I had the privilege recently of meeting with a group of C-level technology executives from Fortune 50 organizations. CA Technologies was kind enough to invite me to be one of the featured speakers for their annual CIO Circle – East meeting in Newport, Rhode Island. My topic was “The Future of Cloud Computing – A Road-Map for CIO’s.”

One of the benefits of speaking to such a senior group is the opportunities it affords to learn from them and from the discussions which took place there. One conclusion we came to in the course of the panel discussion which took place after my presentation was that Cloud Computing, as well as virtualization, outsourcing and other recent and emerging business practices is redefining the role of the CIO and of the IT organization he or she heads. The CIO is evolving into the CBTO – the Chief Business Technology Officer.

This is more than just another coined phrase. It is a real shift in strategy – comparable to that which took place in the first half of the 20th Century when manufacturers shifted from vertically integrated enterprises to using multi-tiered Supply Chains to provide the parts and materials needed to make their products.

When Henry Ford completed Ford’s River Rouge Plant in 1928, raw materials such as iron ore and coke came in one end of the plant and finished Model A’s rolled out of the other end. Ford ran everything. Most of the manufacturing equipment was custom built to Ford’s specs, and the processing and scheduling was all under Ford’s control. In most of these respects, it was much like the IT operations of typical companies up until a few years ago.

By the 1970’s, though, Ford, along with most other major manufacturers, automotive and otherwise, had recognized that it was much better to outsource the production of most of their parts and materials to suppliers. Because these suppliers could specialize in making these parts, and because they could spread their fixed expenses across multiple customers, they could provide these parts much more cost effectively than that Ford could do for itself.

Many of the people, and sometimes even the equipment, that had been used to make these parts previously were often made available or sold to the third-party businesses who became the new suppliers of these parts. But this certainly did not mean that Ford, or any other manufacturer, no longer needed to devote any resources to managing the production of these parts.

Yes, the majority of resources previously required were outsourced or decommissioned. But, substantial management time and attention still had to be directed to the design, procurement, scheduling, transportation, and logistics involved in getting the right parts to the right place at the right time for the right cost. And thus the business practice of Supply Chain Management (or SCM) was born.

Today, SCM is ubiquitous among manufacturers. Furthermore, the senior supply manager is often a C-level executive – alongside the CFO, the CMO, – and the CIO. And, regardless of title, the senior Supply Chain executive typically has a substantial team of strong and experienced managers and staff helping him or her most effectively execute the manufacturer’s Supply Chain strategy.

Back to IT Organizations. By the 1980’s we had started to see the widespread adoption of packaged software. This was IT organizations’ equivalent to companies which purchased standardized manufacturing equipment rather than building their own. However, many companies continued to develop their own software for what they regarded as “mission-critical” applications.

More significantly, until very recently, regardless of the source of the software, virtually all companies ran all of their software and kept it under their direct control from the time it was installed on their premises. Many companies still continue to operate this way.

However, leading edge companies are recognizing that Cloud Computing, in particular, now allows them to readily outsource key “parts” of their IT operations just as leading manufacturers have been outsourcing production of their parts for decades. SaaS, PaaS, and even IaaS mean that CIO’s and their teams now can, and must, decide what applications, development platforms, and even infrastructure should be maintained in-house and which can be more cost effectively outsourced to “the Cloud.”

The advent of Cloud Computing doesn’t mean that IT organizations will go away. But it does mean that they, and their leaders, will have to significantly change what they do as well as how they do it. With Cloud Computing, the emphasis moves away from managing in-house IT assets to selecting, procuring, coordinating, integrating, and managing the full range of technologies available, externally as well as internally, to support the needs of the business. And the CIO evolves toward becoming the CBTO – the Chief Business Technology Officer.

In future blogs, I’ll explore some of the implications of this in terms of business practices as well as technologies.

Jack Shaw