The stormy relationship between business and IT has been a hot topic for decades. But while the gap is closing, it's still there, and still wreaking havoc. And that's . . .
Why We're Still Talking About Alignment
Since the age of vacuum tubes, dot matrix printers and green-screen monitors, IT executives have been obsessed with the concept of alignment, meaning how closely an organisation's IT strategy is interwoven with and driving its overall business strategy. Just look at any survey of CIOs taken during the past decade, and you'll see that the role of IT within their company's business strategy is almost always among their top five concerns. So what's the score at this stage of the game?
Well, there's good news and there's interesting news - depending on your point of view. The good news is that more companies - and most successful companies - now view IT as an essential component of their business strategy. CIOs are increasingly reporting directly to the CEO instead of the CFO or COO. They're getting a solid budget and being empowered to run with it. Some companies are also integrating IT with other departments. This directly aligns IT managers with their colleagues in marketing or operations, where they're gathering on a regular basis to collectively hash out the strategic needs of the company. Finally, CIOs are increasingly being viewed as corporate leaders as they help drive business strategy and achieve business goals from their seats on executive committees. Some are even moving beyond the CIO position and becoming CEOs or COOs.
The interesting news is that to the extent these CIOs have made it, they've created a whole host of new issues for themselves. The alignment they've achieved hasn't happened in a vacuum. Outside forces have created the need for alignment - and the biggest outside force is clearly the Internet. As companies rush to beat their competitors to the Web, the CIO - the one with all the technical expertise - has become the obvious strategic player. However, the stakes are huge, and failure can be devastating.
While being put in charge of your company's e-business initiative may seem like the ultimate in alignment, if you get total ownership of the project without collaboration from other corporate functions, it could turn out to be the ultimate in misalignment. Meanwhile, you'd have to deal with executives gunning to get to the Web yesterday. Some companies are leaving CIOs and the IS department out of the loop altogether and choosing to outsource e-business initiatives because of the perception that IT is too slow. If you play your cards right and succeed, you'll be a hero.
Looking toward the other end of the alignment spectrum, not all organisations have evolved to the same degree. Plenty of old-line companies operate like it's still the early 1990s, and they force their CIOs to go hat in hand to the CFO for approval of every minor expense. Other companies - even entire industries - are just beginning to get how they can strategically use IT initiatives to capture customers and drive their competition into submission. Still, more companies don't understand the challenge and importance of luring and retaining talented IT employees in an age where unemployment is almost non-existent and talented high-tech workers have the bargaining power of a lifeboat captain on the Titanic.
To see how far the alignment of IT and business strategy has evolved, you need to go back to the 1960s where it began. Even at the dawn of the information era, there was a problem with the perception of IT, says Jim Sutter, senior partner with the California-based Peer Consulting Group. According to Sutter, a former CIO of Rockwell International (US), and a 40-year IT veteran, from the early 1960s, IS departments were seen as havens for nerds operating far outside the mainstream. Culturally, the computer scientists and technicians running IT had little in common with other business executives in terms of education or shared experiences. Therefore, it was difficult for the two groups to relate to one another. "People in other departments were totally unfamiliar with what was going on in IT," Sutter says.
Additionally, because the technology was less refined in those days, IS people spent more of their time just trying to make it work - and had little time to worry about the business goals of their companies. "It's always been a demanding area that forces you to work nights and weekends, but in those days it took you away from everything else," Sutter says.
In the 1960s and 1970s, companies used IT primarily to automate business processes to improve accuracy and reduce clerical staff. The data-processing heads (a title that evolved into the head of MIS in the 1980s and the CIO in the 1990s) reported to the chief accountant or comptroller. As time went on, though, the IT projects didn't always show a return. Expenditures for computer support began to show up on company budgets. "So the questions started," says Jim Kinney, retired CIO of Kraft Foods and president of Mariner Consulting. "What are we getting for our investment? Senior managers often observed that the things important to them - like customer service and sales productivity - weren't the things IT was working on."
Nonetheless, senior management did little to try and bring IT in line with what it felt was important, so IT remained marginalised and other executives remained sceptical of its value. That is, until the first watershed moment: the 1973 Arab oil embargo. When the embargo hit, almost all shipping ceased and business in this country ground to a halt. This wreaked absolute havoc on companies' sales, purchasing and delivery schedules. Many were unable to fulfil their contracts - unless, of course, they had implemented a material resources planning (MRP) project. MRP, a forerunner of enterprise resource planning, enabled companies to plan and adjust their delivery and supply needs essentially on the fly. As with ERP, MRP systems were very difficult to implement. At the time, many companies debated whether MRP was worth the hassle. The lucky few with MRP systems at the time of the embargo discovered it was. Their MRP systems helped them make instant adjustments and reschedule deliveries and purchases. Companies that still used computers just for accounting watched helplessly as they lost billions of dollars.
In the wake of the embargo, the equivalent of the CIO began to move up the organisational ladder, reporting to the CFO or COO instead of the comptroller. By the 1980s, senior management began to realise that using IT for more than accounting and data processing was key to getting the most value from their IT investment. This wasn't just a direct result of the embargo. It also stemmed from other successful IT projects that spoke to an enterprise priority, like inventory control, warehouse management and production scheduling. Alignment couldn't happen at all if senior managers and the head of IT didn't speak the same language. Inevitably, rather than having senior executives bone up on technology, companies started to look for more business-oriented people to head IT. "Two things occurred here," Kinney says. "Either the CIO became more business-oriented and went back to grad school to get an MBA, or CIOs who came from an IT discipline were replaced by managers with more broad experience within the company."
Of course, these developments didn't totally erase the gap. IT was still viewed primarily as something to make a company more efficient. It wasn't viewed as a strategic force in and of itself. Thus, throughout the 1980s and most of the 1990s, alignment appeared in surveys by consultancies as the number one concern among CIOs, who were hungry to assert their position's strategic relevance and the relevance of IT.
Certain industries were alignment pioneers. For example, during the 1980s, airlines began to offer frequent-flier programs, which were IT-driven and gave the companies a competitive edge. During the same period, the financial-services industry started to realise that it was, in fact, in the information business. "Banks and insurance companies began to recognise that their computer programs actually created their products, like credit cards and computerised cash-management facilities," Sutter says.
This pattern took on a life of its own in the 1990s as technology continued to improve. Products like customer relationship management software started to hit the market; companies began to implement ERP systems to further integrate the entire enterprise; and the notion of electronic supply chain management was born. For CIOs, it was no longer enough just to know what went on in engineering and purchasing. They had to understand the whole company - and the whole industry - from back to front. They had to gain this understanding while staying on top of the tidal wave of new technology flying at them. This pushed CIOs higher up in the company, and many began to report directly to their CEOs. Even though reporting structure is still seen as a litmus test of alignment, that view may be unfair in many cases. For example, if you report to a CFO who really understands how IT can help the bottom line, he could become a powerful advocate for your proposals.
Just because you're invited to executive meetings doesn't mean you've achieved alignment though. That is merely a single factor. Some observers view it as downright undignified to revel in the fact that you're finally "at the table". Arthur Tisi, CEO and CTO of New York-based @Thought Technologies and a former CIO of The Metropolitan Museum of Art, describes CIOs' obsession with their place on the board as "battered executive syndrome".
Y2K remediation and the years leading up to the date-change event were other milestones in the push toward alignment. "Y2K really opened up a lot of senior executives' eyes as to the importance of IT and the running of a business in this day and age," says Gary Baxter, vice president and CIO of Maine Employers' Mutual Insurance Company. "It got IT issues into the boardroom where they belong, and it forged links and connections between CIOs, other executives and board members themselves."
On the other hand, the lack of major Y2K disasters may have left some business executives sceptical, feeling like they put up all that money for nothing. "We lost credibility instead of [receiving] credit for a job well done," says Michael Spano, CIO of Siemens Power Transmission and Distribution, in North Carolina. "I think of Scotty on Star Trek. He tells the captain something can't be done for 24 hours and then when he gets it done in 10 minutes, he's a hero. It may have almost been better to let a catastrophe happen and save the day. Then you're a hero."
Quick and Dirty
Nothing has altered the state of alignment like the Internet and the rush to e-business. E-business is forcing alignment, even in classically misaligned old-line corporations. Companies realise they have to create a viable e-business component to compete. Because IT is such an integral part of e-business, the CIO is becoming an important partner in making this happen. "Technology is now a competitive tool, and CEOs recognise that," says Chuck Lybrook, executive director of the Information Management Forum in Atlanta. "Just that very recognition causes alignment to happen.
While e-business is pushing technology to the foreground, it's ironically creating one of the most significant symptoms of misalignment: the tension between speed and safety. From the IT perspective, it's one thing to be up on the Web quickly so that you don't get left behind, it's another to do it right. CIOs realise that an e-business solution is useless if it doesn't incorporate the necessary security and privacy precautions, which take time to develop. "If you're looking for something quick to throw on the Web, it only takes a couple of minutes," says Baxter. "But if you're looking for a system that's not going to get hacked and have all your customers' personal information all over the Net, you need to build a real application . . . and there's a misunderstanding about what it takes to build a mission-critical application."
Although this is true, CIOs may be playing into the business-side perceptions that IT is simply too slow. In the past, the CIO was always viewed as the voice of reason, says Doug Aldrich, vice president of global management consultancy A T Kearney (US). CIOs need to understand that installing a less-than-perfect but fixable solution now may be better than taking the time to build a best-of-class perfect solution that shows up much later. "It may be going too far to say CEOs think CIOs are holding them back," says Aldrich, who recently concluded a study of CEO attitudes toward e-business. "But I don't know if there's a perception that CIOs are leading the charge either."
Thornton May, corporate futurist and chief awareness officer with Massachusetts-based digital security consulting and services company Guardent, adds that privacy and security precautions are a brewing source of budgeting conflict as well. It hasn't come to a head yet, but it will be the "next round of screaming matches", he says.
The alignment gap encompasses more than just privacy and security. There's a disconnect between a company's need for speed and the CIO's understanding of the importance of strong back-office functions. For example, prior to closing its doors, embattled e-tailer Furniture.com suffered a rash of delayed deliveries, inventory troubles and customer outrage. Many of its problems stemmed from making its move to the Web too quickly and without installing adequate order-tracking, billing and distribution systems. According to Tom Davenport, a CIO columnist and director of the Accenture Institute for Strategic Change, this is a common symptom of misalignment in the electronic age. "It's a new variation of old alignment problems," he says. "Senior executives understand things like a sexy Web design, but they don't understand the need for infrastructure and back-office capability."
So how do you manage this conflict? According to Kinney, you just have to adapt and do the best you can in a shorter period of time. "You have to take more risks and be willing to settle for an 80 per cent solution instead of making it 100 per cent," he says. "You have to be willing to put an imperfect solution in place and modify it as you get feedback from your customer. For many IT people, this is a very difficult concept to swallow."
This is what Amazon.com did when it began offering CDs. It offered the products to a limited number of customers, got feedback on what it was doing wrong, fixed the problems and rolled the service out to the public at large. "You just have to be ready to come back fast and harden [your site] into a quality destination," Aldrich says.
Collaborate, or Else
Ownership of the e-business initiative is another area of potential misalignment. CIOs are concerned that business leaders may be developing a tendency to tell IS: "Go enable us for the Web. Let us know when you're done." In the process, there's no collaboration with the other business functions. "That's the main area of disconnect today," says Paul Cuccia, senior vice president and CIO of Sotheby's Holdings in New York City. "IT simply cannot be charged with what has to be done to make these initiatives successful. If you're in an operating room, a lot of different people make the operation a success. It's the same with technology. Enlightened organisations understand this."
Lucent Technologies' CIO and vice president of Corporate Centres Sue Kozik agrees, pointing out that you can't just order a Web-enabled business from IT. It involves a redesign of the company's business process, and senior leadership of the business should be participating. Of course, the CIO should still be taking on a key role. "The CIO can facilitate the discussion," she says, "but it has to be a collaborative effort."
The current state of misalignment reaches beyond e-business. Many companies still don't see IT as a strategic tool. Spano - who views the alignment gap as a "chasm" that is bigger, deeper and wider than ever - is one of the many CIOs who report to their CFOs. He describes his department as a "cost centre" in the eyes of senior management, and every year he's challenged to lower his budget. This makes it tough to get his initiatives through. For example, he wants a second database in case the first one crashes. "But they don't understand the value," he says. "They think, Why don't you just keep the first one up 100 per cent of the time? That's what we pay you for. Why should we pay twice?' So I've had to come up with a utility function explaining how much business we lose for every minute we're down."
Spano isn't after a licence to spend whatever he wants. He just wants to be in a position where he doesn't have to go through all sorts of hoops every time he wants to switch from router A to router B. As long as he reports to the CFO, though, he has to engage in painstaking translations because they speak completely different languages. "All she's thinking is lease versus buy, while I only care if it's gigabyte-compatible," he says.
While many CIOs are enjoying stronger alignment with their CEOs, they're suffering misalignment with other important functions, like human resources. Spano says the business side just doesn't understand the current staffing crunch CIOs are facing. He says he's temporarily dealt with the problem in his own company by putting in a long-term retention plan, which he had to fund from his own budget. As a result, he's lost only one from his staff of 17 this year. "But they only have to stay a year [for their incentives to kick in]," he says. "Ours runs out in October, and some are already recruiting."
From the business perspective, IT may be skirting the real issue. According to Aldrich, CIOs are looking to buy what they can lease and looking to lease what they can rent. Why hire 200 state-of-the-art guys this week when they'll be obsolete six months from now? You may really be better off with temps and independent contractors. "You should be looking to acquire workers when you need them and putting them back when you don't," he says. "That way the training burden and currency burden falls to the professional companies putting these people out to hire. As CIO, my interest should be in getting the company ready for the digital marketplace, not building an employee empire."
Staffing issues, reporting structure and e-business are currently the biggest pieces of the alignment puzzle. Fitting them all into place is different than it was a year ago and it's different than it will be a year from now - different, but no less of a challenge.