In a large conference room in Germany, the corporate executives, IT managers and project staff of a telecom manufacturing company have gathered nervously around the table. It's rumoured that they've been called in to account for the firm's hugely expensive and severely troubled enterprise resource planning (ERP) project. After introductions, a consultant walks over to a flip chart and writes: "[Name of company] wants to implement the ERP system for the purpose of ________" and asks those gathered to complete the sentence. Dead silence.
Finally, the managing director leans over the table, looks down at the functional guys who've been pushing ERP hard and asks: "Well, isn't somebody going to answer him?" Downcast eyes and apprehensive shifting in the conference room seats have heralded the demise of many a pricey technology initiative. When a project kicks off with much fanfare only to fizzle after months of work - and millions of dollars - the problem is seldom merely technical. In many cases, "companies aren't clear enough in terms of the concrete objectives that they want to come out of a project", points out F. Warren McFarlan, professor of business administration at Harvard Business School. "The fuzzier they get, the more likely they are to get burned."But when technology initiatives such as ERP and Y2K become integral to business success, such a corporate scorching could prove fatal. And cautious CEOs realise this: They're keeping a sharper eye on IT investments and demanding more business value from the projects they do fund.
IT Investment Cutbacks
On April 30, 1998, The Wall Street Journal published a story alleging a "new" approach to corporate technology funding: a trend it called de-engineering. The Journal argued that the failure of so many expensive IT projects has caused companies to prune technology spending to the bare minimum and axe projects where the business objectives were not clearly defined.
But what's so new about that? IS departments are no strangers to feast-or-famine funding. Companies vacillate from spending freely on IT for competitive advantage to periods of economic stringency, where budgets are cut in the name of a leaner and meaner IT model. What prevents de-engineering from being a fancy name for an ebb in the technology spending cycle is the new level of board-level involvement in IT spending decisions and the business-driven attitude they take toward those investments.
New IT Acumen
Certainly, CEOs have become more comfortable with technology. According to a 1998 A.T. Kearney study called "Strategic Information Technology and the CEO Agenda", 75 per cent to 80 per cent of surveyed CEOs and other senior executives rated their grasp of IT issues as fairly good or very good. As a result, "CEOs can ask better questions now", says Joel Manby, CEO of Saab Cars USA in Norcross, Georgia. "Because of that, they can avoid bigger mistakes." And by taking a more active part in technology decision making, senior executives can drive down costs by more accurately linking technology expenditures with business goals.
Gerry Yeo, a partner for Deloitte Consulting's Consumer Business Practice in New Jersey, has noticed a distinct change in attitude from senior executives over the past three to five years. "When CIOs present a capital request to the board, directors now say, 'OK, demonstrate to me how IT is a competitive weapon,'" he says. "'What's it going to do in terms of growing sales or managing labour costs?'" CEOs and their brethren have good reason for their new hard-edged attitude: They're spending a lot of money. "IT expenditures as a percentage of revenues continue to creep up" by about 5 per cent to 6 per cent a year, says Dale Kutnick, CEO and co-research director of The Meta Group, a research company in Stamford, Connecticut. In fact, the A.T. Kearney study showed that 68 per cent of companies expect to increase their levels of technology investment over the next three years. And by making technology issues commonplace in the boardroom, projects like ERP and Y2K also have a great deal to do with the CEO education process.
This increased understanding is reflected in the technology decisions that are being made in companies. In the wake of a wave of expensive technology projects, CEOs are looking for ways to make their IT dollar go further. Robert Charette, president of Itabhi, a risk-management consultancy in Fredricksburg, Virginia, sees the current IT climate as a move toward balancing risk and opportunity. As the following stories illustrate, senior-level involvement can go a long way toward achieving that delicate equilibrium.
Alcatel: Keep It Simple
When Serge Tchuruk took over as CEO of the troubled electronics and telecom giant in 1995, he chose simplify as his business and technology watchword.
Tchuruk faced the task of reorganising a corporate conglomerate so bloated and unwieldy that wits joked you could sell an Alcatel company to Alcatel at least twice before anybody realised it already owned it. With 800 legally independent companies under its belt, the organisational and reporting structure at Alcatel was a mess.
His first order of business was to restructure and streamline the Paris-based company through judicious consolidation and sales of some businesses. But the task has presented unique technology challenges for Tchuruk. He wants Alcatel trimmed to one company per country, creating a basis for streamlined IS systems such as a common finance system Ñ a task that will eventually crop 800 systems down to around 130.
Unlike many of its peers, however, Alcatel has chosen to address those challenges by walking rather than running, a board-level decision based on some recent big-budget IT busts. For example, the company has gone through very expensive SAP implementations in the past few years, only to find out that its finance system worked in just two countries.
The frustrations that arose from that experience convinced the board of directors and Roland Scheel, Alcatel's director of advanced technologies, business processes and information systems, that future IT investments needed a new path. "An SAP project can cost around $US100 million," says Scheel, and people take notice when that project is a disappointment. The decision from management was clear: "We will go a different way," he says.
That different way will kick in with the next big project, a customer order fulfilment system. The company had planned another full-blown SAP project, but in light of their previous experiences Scheel and Tchuruk swore off the whole-hog implementation in favour of a modular approach. Scheel and his team will analyse the existing customer order systems and identify holes that SAP can fill. Then they'll find the module that works best and integrate it into the existing mainframe technology. The company has also divided the project into a series of smaller, more manageable projects that will take a maximum of six months to complete. Scheel says the new approach could cost as little as one-tenth of a regular SAP implementation while providing 80 per cent of the required functionality in a short time. "It'll go faster and cost less," he says, and hopefully Alcatel will reap the rewards immediately - instead of years down the road.
Saab: Keep It Inexpensive
When Manby left his job as regional manager of Saturn to become CEO of Saab Cars USA in June 1996, one of his first priorities was to refocus the company's IT investment strategy. Part of the problem lay with the IT director, who Manby says "was constantly chasing new technologies and was not disciplined about [identifying] the business problem first".
But Manby knew that he needed to get involved too. "[My role is to] ask all the tough questions and cut to the heart of the issue," he says. "I want to know: What are we trying to accomplish? What will be the business result? Is it achievable?" And rather than drag the company through a drawn-out implementation, which tries to solve everything at once, Manby's preference is to just get something up and running. "As long as it's scalable you can build upon it," he points out.
Manby wanted to get away from such bad-egg projects as Saab's data warehousing system, which had already cost the company several million dollars despite having little demonstrable business value.
However, he did want a central system to track each car and its repair history.
Saturn had one, and it was the backbone of the firm's successful customer service model. Manby wanted Saab to reap the same benefits, but at $US11 million installing a system like those used at Saturn, Lexus and Infiniti was prohibitively expensive. Additionally, the company would have to ask each of its 225 dealers to make a profit-crippling $US100,000 investment in the system.
So Manby, working with his new hire, CIO Jerry Rode, came up with an intranet-based retail system that cost a fraction of the original proposal and required dealers to ante up only the price of a PC and some network equipment.
Called Iris, or intranet retail information system, the private network lets Saab mechanics view the repair history of every car, comment on technical solutions and pull up examples of how other technicians solved particular problems. Information on car repairs and sales, which used to be batched monthly, is uploaded in real time so that executives, dealers and technicians alike don't have to rely on outdated information.
Manby is pleased with Iris, and the company is now re-examining data warehousing - with a stern eye on business value this time around. For Manby, the extra scrutiny is difficult but essential. "All of us [CEOs] feel a sense of pressure to be up to speed and be reading everything we can get our hands on about technology," he says. "Otherwise, you'll be left in the dust."
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