One is the power-dressed (sometimes) head of the company; one is the person who writes the cheques; one is the person who works in the basement on the computers. In reality of course, they should all be working towards the same corporate goals and theoretically there is no reason why that should not be the case.
In practice, all three have their own agendas and these do not necessarily align. But then that has long been one of the IT holy grails – how to bridge the gap between business and IT? It is a topic that has kept many management consultants occupied for decades and frustrated all too many organisations.
The basic goal is simple enough. What we should all be aiming for is the attitude espoused by US healthcare firm Kaiser Permanente whose CIO Cliff Dodd declares that there are no IT projects within his company, only business projects with an IT element. “Some business projects have a significant IT component,” he says. “Like any other project they have to be rationalised with a business case. Every CFO that could be affected has to sign off.”
Fine words, but how many organisations can pay more than lip service to them in practice? Clearly a great deal depends on organisational constraints and in turn that depends on the personalities involved in various senior management positions. Do you have a CEO who is ‘IT friendly’ and makes time for the CIO? Does your CFO understand why the CIO is asking for more money for yet another piece of CRM software only six months after the last lot was installed? Does the CIO know how to communicate with the other constituencies in the management chain? Can the CIO explain service oriented architectures in a way that the business can understand rather than resorting to technology jargon?
Recent studies indicate that there is something of a mind shift underway. According to a study by IBM, 65 per cent of the world’s corporate executives say they are looking to their CIOs to act as powerful enabling agents in introducing much needed changes to their business models. In its report, IBM advises that companies, “ignite innovation through business and technology integration”. But again, this has been the mantra of every McKinsey, Accenture and Harvard Business School report for years. How does it actually work?
"IT needs to reflect changes in the business or changes that need to take place in the business"
David Llamas, CIO, Harrods
The reporting structure
One obvious indicator of commitment to this goal is the position of the CIO in the hierarchy. Does the organisation have IT representation at board level? Is the ‘geek in a suit’ more than an aspiration? Forrester Research reports that according to its studies, CIOs report in equal measure to CEOs and CFOs with no obvious correlation between the size of the company, business sector or the IT awareness of the CEO or CFO. But there are implications attached to the reporting structure. According to Forrester, CIOs who report directly to their CEOs are far more inclined to deploy technologies that are aligned to the promotion of bottom line growth; while those who report directly to the CFO are more focused on technologies that will cut costs.
CIOs reporting to CEOs are tasked with asking how IT can contribute to new products and services and business models that drive those top line sales; whereas CIOs reporting to CFOs focus on technologies that deal with compliance, financial processes and improved control.
The ability of technology to drive change will inevitably vary from sector to sector. For example, the retail sector is one that does not have a great record in technological innovation despite its potential to improve margins in an increasingly competitive market. Firms such as Tesco and Wal-Mart have strong track records of investing in technology, but others have been slow to catch up. This is changing.
Harrods updates its IT
Harrods of Knightsbridge is the most famous store in the UK, but while its luxury brand status remains strong, it is as vulnerable as everyone else to the increasingly tough market conditions in which it operates. The firm is currently in the middle of a three-year overhaul of its entire IT architecture. “IT can be a driver of change for the business,” argues David Llamas, Harrods’ CIO. “IT needs to reflect changes in the business or changes that need to take place in the business.”
When Llamas came on board at Harrods, the company had a lot of legacy systems that were nearing the end of their lives. It also had an SAP ERP implementation that was not properly configured. Llamas decided that his first priority was to understand the business and the culture of Harrods before attempting to design an IT strategy to support them. The IT transformation has kept the financial managers happy. Harrods has seen its IT spending reduced by 60 per cent and the IT department headcount cut from 160 to 76. “IT spending has been reasonably easy,” comments Llamas. “We have closed the year under budget, both in expense and capital expenditure, achieving 22 projects of 25 scheduled on time. Our spending has changed, moving from basics to more strategic operational projects.”
Among the most recent initiatives is a project to deploy a service oriented architecture to streamline business processes and improve company efficiency, following the reengineering of the existing ERP implementation. The integration software is intended to allow Harrods to analyse customer behaviour, improve the support of IT in decision making and enable the
use of predictive models for more effective campaign planning. This is a new initiative for Harrods and a new way of working. As such it stands as a good example of how the IT side of the organisation needs to communicate with the business side.
Llamas sees it as the responsibility of the IT side to demonstrate the value of technology to the business and to explain it in terms that the CEO and CFO can comprehend and appreciate. “We need to demonstrate technological value and translate that into business terms,” he says. “Once the business value is understood, then you can invest in technology as the enabler for change.”
Harrods is a firm that has CIO representation at board level and Llamas says that the senior business management has a good working relationship with IT.
“Our chairman has been extremely supportive of us and is a strong believer in IT as an enabler of the business and a way to optimise and introduce efficiencies,” he comments. “It’s not extremely difficult for us to do pilots for new technologies, although given the market climate, the way we manage our investments is looked at very carefully. We are careful to invest in things that will optimise return. The business is open to things that haven’t necessarily been planned and will schedule new initiatives. Once they understand the benefits, then the business side support is there,” Llamas says.
“It can be very challenging to explain the benefits of a particular technology to the business and how it can help the business. Sometimes it’s almost as if you need to find an excuse to introduce new technologies. For example, how do you explain technologies that will enable organisations to have a single view of the customer that the business side of the company wants?
“We need to explain how we support and enable cultural changes. Really we have an educational role. There are going to be things that the business side understands more easily than others and there will be things that will be more difficult to explain. Our obligation is to make sure that the communication is there. We need to understand the reality of the business issues and get the business to understand what technology can do to support them.”
"I think people forget about the unsatisfactory nature of the status quo and we underplay the disruption of putting in this new system"
Richard Granger, director general, NHS IT
Traditionally of course the simplest way to do this is to ‘talk to the wallet’, but just as important is to find a language that enables the CIO to talk about business benefits as well.
“We can talk about cost reductions as well as business enablement,” comments Llamas. “The first reaction of business is likely to be ‘what am I going to get out of this?’ This can be difficult as it will involve the short-term cost reduction benefits. But if we’re talking about something like a service oriented architecture (SOA), then we are talking about things that can deliver longer-term return on investment. There will be some tangible cost reductions from a SOA implementation but further down the track, when SOA will manage the entire applications landscape, there will be less tangible but equally important benefits that are harder to predict and measure tangibly.”
Based in tradition
“In Harrods, there has been a very traditional business model to date. As a company, it’s been very task oriented, dealing with daily issues. This meant that the business side was not bringing requirements forward for which there was not an immediate understanding or need at the time,” says Llamas.
“For example, if you look at revenue optimisation technologies and tools and how they work, this was not something that the business side would come to us to talk about because that’s not the way the business has worked to date. It has been dependent on market information to do planning, not on tools that predict how to optimise the mark-up on particular items through merchandising campaigns. Technology offers new ways of working that are not being pushed for by the business but which can better enable the business.”
Harrods is looking to technology to improve the business, but there are organisations where the CEO and CFO are actively looking to IT and IT related services as way of potentially saving the business. In such cases close alignment and a strong working relationship between the CIO and the business management team is clearly crucial, but sometimes the vested interests of one will undermine the other.
Consider the biggest single public sector IT project in Europe as a prime example: Connecting for Health or the NHS National Programme for IT as it used to be known before the rebranding consultants got a hold of it. The technology challenge of Connecting For Health is straightforward, albeit horrendously ambitious in its scope: replace an ageing patchwork of 5,000 different computer systems with a nationwide infrastructure connecting more than 100,000 doctors, 380,000 nurses and 50,000 other health professionals. But the ‘business’ – or in this case political – drivers and goals are far more complex.
The NHS is a mess. Everyone agrees with that. From being the crowning achievement of the first post-war Labour government, it has become a seemingly bottomless money pit for the current New Labour administration. Prime Minister Tony Blair came to power on the back of a rallying cry that the country had 24 hours left to save the NHS; three terms in office later and the NHS is in enormous financial trouble and is a huge political hot potato rather than a crowning achievement.
Technology was going to save the day. The roots of the programme can be traced back to a meeting at 10 Downing Street in early 2002. It was attended by the chief secretary to the Treasury, the Secretary of State for Health, the chief executive of the Office of Government Commerce and the then e-Envoy and – uniquely for an IT-related meeting – chaired by the Prime Minister.
While today ministers are less forthcoming in their desire to be associated with Connecting for Health, back in 2002 support went right to the very top of government with the Treasury – and the Chancellor of the Exchequer in the role of UK CFO – eagerly anticipating the potential savings.
Of course it costs money to save money – that’s the first rule of public sector thinking and public sector IT is no different. In 2002, £850 million a year went on NHS IT. The budget for the national initiative was estimated at £2.3 billion over three years. In common with most other public sector IT projects this was only an initial stab in the dark, with the bill rising as high as £31bn according to more recent and pessimistic estimates.
And none of this is going on improvements that patients can touch and feel in terms of improved medical care – which is a tricky message for the business side of the NHS to sell to the general public.
As the NHS IT programme has begun to be rolled out, so the finances of the NHS have reached critical point, claiming the scalp of the NHS chief executive officer Sir Nigel Crisp. Announcing his early – and some suggest enforced – retirement, Sir Nigel said: “I am particularly saddened by the difficulties we have had over the last few months and the financial problems we are grappling with. As chief executive, I wish to acknowledge my accountability for problems just as I may take some credit for achievements.”
In the wake of his departure, embattled Health Secretary Patricia Hewitt announced a shift in NHS priorities with financial management at the head of its agenda, ahead of all other objectives. What the impact of this changed business priority will be on the IT roll out remains to be seen, but even before his departure, Sir Nigel had seemed less on side with Connecting For Health than he might have been expected to be, admitting that the roll out was at least 12 months behind schedule.
"We have had a lot of people criticise IT in the past for keeping itself to itself. Promoting IT to the board has become a key focus for us"
Chris Harmon, IT director, Newhall Publishing
But the NHS IT director general Richard Granger has suggested that delays are more attributable to competing business and political issues impacting on NHS priorities rather than any inherent problems with the programme itself.
While admitting that the Connecting For Health programme was akin to pushing water uphill, he added: “One reason this is a challenge is the number of priorities in the health service already, such as waiting time targets and hospital hygiene targets. People have made prioritisation decisions.”
For his part, Granger is ready to make his own prioritisation decisions and get tough to keep the project on track. “We’ve got 6,000 installations so far, but it’s variable by region due to the suppliers. The contracts are largely working, but the suppliers have variable ability,” he admits. “In a husky dog race, when one of the dogs goes lame and begins to slow the others down, it’s shot and is then chopped up and fed to the others. This makes the survivors faster, not only because they’ve had a meal, but also because they understand the results of going lame and slowing the sledge down.”
Granger also faces the task of convincing the business users – in this case the NHS staff – that the investment in new systems is both worthwhile and will make their lives easier.
There has been much publicised criticism from the medical side of the NHS that the money being invested in back office systems might be better spent on clinical care. Research conducted late last year by Medix, an online resource for doctors, found whereas three years ago 47 per cent of doctors thought the programme was a good use of NHS resources and only 27 per cent thought not, this year only 17 per cent were in favour of it and 57 per cent against it. Only one per cent of respondents said it was a good or excellent programme.
"The relationship I have with the COO and CEO is based on trust. Heads of business units trust me to provide IT that enables their businesses. I spend a lot of time working with them, so I understand what they need"
Bruno Laquet, CIO, Corus
Proud of progress
But Granger is insistent that the operational goals of the NHS can be better served through new technologies.
“I think people forget about the unsatisfactory nature of the status quo and we underplay the disruption of putting in this new system,” he says, adding that the project is progressing against a backdrop of changing agenda.
“The NHS is pretty hard on itself and if we had some fairer benchmarks we should be quite proud of the progress we’re making. If it doesn’t match up to a vision set in 2002 then I don’t think we should be embarrassed about that.”
The danger for the Connecting for Health project may yet prove to be the lack of a strong relationship between the business bosses – the NHS chief executive, the Health Secretary, the Department of Health – and the IT side. In the public sector, ambitious goals are set for long term benefits, but are easily torn up and amended for the sake of political expediency. A week is a long time in politics and doing the popular thing in the short term will always win out. The NHS will survive in some form; Connecting for Health has no such guarantees.
"You can’t just be a technologist any more. Every dollar you invest in IT has to deliver better business results. You have to understand business as well"
Ralph Szygenda, CIO, GM
While the ousting of a public sector chief executive officer is relatively rare, in the private sector CEOs can pay the price for the wrath of their shareholders far more easily. Companies that end up in financial dire straits have embattled CEOs at their helm. They can also turn to their CIOs for salvation when times get tough, looking to IT to save them. One such company is global car giant General Motors (GM).
All domestic US car manufacturers are facing a tough time at the moment but GM is suffering more than most. According to figures in December last year, the company’s sales were down by 10.2 per cent year on year, while rivals Ford and DaimlerChrysler saw their sales fall 8.7 per cent and two per cent respectively. By contrast, Japanese car manufacturer Toyota said its US sales increased by 8.2 per cent to secure a 13.3 per cent share of the US car market in 2005.
The C-Suite reporting chain
CIOs report in equal measure to CEOs and CFOs according to Forrester Research, with no obvious correlation between the size of the company, business sector, or the IT awareness of the CEO and CFO. But Forrester also points out that CIOs who report to CEOs are far more inclined to deploy technologies that are aligned to the promotion of bottom line growth, while those who report to CFOs are more focused on technologies that cut costs.
Bruno Laquet, CIO at steel firm Corus, reports to the COO, but believes his relationship with CEO Philippe Varin is essential to achieving success. “He understands IT and this is really useful in carrying out major changes to an IT organisation. He knows that IT can be a key enabler for everything in the business, which gives us an added impetus,” he says.
Laquet is heading up a major IT transformation programme at the company, which requires careful communications with the rest of the company. “The relationship I have with the COO and CEO is based on trust. Heads of business units trust me to provide IT that enables their businesses. I spend a lot of time working with them, so I understand what they need,” he says. The Corus executive committee meet regularly and are really interested in what is going on with IT, according to Laquet. “IT is very often on the agenda. They debate the changes and get involved which is great.”
Philip Everson, a partner in consulting at Deloitte doesn’t think IT directors need to dumb down in order to communicate their strategy with their C-Suite peers.
If business people can understand the complexities of a supply chain, then “why do we have to have a specific interface into technology?” he asks. “Until IT stops thinking of ‘the business’ as something separate with which it has to interface and starts to accept that the business can understand IT challenges, there is always going to be a barrier.”
If IT directors want to get ahead they will have to earn the respect of the rest of the business and prove that the department is run efficiently, according to Everson, and in many cases IT has a long way to go to earn that respect. But talking the talk is the first step. “At some point, if you grow up in the technology community you have to make the transition from being a technology manager to a business executive. But I think people shouldn’t be scared to talk about technology. The finance director doesn’t shirk from talking about balance sheets.”
Analysts have warned that GM could face the threat of bankruptcy unless it brings its costs under control and reduces its losses. GM has responded to its crisis by announcing plans to axe 30,000 jobs and close 12 plants by 2008 following its announcement of a $10.6bn loss in 2005.
“Everyone at GM is focused on executing our plan to realise the structural and material cost reductions this year and achieve additional cost reductions in 2007,” says CEO Rick Waggoner.
But there are only so many plants you can close before you cannot operate as a car manufacturer any more and so GM’s CEO is looking to his CIO to deliver operational savings and efficiencies through what GM is calling ‘third generation outsourcing’.
The multi-sourcing approach is intended to take outsourcing to a new level. GM previously owned EDS after acquiring it in 1984, but found that this was not an efficient model and spun it off in 1996 – the year CIO Ralph Szygenda came on board. He found that GM had 7,000 IT systems and an IT budget that in 1996 was the highest as a percentage of total sales in the entire automotive industry.
Paring IT costs
Since 1996, IT costs have come down from $4bn to $3bn and the number of IT systems reduced to 2,600. Starting in June 2006, GM will spend $15bn over the next five years on a series of outsourcing deals with EDS, IBM, HP, Capgemini, Compuware Covisint and Wipro that should bring costs down even further. “Of critical importance is the focus we have had on driving innovation and supporting future globalisation and digitisation of the company,” says Szygenda.
Aside from basic cost cutting, Szygenda clearly sees IT as playing a crucial role in business success. “IT people have to be business people to start with,” he believes. “You can’t just be a technologist any more. Every dollar you invest in IT has to deliver better business results. You have to understand business as well. At GM, all the people who work for me are great business leaders and technologists.”
He has put that theory into practice at GM, which had no executive responsibility for IT until his arrival, and he makes it his job to ensure that he works closely with the business side of the organisation, arguing that change is only possible if the business wants to change.
To that end, he sees his working relationship with the CEO and CFO as crucial. Which is just as well for a CEO under siege like Waggoner, as the success of his CIO’s actions is likely to be critical to his own survival.
As MIS 100 goes to press, Szygenda is upbeat. “I believe we will win,” he argues. “If you are an information technologist, where else does the business appreciate your capability more than General Motors? What a great place to be. I have to give a lot of credit to Rick Waggoner for being a supporter since day one in 1996. Without his vision for the company and making IT an integral element, we could not have been where we are today.”
The final chapter has yet to be written for GM, but perhaps the lesson to be learned by other companies is that the relationship between members of the C-Suite is critical. For GM, it is critical for survival and recovery; for the NHS, if the priorities of one side take precedence over the other, then disarray will result; for Harrods, the IT side of the organisation is well placed to take the business side into new areas, but with that power comes its own responsibilities. The CEO-CFO-CIO can be a fruitful ménage à trois, not just an eternal triangle.