows that the tremendous pressure—financial, technological, existential—on companies' IT organizations will ease.

Right? Wrong. Well, maybe. It all depends.

Three senior executives—Freddie Mac CIO Robert Lux, Evercore Partners managing director of equity research Kirk Materne, and Blackstone CTO Bill Murphy—gathered here at the Bloomberg Enterprise Technology Summit to tease out the real role of the CIO in the modern business, debate best practices for the IT organization and offer solutions for future success.

All that, in just 30 minutes.

They spoke with Bloomberg's Kevin McGilloway; here are a few highlights from their discussion, edited and condensed for clarity.

Is there really an uptick in IT spending?

Lux: Yes. One of the main things that's driving it is regulatory compliance. If you're in financial services and you're not seeing this, let me know -- we've got to talk. (laughs) At Freddie, we're trying to use technology to address it.

The mortgage market is very fragmented, Balkanized. None of the entities in the mortgage supply chain really speak. You transfer data back and forth in different proprietary formats. Our acting director has actually done a great job to standardize this.

Up until last year, there was no standard for property appraisals—there was "good" or "good plus." As of last year, we standardized those conditioning quality attributes of the data, and we're getting them through a centralized portal. We're spending more, but it's for the benefit of the overall industry and the consumer experience.

Materne: There are three drivers. First, regulatory and compliance [concerns]. A lot of regulations are difficult and onerous for current systems to deal with. Two, the tech talent challenge globally. We're obsoleting a significant portion of the talent pool. And three, shadow IT. You're trying to make everyone happy and leaving all the game-changing ROI projects on the side.

Murphy: There was certainly fat to cut, but it takes real leadership to understand that even though the benefits are going to be on the business side, the costs are going to be on the technology side. You need to look at them together to make sure you don't undercut your technology spend.

On financial challenges for the IT organization.

Materne: There's a need for speed and agility. First, there's the acceptance of more CIOs to have some part of IT delivered as a service. They're saying, "If it's not a differentiated technology, do I really need to own it? Does this really help me do my job better?" Is it easier to use Amazon Web Services?

Second, more people are looking at open source technologies to gain leverage against existing vendors. People's comfort level with open source technology is much higher than it was 10 years ago. Third, the democratization of IT technologies, bringing business users in. It's up to them, and moving costs to that. Yes, there's shadow IT, but if the business users are all about it, and you can show them advantages around analytics and mobile productivity…they're using IT as a way to gain leverage against competitors.

Murphy: The problems that they're creating could be significant and costly, but they're only seeing the $19.95 a month or whatever. Until they can really see the true costs of a solution, there's no way they'll be able to determine its benefits.

Materne: It's not just about speeds and feeds anymore. If you're having that conversation, I'm not sure that works. People want business value, and that's the manifestation of tight IT budgets.

Lux: I was at IBM for the first death spiral. Having seen what happened and how long it took to recover from that, we're embracing it. At Freddie Mac, we embrace BYOD. My [colleague] didn't come to me asking for a tablet, I gave it to him.

On serving the internal customer and "shadow IT":

Lux: I look at shadow IT as a reflection not that business people are doing something wrong, but that we -- IT -- are doing something wrong. If they're going elsewhere for technology solutions, we're not doing it right. When people actually work with us, they're not as demanding. They get a product they like at the end, rather than the old waterfall method. Getting closer to business users, being more nimble and embracing new technologies.

Murphy: You can't be an order-taker. The role of the CIO is stark. Do innovation as a group. Otherwise you get business people getting together making bad decisions about technology. If you can show that competence to have that business discussion, then laying out the transparency to have that discussion is possible. But if you're reactive, you essentially have no hope. They won't believe you, or trust you, or they'll think you'll mess it up.

Materne: Big data is a great example. It's a problem that's been out there. How do you help me get value from all this data? I don't really care about the storage technology behind it. I need a big red button for risk. If you can have that business discussion…

Murphy: …you'll be successful.

On technology as an enabler of company culture:

Lux: It unleashes the creativity of your people. A lot of Silicon Valley companies took 3M's model and gave them time to innovate. We can't do that as a taxpayer-funded organization, but I can call any CIO anywhere. The CIO of Facebook, Tim Campos, I asked him about his code jams, his hackathons. [When we mimicked them,] we had 19 different teams volunteer with this.

Your people are hungry to innovate if you just unleash it. How can you get the brightest minds to bear?

Murphy: Technologists are often mischaracterized as non-creatives. Engineers are often the most creative. Giving them that outlet and chance to have that conversation so you can come up with a better solution is where the cost efficiencies kick in. But you have to create that ecosystem to make that happen.

Materne: The best companies have IT leaders that want to empower their users, whether developers or business users, and help creative competitive advantage.

On taking technology risks:

Murphy: It all comes down to the app. If the application really solves their problem, leap. If it doesn't really solve their problem and could be more disruptive, step.

Materne: If you leap, how do you make sure that the company or asset you're acquiring doesn't lose what made it great in the first place? Tech companies have had a hard time of that. Some are incubating versus integrating. EMC-VMware. SAP-SuccessFactors. Software eats the world, right? Some of the hardware vendors are going to have to start eating software vendors. Margins will force them to move up the stack.

Lux: Death by a thousand cuts? You can also have death by a big leap. We handle one in four mortgages in the United States. So I'm concerned with the big leap. We look at even the commodity services as, "We're special, we're different."

Our HR system has 2,500 customizations in it. We have about 5,000 people in the United States. So we have one customization for every two people. Does that make sense? [Nonetheless,] we're not going to move everything to the cloud because we do have a lot of proprietary stuff that we use that you just can't buy.

On the CIO vs. CTO vs. CDO ("chief data officer"):

Murphy: There's the ability to iterate on the technical side probably much more quickly than the data side. That's a problem that's not well understood by the business. You can swap out hypervisors, clouds, applications. Swapping out data is so much harder to do.

Materne: People are trying to figure out how to empower their people to become essentially data scientists. That trend is going to continue. If you can create competitive advantage from it, the dollars will be there to support it.

Lux: We're trying to place small bets on innovative things you can do with data. We're all about analytics. We've got scale. We can save a lot of money from that. And we're using that data outside the mortgage industry, to gain insights around fraud.