Making IT Make Money.

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Author: Subbakrishna, Sunil

THE CEO AND IT RELATIONSHIP

HAVE YOU EVER DEALT WITH INFORMATION TECHNOLOGY VENDORS who justify a purchase on the promise of revenue benefits that are not remotely achievable? Have you ever misread customer needs and invested in an expensive online capability that customers did not use? When your staff was finally able to tally all the resources required to complete your IT projects on time, did your true costs soar?

If you're like many executives, you need a cure for low returns on your IT investment.

Take, for example, one client we worked with recently in petroleum exploration and production. After numerous acquisitions and a proliferation of ad hoc initiatives, this company found itself with a large inventory of technology assets and no clear agenda for putting them to good use.

The firm had more than 60 different software applications just to support one segment of its value chain. Many were redundant and few people truly knew each system, so the firm faced steep learning curves whenever key personnel transferred business units or left the company. Even worse, complex systems hindered knowledge transfer, reducing the ability to efficiently convert assets into incremental revenue.

At other companies, the most aggressive IT spending of late has been to acquire new customers and keep existing ones through customer relationship management (CRM) applications and services. Yet despite a lot of fanfare and large expenditures, CRM is not fulfilling its promise, and dissatisfaction is mounting. The overriding reason is that many executives view CRM as a technological solution. They focus myopically on installing the latest computer system and push business issues into the background.

Most companies, in short, are unhappy with their return on IT investments. Many have not even measured it. Our client experience and recent industry studies indicate that the problem is not rooted in the IT department or the technologies themselves. Rather, business practices and organizational bottlenecks cause 90 percent of IT failures and the resulting low return.

Typically, IT projects are not connected to customer priorities or to the P&L statement. Assumptions regarding customer adoption or purchase rates for new capabilities or products tend to be rooted in hope rather than fact. For example, a telecommunications company intended to invest large sums to support an online service and ordering system for its business customers. When we conducted a quick survey, we found that only 9 percent of this company's business customers were “digital ready” to use the online ordering capabilities being developed.

To turn IT into a profit-making investment, executives should take a more integrated, business-driven approach:

• Connect the dots. Determining how well your IT portfolio fits with your business objectives will allow you to make some rapid decisions for improvement. What incremental revenues or customer adoption rates are required to reap the expected benefits? How do projects link to revenue and cost lines in the P&L? By making these connections, it is often possible to eliminate or redirect 20 percent or more of IT projects in a matter of weeks. And since many companies do not have this information readily available, the exercise can prompt both business and IT managers to evaluate their projects more rigorously.
• Rebalance the portfolio. Even after eliminating projects that do not meet strategic or financial objectives, you still may have too many. It pays to balance the portfolio by investment size, timing, and certainty of benefits, as well as to find ways to mitigate risks. You may also need to add new projects to support important business objectives that have been missing IT capabilities.
• Make it a daily regimen. This should not be a crash diet, but rather a complete change in lifestyle. While one-time improvements to IT decision making can be dramatic, a sustained, business-driven approach applied at every stage is far more effective. The goal is not to create another bureaucracy, but rather to involve both IT and business managers, and to equip them with the appropriate tools and metrics.

Companies that have taken this approach have reaped significant benefits including lower overall IT spending, fewer missed deadlines, fewer IT projects, and higher returns on the remaining projects. Improving low IT returns has become an important issue: poor returns impair the cost performance of otherwise lean companies, and well-placed IT investments can help extract incremental value where margins are slim. Companies that rationalize their IT portfolio by putting business issues first will thus build a sustainable lead over competitors.

PHOTO (COLOR): SUNIL SUBBAKRISHNA

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By Sunil Subbakrishna

Sunil Subbakrishna is a vice president of Mercer Management Consulting, based in New York. He can be reached at sunil.subbakrishna@mercermc.com.