Although most top executives will agree with the common platitudes that information technology (IT) can enable their business processes' and 'help create a competitive advantage', they are often unsure of exactly what actions to take to drive their IT organisation to achieve its full potential. There have been literally hundreds of IT surveys over the past decade, but when it comes to giving insight to top executives it is extremely difficult to find the 'golden nuggets'.
Over the first four months of 2008, through a series of interviews and surveys of top executives from nearly 60 European and North American companies, AlixPartners gleaned a number of practical guidelines for executives, the following five items emerged.
1. Don't hire an IT director from the 'business' side of the organisation. Find an innovative IT executive who is business-minded.
Hiring the IT director is the most direct way to influence the IT function, and while it is certainly true that the Chief Information Officer (CIO) should be 'business-savvy', picking one whose expertise is in a functional area other than IT almost always causes problems. The common belief that in order for the IT department to be 'business orientated' their leader must come from the business, was found to be a fallacy according to this survey. The problem with a non-IT background is that the individual doesn't understand IT and cannot provide the required leadership to the IT organisation. In every instance where the IT director came from another business function (finance, supply chain or sales), they did not last beyond one or two years.
The follow-up interviews confirmed that individuals weren't a success within the IT role because they had difficulty gaining the respect of the IT department and didn't understand technology enough to guide the company in its use.
The IT director must be a strong IT person who is capable of understanding the business and can work between the IT area and the business. This is a unique individual, but with society becoming more and more IT literate, these individuals are more readily available than ever before.
The survey found that all of the IT directors in the companies surveyed who were rated as above average came up through the IT function. It also found out that over 90 percent of IT directors who have been in their current role for more than four years were considered to be highly innovative in terms of applying to IT to improve the company's core business.
2. Don't worry about your transaction systems. Put all your money into business information support systems.
In the survey, over 95 percent of IT departments were rated much lower on 'providing actionable business information' than on 'providing sound transaction systems'. Time and again in follow up interviews, finance directors and CEO's expressed their frustration at not receiving timely, useful information on which to base business decisions. Processing sales orders, shipments, cash receipts, purchase orders and other transactions were not cited as key concerns amongst executives, but things such as the following were:
- ability to determine customer and product profitability across business units;
- global product costing ability to enable effective make versus buy and material sourcing decisions;
- timely information and analysis to enable predictive and preventative plant maintenance, and
- timely information and analysis to enable improved raw-material, finished-goods, and production-capacity planning and management
These types of requests by senior executives have been made for decades, of course; yet, according to the interviews, the majority of IT projects today are still focused on implementing the next big enterprise resource planning (ERP) system, rather than on standardising date definitions and implementing business-decision support systems. Executives can have a direct impact on this area by insisting that their IT investment is clearly focused on providing the exact type of information that they need to make these key, ongoing business decisions. Consulting: What type of work are clients asking for?
3. When it comes to approving large projects - don't.
More than 80 percent of the top executives surveyed in the study included 'very large system projects gone wrong' as one of their top three IT-related problems. In probing more deeply into the causes of the project problems, two items came up consistently:
- As the size and complexity of a project grown, the ability to find systems integrators and internal personnel with the expertise to handle such large projects is reduced, resulting in the project failures.
- The top executives in both IT and the business unit changed due to the length of the projects, so there was nobody who was really accountable from the beginning to the end. This makes it easy to lose focus and let things slip, and/or to blame the prior regime.
The implication for executives of this finding is to insist on only 'bite-sized initiatives'. You can have an overall plan developed for the large project, but make sure that the implementation is divided into discrete pieces so some portions of functionality are delivered within six to nine month timeframes with less than 2,000 working days of effort.
4. Change your project manager before you kick off your next large IT project.
Even in IT departments viewed as successful by top management, according to the survey between 25 percent and 65 percent of major IT implementations are delivered over budget or late. The reasons cited include the classic ones, such as poor scope control, lack of senior level business involvement, and poor project planning.
Moreover, in follow-on discussions with the survey participants, it became clear that the root cause of project failure is almost invariably a poor-performing project manager. Almost all of over-budget and late projects cited by respondents had a project manager who wasn’t judged to be up to the task, and who in the end had to be replaced or reinforced with help.
The bottom line should be that since there is a high probability that an IT project manager may be changed at some stage during a big-project implementation, why not ensure at the outset that you have an expert in place who is capable of doing the job.
5. Speed is most important when it comes to IT enabling new business companies.
According to the survey, the principal complaint top management has regarding their IT department is that they do not get projects done fast enough. Although IT cost reduction was on the radar screen in the survey as one of the top three cost-reduction areas of focus for just under 30 percent of those surveyed, a much higher percentage of executives were looking for IT to enable key business initiatives. More than 85 percent listed working-capital management as one of their top three balance-sheet improvement initiatives, and over 85 percent listed improving product profitability as one of their top three profit improvements.
In follow-up interviews, executives consistently said that because their business environment was changing so rapidly (eg. more acquisitions, spin-offs, new product roll-outs) they were in greater need than ever for their IT departments to be able to react quickly and deliver new capabilities within weeks, not months.
To cope with this, companies must put in place an IT governance structure and delivery capability that is responsive and flexible enough to recognise, prioritise, and quickly implement systems changes to enable delivery of the required business results. Successful companies are able to blend internal and external IT resources, use 'agile' IT implementation approaches, and get the business executives to take ownership of the prioritisation of IT projects from both a budgeting and execution standpoint.
By keeping the five points highlighted in the forefront when dealing with their IT departments, executives can help ensure that their companies waste less IT money and drive greater business leverage from the IT function.
Bruce Myers, Managing Director, Chicago
Bruce has over 30 years of consulting experience and is currently a leader in the IT transformation services practice of AlixPartners. AlixPartners is a global consulting, restructuring and financial-advisory services firm, and is on the web at www.alixpartners.com. Bruce specialises in helping corporations fix or transform their IT organisations, plan and execute IT-enabled business improvement, and plan and execute merger integration/spin-off programs.
Andrew Duncan, Managing Director, London
Andrew is a widely recognised professional with more than 20 years of international management consulting and operations experience. He has consulted with both large and medium-sized clients on a range of issues including corporate management and governance, corporate strategy & development, operational and supply chain strategy, strategic sourcing & procurement, global transportation distribution and logistics, post-merger integration, IT strategy, IT business alignment and governance, IT transformation and technology-based operational transformation, IT cost and service improvement, business process and IT outsourcing.
Robert A. Hecht, Managing Director, London
Bob Hecht has nearly 30 years of experience addressing strategic, managerial and operational issues involving information technology. Bob is currently based in London and leading AlixPartners' European IT Transformation Services practice. His expertise is in building and IT strategy around a company's business objectives, and enabling the organisation to extract the highest business value from their IT investment.
This article appeared in Finance Director newsletter published by CCH Information, a part of Wolters Kluwer (UK) Ltd.
'Finance Director newsletter is issued monthly to subscribers of various CCH products. It aims to provide topical articles to the financial management of middle-sized companies and, to a lesser extent, not-for-profit organisations and professional firms. For further information go to www.cch.co.uk.