investiledysfunction

IT represents half of all capital spending and exceeds $500 billion annually.  So as CFO Magazine highlights “When times get tight, executives turn to their companies’ IT budgets and get out their red pencils.”  And although this sentiment seems to get expressed every couple of years, people still continue to crib about the lack of useful data around IT expenditures.

The problem is that IT budgets are rarely understood and often do not contain all the right information.  We’ve seen firsthand many instances where organizations only think about the money out of the door this year with regards to IT and they fail to consider maintenance, support, labor and other expenses.   And those expenses are no joke - they create a long tail for many IT projects.

And as the CFO Magazine article entitled “Less Bleeding, More Edge” notes “Companies are now concluding that in order to control costs, they must better understand them.”  (note:  This statement has been nominated for the master of the obvious award)

The article states that “gauging the return on investment of specific projects is an exercise fraught with peril”  as if to excuse this practice of not requiring IT investments to have solid business cases.  Unfortunately, this is a refrain heard all too often and is a cop out.  Rigorous business cases coupled with the threat of projects being killed or not funded would get at the total cost of ownership and also force project sponsors to understand and articulate the benefits and ROI of their projects and not allow them to hide behind scare tactics (”If we don’t do this, there will be a security risk” or “If we fail to do this, the reliability of XX could be impacted”) .

Unfortunately, most business case building exercises are bureaucratic romps that people go through to tick a box.  As a result, the soundness of the business case and its costs and ROI gets little real examination and projects that have no business being funded get funded.

Unfortunately, in the current climate, knee-jerk actions will be taken that will ask for cuts to IT spend.  These steps which may provide a short-term benefit do nothing for the long-term.  Organizations need to focus on getting the right data about IT initiatives and then be willing to kill poorly articulated or underperforming projects if we ever want to stop hearing about ‘out of control IT spending.’

The March 2008 Harvard Business Review had an article about Japan’s Shinsei Bank and their approach to IT which was so spot on, I thought it might be worth sharing Shinsei Bank’s philosophy with regards to IT.

Per the HBR article, Shinsei used a “path-based approach to build an enterprise IT system that would provide a low-cost, efficient platform for running its existing business but was flexible enough to support the company’s growth into new areas.”

Nothing particularly revolutionary there, right?  Sounds like a lot of typical mumbo-jumbo, and I’m sure those same or very similar words have been in PowerPoint presentations that many a CIO/CTO have created.

So the part that is actually great about Shinsei Bank’s approach are the details of how they achieve the aforementioned objectives.  Again, quoting from the HBR article.

“The approach addresses the three main challenges of an IT project: It is difficult and costly to map out all requirements before a project starts because people often cannot specify everything they’ll need beforehand.  Unanticipated needs almost always arise once a system is in use.  And persuading people to adopt and “own” the system after it is in operation is much easier said than done.

First of all, Shinsei’s realization of these as the three main challenges is very impressive.  We’ve seen far too many IT organizations put a massive questionnaire or mandate that a large requirements document be put forth before doing anything.  This is not only a waste of time, but gets you no where closer to what you ultimately want because nobody ever knows all the uses, scenarios, etc they need up front.  So don’t require everyone to detail out every requirement.  I realize this maybe called for on your project manager’s checklist, but this is ultimately not helping the project.   The last point about adoption and ownership of the system is very big as well.  Technology requirements should not dictate what solution gets selected (”There an approved vendor so we should go with them” or “We only use Oracle so you should find a solution that works with Oracle only.”  It should be IT helping to work with and guide the business to making a more informed judgement about what to select while leaving it them.  This helps create the ownership that Shinsei has created.

Let me liberally quote from the HBR article some more to close.

“The path-based principles that Shinsei applied in designing, building, and rolling out the system - forging together, not just aligning, business and IT strategies; employing the simplest possible technology; making the system truly modular; letting the system sell itself to users; and enabling users to influence future improvements - are a model for other companies.”

Ok, let me count the ways in which this is correct.  We always hear talk about alignment between the business and IT.  Besides a being completely overused and generally meaningless phrase, it really is more about creating a shared vision and moving together on that.  This way, IT cannot throw the business under the bus (”The requirements were not fully given”) and business cannot do the same (”The guys in IT move too slow and are just bureaucrats.”)

Going with the simplest technology is another novel concept.  Instead of opting for the fancy bells and whistles that technology providers often tout, go for something that gets the basics right.

And lastly, let users influence the future direction of the applications because ultimately they are the USERS of them.

It doesn’t sound all that revolutionary, but it seems Shinsei is onto something.

If there is any group in the corporation which seems to have a chip on its shoulder, it is IT.  Marketing and finance are two others who complain a good amount as well, but if there was an Olympic medal given for complaining, the gold would seem to goto IT over any other functional group.

Common complaints include:

• “We’re just order-takers.”
• “The business doesn’t understand the value of IT.”
• “Senior management doesn’t understand technology.”
• “The requirements always change.”
• “IT doesn’t have a seat at the table.”

The list of complaints is a mile long.  And the worst part is that the popular media seems to reinforce these beliefs constantly.  The most recent example comes from Alan Cane in the March 19, 2008 Financial Times.  Cane’s article entitled, “It’s much too early to write off the role of the CIO” opens with stories from Boots, the UK high street chemist (aka pharmacy) and retailer, House of Fraser, which “did away with the position of chief information officer, a move which heightened speculation that this animal, only recently evolved from less exalted creatures, was on the way to becoming an endangered species.”  Per Cane, the “apparent logic behind their decision was that the company’s computer systems could be managed perfectly satisfactorily by a data processing specialist.  The job of aligning IT strategy with the objective of the business would fall to the chief financial officer.”

So I don’t want to argue whether what Boots and the House of Fraser did was appropriate as that is not the point.  I’ll just say that I think it is quite a bad idea.

The more alarming point is that Cane seems to extrapolate the removal of CIOs from these 2 organizations as some sort of trend which it really is not.  Who is arguing for the end of the CIO?  Is this a common trend?  Cane then goes onto talk about the history of CIOs, assert the competence of most of them and closes with the advice that CIOs should “concentrate on finding ways to use technology to expedite business change appropriate to today’s trading environment.“  I have no idea what that actually means but oh well.

In any case, why is there so much conversation in the media and within IT departments of this type?  Has IT never heard of the power of positive thinking.  These types of constant “IT as a victim” rants serve to make the organization territorial, paranoid and probably do nothing for the morale of the people within the organization.

Anyone work for a positive IT organization that doesn’t feel victimized by the “business”?  I’d love to hear from you and hear what your organization has done to achieve this. 

The one thing that finance and IT organizations constantly are complaining and moaning about is their inability to focus on strategy or become strategic.  These aspirations are never really well articulated but being strategic or better “a partner to the business” seems to have become the rage so everyone is constantly pursuing this.  It’s not a bad thing, but it doesn’t seem everyone understands why they’re doing this or how to do it. 

And in line with this, CFO Magazine ran an article entitled “Are We Strategic Yet?” which describes a study by our friends at McKinsey which found that 72% of new CFOs wanted to spend time on corporate strategy and 45% on M&A/business development but instead spent a lot of time on FP&A/reporting/performance management (56%) and accounting/audit/compliance (42%).  Typically, I’d be skeptical of research like this because a strategy consulting firm, McKinsey, issued it so it would seem a bit self-serving.  But I speak at numerous conferences and ”how do we become a more strategic partner?” is invariably a topic

For those who read CFO Magazine, it is customary they run an article describing this issue at least 2 or 3 times a year.  And this is not their fault.  It’s just that CFOs and finance organizations continually complain about this but seem to do little to tackle the problem.  They seem to be afflicted with the disease that Rose Macaulay nicely articulated when she stated,

“It is a common delusion that you make things better by talking about them.”

So what seems to be the problem?

• What the hell does strategy mean?  It sounds sexy to be strategic, but you were to ask CFOs and their finance organizations what it actually means, I suspect few would be able to articulate what this means.  I suspect many organizations and people across all functions would have problems articulating this.  So let’s agree on a simple definition of strategy.  Strategy simply is a plan of action to achieve particular objectives.  Feel free to disagree with me on that definition, but as this is not a post about the definition of strategy so I’m being sufficiently expansive. 
• Variance analysis is not strategic - Subtracting two numbers from each other and pointing to the resulting number as good or bad is not strategic.  Creating charts (no matter how pretty) which show a trend (”the bars are getting bigger so that is good”) is not strategic.  These are things that can be done by a college kid or an Excel-savvy middle schooler.  If we go back to our definition of strategy, it is about achieving particular objectives.  This means the finance organization is strategic if they can impact decisions that help achieve these objectives by utilizing data and information.  Just parroting back #s in interesting presentation formats is not strategic unless it helps to enlighten on these objectives.  If it’s just to look smart and busy, it’s a waste of time.
• Let bean counters be bean counters - This may sound terrible at first blush because the term bean counter has gotten such a bad rap.  Basically, not everyone is “strategic”.  What this does mean is that getting the numbers right and reconciling them and ensuring proper controls are in place has a lot of value - immense value actually.  And that the people who are good at those things may not be “strategic” nor do they need to be.  They need to make sure that invoices get paid and receivables collected and that people aren’t stealing money from the corporations coffers.  These are critical functions but not strategic per se.  They’re just required else the company ceases to exist. 

If the finance organization wants to be strategic, at least in part, they should focus on utilizing the information they have to impact resource allocation decisions.  To see an article discussing how to do this (and stop whining about it), please click here.