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By Ellen Pearlman
Strategic Thinkers: Peter Weill and Jeanne Ross
Credentials: Weill is chairman of the Center for Information Systems Research (CISR) at MIT and an MIT Sloan Senior Research Scientist. His research focuses on the strategic impact, value and governance of IT in enterprises. In 2008 Ziff-Davis recognized Weill as #24 of the "Top 100 Most Influential People in IT". Ross is director of MIT CISR and founding senior editor and former editor-in-chief of MISQ Executive.
Big Idea: IT savvy organizations view IT as a strategic asset and build and use a platform of digitized processes for their business operations.
Book: IT Savvy: What Top Executives Must Know to Go from Pain to Gain, published by Harvard Business Press, July 2009
Ask business executives to describe what's wrong with IT at their firm-as MIT's Peter Weill and Jeanne Ross do at MIT Sloan's executive program for non-IT executives-and you're likely to hear some lively conversation. Weill and Ross, authors of a new book for business executives, IT Savvy, tell executives in their management programs that "perhaps you get the IT you deserve."
For twenty years Weill and Ross have been studying how to get maximum value from IT. This book is based on the lessons they've learned about how to turn IT into a strategic asset instead of a liability. The book is written for all managers that want to become more IT savvy. I read it with the notion that IT executives should know what advice MIT's highly regarded IT experts are offering business executives about their IT investments. After all, IT executives need to be on the same page as their business counterparts when it comes to fixing what's wrong.
The authors believe that IT savvy firms need a platform of digitized processes that can make companies more agile and boost company performance. "The purpose of a digitized process platform is to disengage people from processes that are better performed by machines," the authors say. That frees people up to focus on innovation. Moreover, a digitized platform helps companies achieve profitable growth through "a set of reusable systems and business processes that knowledgeable people can deploy quickly," the authors say. If you think many organizations are truly IT savvy, think again. The authors have only encountered a "small number" of them in their research, such as Amazon, eBay, Google, 7-Eleven Japan, United Parcel Service and Procter & Gamble.
The vast majority of organizations still have a hodgepodge of piecemeal systems that don't talk to one another, undisciplined and localized business processes, and IT budgets focused too heavily on keeping systems up and running and not on innovation and growth. So what advice do Weill and Ross offer executives to help their organizations get more value from IT? They offer three steps that senior executives must take to start their IT/business transformation:
1. Fix what's broken in your management and use of IT by introducing new ways of thinking about and funding IT.
2. Build a digitized platform.
3. Exploit your digitized platform for profitable growth by changing some of your organization's structures and culture.
But first senior management must define its operating model. Since IT does two things really well-business process standardization and integration-management must clarify what they want to standardize and integrate. This becomes the firm's operating model and provides the objectives for the company's digitized platform. There are four operating models, say the authors:
1. Diversification - (low standardization, low integration) Platform provides economies of scale through shared services.
2. Coordination - (low standardization, high integration) Platform provides easy access to shared data for customer service, decision-making and integration.
3. Replication - (high standardization, low integration) Platform provides standard business processes and systems for global efficiencies.
4. Unification - (high standardization, high integration) Platform provides standard business processes and global data access.
All four models provide opportunities for profitable growth, but it is important to understand the benefits and limitations of each model before making a choice since it will "establish the high-level requirements for your digitized platform," the authors say, and will impact investment priorities for years. This is not a decision to be made lightly since it will not only impact IT, it will also affect business processes, people's roles, incentives and the corporate culture.
Since many businesses don't have a good fix on whether they are spending the right amount of money on IT or getting sufficient value from that investment, it pays to take a close look at your IT funding model. The authors say that IT savvy firms have three important components to their funding model:
" Senior executives establish clear priorities and criteria for their IT investments.
" Management develops a transparent process for assessing potential projects and allocating resources.
" Management monitors the impacts of prior investment decisions and uses that learning to guide future investments.
While the above three components seem pretty straightforward, many IT organizations do not do unit cost tracking, and only 24 percent of firms have effective post-implementation reviews. Moreover, with the average firm spending 71 percent of its total IT spending on sustaining costs (keeping the lights on) as opposed to new investments, IT is often not being deployed effectively to maximize revenue growth.
As companies move to a more strategic approach to IT and the building of a digitized platform, they need to realize it will be a journey. The authors see four steps along the way, none of which can be skipped without paying a huge price. The four stages are:
1. Localizing - firms rapidly grow new systems in response to customer demands (25% of firms are at this stage)
2. Standardizing - firms look for IT efficiencies through technology standardization and shared infrastructure (46% of firms are at this stage)
3. Optimizing - firms implement disciplined enterprise processes and shared data as prescribed by their operating model (27% of firms are at this stage)
4. Reusing - firms start to think of their operating processes as reusable components that can be customized for new business opportunities (2% of firms are at this stage)
Before embarking on creating a digitized platform an organization needs an effective IT governance policy with clearly defined IT decision rights and accountabilities. There's a good business reason for this. According to the authors, "Firms with above-average IT governance effectiveness had 20 percent higher profits as measured by three-year industry-adjusted return on assets." But most IT and business executives are not satisfied with their company's IT governance, the authors have found in their research. One good test of the effectiveness of your governance practices, they say, is to ask senior management colleagues how key IT decisions are made and how people are held accountable for them. In many firms less than half the people asked could answer that correctly.
If it is up to executive management to get behind building a digitized platform that can lead to higher performance, what is the job of the CIO? As part of the senior management team the CIO shares all the same responsibilities outlined above, but the CIO also has a unique role to play based on his unique vantage point that allows him "to recognize what can be standardized and shared across the firm," the authors say.
The role of the CIO will evolve, as organizations become more IT savvy. There are four primary roles for the CIO: delivering IT services; working with non-IT colleagues on business strategy, new products or services, and IT investment prioritization; working with external customers and partners; and managing enterprise processes and the digitized platform. As organizations become more savvy a new role may emerge: the role of the strategy execution officer who takes ownership of the company's core business processes and leads the charge to their standardization. This could become part of the CIO's role as well.
If used properly a digitized platform has the ability to empower people to make decisions, accelerate innovation, focus the business on the customer, and speed integration of a merger of acquisition. Research shows that IT savvy firms with above average IT spending have margins that are 20 percent higher than the industry average. Clearly the business leaders at your company will be enticed by such results. Do you and your company have what it takes to deliver it?
Reprinted by permission of Harvard Business Press. Excerpted from IT Savvy: What Top Executives Must Know to Go from Pain to Gain, Copyright (c) 2009 Peter Weill and Jeanne Ross; All Rights Reserved.
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