Are You Unhappy With Your Company’s IT Payback?

The honeymoon is over

May 1 1989 by Robert Bittlestone


It’s running at several hundred billion annually, with a double-digit growth rate. It dwarfs the federal budget deficit, the defense department allocation, and total annual education spending. In terms of national expenditure, it’s one of the 50 largest countries in the world. It permeates every facet of corporate life and affects every decision that we make. It is arguably the single most crucial weapon in the race to win the international business olympics. It is, of course, our annual expenditure on computerization-and it is dangerously out of control.

Over the last few years, I’ve listened to over a hundred CEOs of major international corporations and government agencies who expressed their views on information technology (IT). Less than 15 percent believe that they are getting their money’s worth from their IT investments. Less than 12 percent consider their IT projects to be under proper control, and less than 10 percent regard it as acceptable for their IT projects to be so time-consuming and expensive. Remarkably, less than 5 percent can recall any IT project ever delivering the promised results on time and within budget, or believe that these problems will no longer recur.

Inflationary IT expenditure, coupled with a dubious pay-back, is now a major concern of CEOs. Other problems may be tough, but a good CEO can solve them. M&A policy, market share, price-performance, labor relations, product research, competitive response, just-in-time, quality circles-none of these are straightforward, but they all fall into the bag of business challenges that a CEO is equipped to tackle.

IT problems are different. They are presented in a language that seems to bear no relation to business goals. When we’re asked for our verdict on a $25 million development program for product R&D, we don’t expect the text of the proposal to dwell on the detailed physics of superconductivity. When we’re hit with an IT project proposal of similar size, the wording makes our eyes glaze before the foot of the first page. The terminology is alien, while the technology is the prime focus. The business has been relegated to the side-lines and the cost-justification doesn’t jell. It’s no wonder that a CEO I know in the oil business says, “When I hear the word computer, I reach for my capital expenditure veto.”

Some CEOs are attempting to solve the problem by pouring more dollars into IT. One technique is to appoint a Chief Information Officer (CIO) at the executive committee or board level. The short-term advantage is that you can off-load your new CIO with all the IT paperwork that’s been collecting dust in your in-box. The risk is that your CIO then starts to build an empire, and subsequently finds it hard to understand that your sanity and survival depend on pushing profit responsibility down the chart. The one thing a CEO cannot live with is a high-level, major cost center. Even the CFO usually has dotted-line, not solid-line, reporting relationships with divisional financial staff. A CIO needs to be both saint and master of diplomacy if he is to avoid creating major tensions with divisional chief executives.

Another approach is to engage consultants, not just to advise on a solution, but to operate some or all of the data processing activity on a permanent basis. The immediate effect is gratifying: tough professionalism on project specifications; internal “clients” signing-off on measured benefits; impressive (albeit inscrutable) methodologies; an end to programmers and the arrival of programs that write other programs. However, the fees tend to escalate rather rapidly, sometimes exponentially, especially when the consultants regularly present you with the compelling logic of keeping up with the standards of the rest of the industry. The consultants seem to know much more about this than your previous in-house IT people did, and it’s uncomfortable to ignore their advice, even though your CFO is starting to appear a bit ragged as the fees arrive.

Conversations about IT expenditure seem to revolve around the need for more and more mainframes. The old ones could be enhanced, but not nearly enough for the daunting complexity and uniquely insatiable data appetite of your business. Also extolled are the benefits of distributed processing, which you thought would replace the mainframes, but it turns out that you need them both. This also includes each employee’s PC-yet another indispensible tool-which you might have thought was the same as distributed processing, but it is not. Since PCs are becoming more and more complex, it won’t be long before corporate profitability is deemed to be conditional on the next gadget-no doubt a solar-powered, aurally-implanted picocomputer, with a built-in cellular telephone and fax unit that prints out data from under your hat.

There’s also a great enthusiasm for electronic mail, which helps us to send more internal memos – although it’s not much use for communicating with customers, which some of us used to think was a nice idea. It looks like we were wrong, be?

cause the IT department has now introduced a voice-mail system that allows you to avoid direct phone contact with customers altogether. This time-saving system will enable us to improve our administrative efficiency with desk-top publishing, which is turning every employee into a latter-day Gutenberg. Requests to take vacations already startle us by arriving at our desks resembling the front page of the Wall Street Journal.

The real turning point will occur with a project called relational database. We can now access the answers-in real time, to the nearest decimal point- to numerous questions which include once unsolvable corporate conundrums, such as how many left-handed sales representatives we have in Minneapolis who speak Greek.

If you are one of the fortunate few who regard these scenarios as science fiction, there’s no need to read on. If, however, these parables look as if they’ve been plagiarized from your own corporate casebook, the rest of this article is aimed at providing you with a solution.

 

IN THE BEGINNING

The earliest computers were both expensive and complex, and because of this, we centralized them into a single function. We created a new profession of computer specialists. By contrast, modern computers of comparable power are both inexpensive and simple. Because they are inexpensive and simple, we no longer need to centralize them, nor are we in need of specialists. If we were suddenly presented with the modern computer as a fait accompli, we would deploy it in our business in a very different way. There are two reasons why we don’t. First, as CEOs, we are conditioned by previous experiences to think of the computer as expensive and complex; therefore, the obvious solutions seem counterintuitive. Our mental processes are not so ossified as to be incapable of any evolution at all, but the microelectronic revolution has been too rapid for this to have occurred. Therefore, we tend to lack the courage of those convictions which we readily apply to other comparable opportunities.

Second, computer specialists have an understandable career interest in guaranteeing and preserving the previous expense and complexity because they have become more interested in the computer than in the business. If this is a conspiracy, it is by no means unique. Our lawyers are more interested in law than in profit; our accountants prefer to certify results than to improve them; our research biochemists would rather grow bacteria than balance sheets, so we should hardly blame IT professionals for promoting ingenious projects that continue to require expensive and complex computers.

The combination of these conditions means that whenever we consider an investment in IT, we should ask ourselves two questions: How would I approach this decision if we had never made any previous investment in IT? And, what would my IT group be proposing if they were more interested in the business than the computer? There are far reaching ramifications to this type of thinking (See sidebar).

At this point, IT should have become

a disposable good. Unfortunately, the way in which we attempt to run it at present makes that impossible. Instead of regarding IT as a natural component of any business function, under the “vertical” control of each local line manager we have distorted the corporate structure by “horizontally” pulling IT out of the matrix. In order to understand what this implies, let’s look at the most humble of products: the ball-point pen.

The ball-point pen was invented in the 1930s to help aircraft pilots write at high altitudes. The first ball-point pens represented a triumph of precision mechanical engineering, with a close-tolerance machined housing for the tiny ball bearing that rolls on the paper. They cost approximately $75 each-a considerable sum at that time. Because of this, ball-point pens were kept under lock and key when out of use. Mass production rapidly brought down prices to today’s cost of fifty cents. Suppose this was not the case? Instead of IT, we would have ended up with Ball-Point Technology (BT), and have been faced with a very different corporate world.

 

THE CEO AND BT

Looking at today’s corporate charts, we can see that effective management of BT is one of the most pressing problems a CEO has to face. The ball-point technology department is generally centralized. Specialist professionals, or “scribes”, have merged to maximize the efficiency of the use of the Pen. They have developed complex techniques for high-speed writing, ink conservation, fluid flow optimization, as well as interfacing to other sytems of registration such as pencils. Requests for use of the scarce writing resource are prioritized against corporate goals, but there is still a two-year backlog of documents waiting to be enscribed. A CBO (Chief Ball-point Officer) has recently been appointed to advise the CEO on an appropriate group-wide BT strategy.”

One of the most effective ways for a CEO to change his own attitude towards computing is to use a computer. Many CEOs adopted this approach when the spreadsheet became available, and some found it genuinely useful. However, the problem with the spreadsheet, from a CEO’s viewpoint, is that there are no interesting problems to solve. The recent availability of full-scale executive information systems that fit onto desktop or laptop PCs has changed the ground rules. It’s a genuinely valuable exercise to scan the business trends and exceptional problems for your divisions, subsidiaries and competitors; it sharpens up the whole apparatus of performance review and budget negotiation. Equally important, when you sit down to use such a tool, is that you realize that computers are simple and inexpensive, and you don’t need to be intimidated by IT at all.

In implementing executive information systems for many CEOs, I’ve noticed that after a month or two of use, a CEO starts to form a robust and effective “top-down” view of the information that’s coming up the pyramid. He develops rather strong opinions about whether anyone really needs to know about all-those left-handed salesmen. He begins to see why the IT people want you to spend a substantial amount of money on real-time information flow at every management level, because that’s a technically exciting progression from real-time information flow at the transaction processing level. In essence, you find yourself using your executive information system as a short-cut towards developing the same kind of personal rapport and gut-feel for discussions about IT as you already possess for discussions about marketing, engineering and everything else.

There is light at the end of the IT tunnel, and it doesn’t have to be the light of an oncoming train. Your IT group contains many outstanding people who will make excellent businessmen. Your business subsidiaries contain many outstanding people who will thrive for a year or two in IT. There is no need for confrontation; this can be a win-win strategy. The stakes are enormous. Apart from saving a literal fortune on unnecessary IT developments, you will find that the re-direction of IT effort towards real business goals will provide major bottom-line improvements.

The honeymoon with IT is over; let the real marriage begin. If nothing else, the enlightened partnership that will follow should save you from the kind of horror stories that emerge when computerization goes wrong, as it did for a well known London department store that decided to mail-shot its account customers. Unnoticed in the 100,000 letters was one delivered to:

Mr. H.R.H Prince,

Charles Buckingham Palace,

The Mall, London, SW1

Dear Mr. Prince,

Have you ever considered the benefits of buying a new car? Just think what your neighbors in “The Mall” would say if they saw you driving into Charles Buckingham Palace in a brand new Ford Fiesta complete with motorized sunroof and matching alloy wheels?

Apparently, the neighbors’ views were not recorded.


How To Manage In The Land Of IT.

 

1.             IT department staff must be drawn from the ranks of business end-users, not career computer professionals.

2.             They may spend up to a maximum of two years in the IT department before they return to a business function.

3.             They should be on a performance-related bonus inversely proportional to the total that the IT department spends.

4.             Each project must be under the line control of an appropriate senior end-user who is not in the IT department.

5.             All system development must physically take place in the end-user department for which the project is being developed.

6.             All cost-justification for IT projects must be based on end-user commitment to achieving quantified bottom-line benefits.

7.             Since computers are getting cheaper, every computer we buy should cost less than the previous one.

8.             Since software packages are so universal, in-house development should be the exception rather than the norm.

9.             The IT function should be decentralized to the lowest level actively requesting its own capability.

10.          The CEO should use a PC to improve his understanding of IT and to develop insights into the business.


Robert Bittlestone is president and chief executive of Metapraxis Inc. During his nine-year career with the firm, he has been instrumental in launching both the London and New York offices, and aiding in the development of the award-winning chief executive information software system, RESOLVE.