Back from the Brink

Back from the Brink

Since the IS organisation's inception in the 1960s, predictions of its demise have been outnumbered only by the death wishes of IT users who know all too well the group's hard-earned reputation for being quick to spend, slow to deliver and hopelessly out of touch with business needs.

At least, that's what users perceive to be the case. And the reality of IS's fortunes has always been shaped by the perceptions of internal management, users, the press, the gurus and the analysts. Unfortunately, IS has always stubbornly refused to acknowledge that the best way to combat perceptions is through good marketing of its successes. Instead, IS has always retreated into its culture of self-effacement and quiet hard work, which has done nothing to alleviate perceptions rooted in ignorance or misunderstanding. Yet if the rest of the organisation doesn't really understand what IS does, how can it value IS's services? This long legacy of lousy "brand management" by IS organisations and the frustrated demands of users have snowballed over the years into a more or less constant IS death watch. Users root for their IS departments to get outsourced.

CEOs don't see the organisation adding any value, while IS employees work long hours delivering long lists of supposedly urgent, but ultimately undervalued, technology projects.

Responsibility for this sorry image paradox sits squarely with the CIO. And now with the possibility and the capability to actually begin to move complex systems out of the depths of IS and into the hands of outsourcers, ASPs, portals and other external providers, it may be too late to sell the virtues of this tarnished brand - unless CIOs can radically restructure their departments and their messages to the business.

The challenge is extreme and unfair because success depends not just on dealing with current market realities but also on correcting these long-held perceptions - justified or not - about the way IS does business. Here are some of those perceptions.


CEOs Don't Believe in Their IS Departments At a time when chief executives finally seem to get it - they understand IS's potential as a strategic business driver - they also betray an alarming lack of confidence in their own IS organisations and leaders. In a recent survey of 650 CEOs and senior business executives worldwide, Compass America, a Virginia-based management consulting firm, found that 75 per cent of CEOs expect IS to make a significant or at least an average contribution to bottom-line business results, yet only 25 per cent feel IS currently measures up to these expectations.

Are these expectations realistic? Doesn't matter, says Gregory Smith, executive consultant at Compass. CEOs don't feel they're getting enough from their IS organisations, and these frustrations are translating into new pressures to transform - at a time when the marketplace offers more opportunities for business executives to effect such sweeping changes. "CIOs and IT departments are being forced to be more like business partners," Smith says. "They can do it on their own, or they can be dragged kicking and screaming. But the way to preserve the IT organisation is to be a true business partner."Phil Schneidermeyer, a senior-level recruiter for Korn/Ferry International (US), confirms the survey's findings. "My clients can't build their businesses without a good CIO," he says. "But there is a lot of high-level change coming because senior executives are saying that their incumbents are not capable of getting them where they need to be." PERCEPTION IS Should Be Outsourced In his January 2000 report, "The Death of IT" (see "Is IT Dead?", April CIO), Forrester Research principal analyst Bobby Cameron argues that the e-business demands for IT scalability, reliability, ubiquity and quick change will tax IS organisations beyond their capacities, forcing greater reliance on external technology providers. GartnerGroup predicts that by 2003, 75 per cent of IS organisations will shift away from providing IT services to brokering them from vendors.

The problem with outsourcing is that the business often perceives that everything needs to go, not just what makes sense. CIOs are now having to prove what should remain rather than selecting what should go. To avoid a possible outsourcing disaster and real damage to the company, IS needs to address this perception head-on - before the CFO begins meeting with Andersen Consulting or EDS or CSC.


ERP and Y2K Cost Too Much

CIOs look at Y2K as the big bomb they helped defuse, and mostly they're right.

CEOs and CFOs - many of them, at least - wonder why they spent so much money and man-hours on a problem that IS created in the first place. As for ERP, many business executives still wonder when they're going to get some bang for the bucks they poured into these back-end systems that suddenly are incompatible with many e-commerce operations. "ERP was supposed to be the silver bullet," says Compass's Smith. "Instead, it ended up over budget, over deadline and created a level of scepticism [among business executives]." Then consider Y2K - a project that diverted talent, time and money for years - and you can see how Gartner reached its conclusion that business executives will be exercising a lot more say about IT decisions going forward.

"Priority lists will change materially, as will the people who set those priorities," Gartner says in its late 1999 "IT Management Scenario" report.

"The backlash to year 2000 overspending will compel business executives and department managers to assume ownership of IT-related business initiatives and benefits." PERCEPTION IS Can't Lead E-Business Efforts OK, so it's an unfair generalisation, but how else do you explain the number of companies that have established separate e-biz units outside IS, under the aegis of marketing or finance? Since the dawn of e-commerce, IS groups have been content to maintain the engines while other business groups have steered the bus. This passive role has convinced some business leaders that IS groups simply aren't capable of even having a hand on the steering wheel. The problem, says Reg Foster, chief e-business officer of American Management Systems, is that CIOs have never before wielded the kind of business-changing influence the Internet now gives them. "It has never been the CIO's role to go to the strategic business head and ‘destroy' the business," Foster says. And unfortunately, if IS doesn't step up and assume this role, then some other group will. "Once the executive office wakes up and smells the coffee, they're appointing someone with business, technology and vision skills to define where to go next and drive the initiative," Foster says. "If I were a CIO, I'd be looking at why this new e-commerce position is end-running the CIO." PERCEPTION Most IS Leaders Are Technology Tacticians, Not Strategists Businesspeople are worried that their CIOs will not be able to lead them through the thicket of electronic commerce and its automated business processes. This fear is revealing itself in the explosion of new titles for senior IS executives. The title war is relevant only in that it reveals a desperation on the part of businesspeople to separate the tacticians from the strategists.

Indeed, no one can even keep track of what the titles mean. In traditional organisations, the CIO is the technology visionary who makes strategic decisions about how the company will deliver its goods and services electronically. The CTO is the first lieutenant, conversant with architecture, data models and emerging technologies but maybe not so smooth in the boardroom or in people management. At the dotcoms, the roles are often combined or even reversed (for more on the CTO role, see "The Wolf at the Door", CIO, July, 2000).

Despite all the hype about titles, there is a valid concern. Can one person manage the boxes and plot the company's technology future, or do you need two people? CIOs are going to have to answer this question or the business will answer it for them.

Today, amid the uncertainty of how e-commerce is going to shake out for traditional businesses and Internet start-ups alike, IS is especially vulnerable to hard business realities. Except this time, unlike the past, there isn't a single force of change, or even a series to be dealt with individually.

Rather, IS faces several concurrent realities that could indeed prove to be a lethal combination.


Technology Independence Has Been Building for Years The reins of technology spending and control have been slipping from IS's grasp very slowly - almost imperceptibly - over the years. But now these subtle changes are snowballing into something that calls IS's technology leadership role into question.

Decentralisation brought IT out of the basement and into the business units, where users have become increasingly more comfortable with - and controlling of - their systems. Outsourcing introduced CIOs to the idea that some IS tasks really can be performed better by service vendors. The shared services movement reintroduced the central IS group concept but with a twist: IS departments now charged users for their work and subsequently were held to a higher standard of delivery and performance. ERP software brought businesspeople into key project leadership positions on implementation teams.

These so-called super users have come to understand the company's back-office ERP systems as well as anyone from IS.

If IS is to survive as an independent entity, it needs to keep these new business and technology experts happy, providing them with advice, support and project management help so that they - not IS - can lead technology implementation projects.


E-Business Forces IS to Connect with the World E-business has thrown open the doors of IS's data centres to the outside world.

IS is still rubbing its collective eyes and adjusting to all that new light.

Suddenly, systems that were designed to talk only to a closed, secure internal network and a select set of home-grown applications now have to turn and face the Internet, and customers' and suppliers' legacy systems and applications too.

In the past, IS could simply roll up its sleeves and learn about new technologies. But there's a difference to all this e-work that we haven't seen before. It is all intimately tied in with the business processes of the company. IS can't develop these technologies without the support and involvement of the people who manage the business of electronic commerce.


Businesspeople Will Manage an Increasing Portion of IS John Cross, former CIO at BP Amoco and now executive vice president of strategy consulting at AppNet, a Maryland-based e-business consultancy, sees increasing numbers of business units taking over IT tasks - and it's a painful transition for many IS groups. "Some [IS groups] retain ownership of their old roles, some refocus entirely on e-business, and in some cases a new [non-IS] guy is brought in to head the e-business agenda," Cross says.

When the non-IS leaders are brought in, that's when IS should worry. "Those IS organisations will simply die," Cross says. "Business simply goes right around them and takes control of IT. You see some business heads [in these enterprises] actually creating their own IT strategies." REALITY Outsourcing - in Some Form - Is Inevitable Business processes come in a box these days, and so do most of the routine services an IS organisation can provide, such as help desk support and network management. Companies are now trying to discern their IT differentiators - the technology-driven processes or services that give them competitive advantage - and then outsource the rest. IT outsourcing is a $US100 billion industry that is expected to swell to $US151 billion by 2003 (not including the ASP market, which will grow to $US7 billion by the end of 2001), according to market researcher IDC.

The outsourcing coup d'etat has been predicted for years, but only recently have outsourcing vendors had the capabilities and the experience necessary to make it so. EDS, Andersen Consulting, CSC and the other full-service outsourcers have - after roughly 10 years of painful trial and error - proved they can run a customer's entire IT operation, and the smaller boutique vendors certainly can handle discrete aspects. Application service providers threaten to pull away whatever the boutiques and the big outsourcers don't take - in most cases that means application development, IS's traditional crown jewel of value to the business.

John Reese, former technology vice president of IT at Time Warner, now CEO of John C Reese & Associates, a New York City-based IT consultancy, argues that e-commerce pressures are too great for most IS organisations to meet everybody's needs internally. "As companies go out onto the Internet, it's going to be impossible to manage everything from a single site serving everybody," Reese says. "Anything viewed as strategic and proprietary will be kept inside. But as long as [IS] can get more reliable and responsive service on the outside, then [they] have to explore those options." REALITY IS Can't Find - or Keep - Good Help With roughly 850,000 IT jobs currently open and at least 1.6 million new jobs expected to be created by mid-2001, it's safe to say the IS staffing crunch won't ease any time soon. Increasingly frustrated by their inability to obtain and retain qualified IS staff, companies are forced to farm out more work to contractors, consultants or outsourcing vendors.

Frankly, the vendors and consultants struggle to fill their open positions too, but they do have the advantage of offering IS employees more opportunities to work with new technologies and a variety of different companies as well as the knowledge that IS is the core business of the company, rather than a peripheral service and a cost drain. As the staffing crunch continues, Gartner estimates that by 2003, 60 per cent of large companies will farm out 50 per cent of their IT activities to contractors, not just because of the lack of qualified IS staff but also the sheer volume increase of IT work, as well as the likelihood that business users will assume greater responsibility for traditional IT tasks.

Complicating the staffing problem is that IS organisations don't just need people with the hot Net IT skills - Web development, systems integration and project management. They have an equally crying need for people with good business knowledge and interpersonal skills. It all adds up to the CIO's staffing quandary, says John Brighton, CIO of Aetna in New York City. "The necessary skill sets have shifted to where we have to have people who can communicate at any level with [business] people of any level," Brighton says.

"Communication skills definitely have to be better." The good news is that business and communication skills are easier to find than Java programming and Web design skills. The bad news is that the competition for these soft skills is a whole lot greater.

Sifting through the various perceptions and realities, it's clear that IS faces forces of change from all sides - from management, from the users, from the marketplace and even from technology itself. With so many forces in motion, retreat isn't an option. IS can't hide. The options are to run and keep pace with the changes, or get run over by them.

Charles Popper, former CIO of Merck & Company and current managing director and chief technologist at Orama Partners, a New York City- based e-commerce consultancy, says the IS future sits squarely on the shoulders of the CIO.

"It's a test; it's up to the CIOs to prove themselves," Popper says. And, frankly, he thinks the good CIOs are up to the task. "I don't see it as a career crisis at all for the CIO, except for the crisis we always have: competence."

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