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Published: April 1, 1997

 
 

The C.E.O.'s Information Technology Agenda: Seizing the Right Opportunities

Today's C.E.O.'s are facing an in-creasingly difficult set of challenges. The pressures for strong short-term earnings and enhanced stock market performance are building. At the same time, many industries are still reeling from the pains of the consolidations that occurred during the wave of major business restructurings and cost-reduction programs over the last three to five years.

To meet these pressures, C.E.O.'s have shifted the items on their agendas. In our discussions with leading C.E.O.'s around the world, we have found that they are no longer emphasizing cutting costs; instead, they are committed to growing the business. As C.E.O.'s try to transition their corporations from a cost-restructuring mind-set to one of exploiting new growth opportunities, their focus tends to be on the familiar (e.g., market share gains, globalization, new product innovations, time-to-market, customer satisfaction). Information technology (I.T.) and its potential for building advantaged, market-driving capabilities are rarely, if ever, considered as a key part of the C.E.O. agenda.

Depending upon their own experiences, most C.E.O.'s view the world of I.T. -- including such emerging technologies as enterprise-wide software, global communications infrastructures and the Internet/intranets -- with varying degrees of skepticism. The reality is that many C.E.O.'s have been burned by "big ticket" investments in I.T. projects whose promise has far outweighed the end results. Too often, C.E.O.'s and their senior management teams do not recognize value from I.T. investments for two reasons: they are not up to speed on the potential of today's information-enabled capabilities and/or -- as a result of their own organizations' track records with recent I.T. investments -- they are decidedly conservative and refuse to invest any more.

Not surprisingly, C.E.O.'s generally fall into two camps when it comes to I.T. One group focuses on keeping I.T. costs down on all fronts, while the other takes a "pay as you go" route. Although the end results differ, both approaches are inherently flawed. In the first case, the organization forgoes opportunities to build market-driving capabilities; in the second, management actually over-scrutinizes and over-manages risk on every big proj-ect with a large I.T. component.

Nevertheless, there is good I.T. news to balance the bad. Because the I.T. landscape has undergone a dramatic transformation over the last few years -- much more substantial than in the previous 20 years combined -- the good news is that the ante has been raised on the need for I.T. issues to find a home on the C.E.O. agenda. Indeed, for corporations that have not yet positioned I.T. in its appropriate place on that agenda, the downside risks are much greater than ever before.

The rationale here is simple -- I.T. investment stakes are now too high to ignore. As I.T. bets have risen to the $100 million range for many corporations, both the cost/payback opportunity and the risk/reward scales can vary widely. At the same time, the corporation's I.T. agenda has become more complicated than it used to be. The days of the singularly focused I.T. project (i.e., "just build the system") are over. I.T. is now a fundamental lever that C.E.O.'s and senior managers can deploy to effect major transformations -- whether the objective is to reduce costs or build competitive advantage via market-driving capabilities.

In short, the inconsistent levels of management attention, priority setting and scrutiny devoted to I.T. in the past are not up to the task of coping with today's I.T. investment requirements, the risk/reward profile or the scale of impact on the corporation's customers, products and capabilities.

Three key factors have been the drivers for this transformation:

The stakes that I.T. investments represent are now too high to ignore. Five years ago, a corporation's typical I.T. project mix included two or more projects in the range of $10 million to $20 million, depending upon the size of the corporation, the level of I.T. deployed and the potential for leveraging I.T. as a source of competitive advantage. Today, in the same corporations, there are much larger dollar figures attached to fewer projects; it is not uncommon now to find two or more proj-ects substantially larger than $50 million. Many corporations are pursuing single projects with price tags greater than $100 million.

The paybacks and risks of failure are now higher than ever. The new I.T. landscape can -- and should -- have a direct impact on most, if not all, of the top C.E.O. agenda items. Today's I.T. product capabilities, coupled with key market-driving capabilities (particularly those relating to globalization and time-to-market demands), can finally make good on the promise of consistent information for running the business at all levels around the world.

In a few short years, the I.T. frame of reference for business leaders has evolved from the automation of a single function, such as human resources, to the enterprise-wide level -- where the full value-chain of financial, supply chain and customer service transactions is rooted in a single network of integrated information systems. Moreover, the advent of Internet technology and its potential to build extended enterprise capabilities with customers and suppliers have raised both the potential payback and risks to a level that most C.E.O.'s and senior managers could never have imagined.

The I.T. agenda has become much more complicated. In the late 1980's and early 90's, the major thrust of I.T. agendas at most corporations was related to replacing legacy information systems and reducing associated I.T. costs. Today, the agenda has been greatly expanded as a result of several initiatives that were virtually unheard of a few short years ago. For example, enterprise-wide software, which integrates business processes across a corporation's key functions, is relatively new. But it is almost always the single most expensive and complicated I.T. initiative ever undertaken by a company; it has driven up the typical project cost-profile by 500 to 1,000 percent.

At the same time, globalization initiatives have precipitated the need to send messages and documents around the world at all times. The challenge of consolidating existing communications infrastructures while building the capability to accommodate a full-range of equipment, software and specific in-country communications structures has also contributed to the new, "fewer and larger" project mix. And once again, the advent of Internet or Web-based technology has not only spawned the knowledge management era, but it has also unleashed the huge potential inherent in the ability to communicate easily with customers and suppliers.

THE KEY ACTION STEPS

There are differing opinions on whether I.T. is now -- or even should be -- on the C.E.O. agenda. This debate has raged for more than 20 years without arriving at consensus, let alone resolution. Unfortunately, as is the case with most political and religious debates, the various positions have become deeply entrenched over the years.

But hope -- in the form of well-respected business leaders -- hovers on the horizon. Some recent, high-profile testimonials support the position that I.T. definitely is on the C.E.O. agenda. More importantly, it is not just a placeholder on the agenda, something to which the C.E.O. pays lip service. Some of the most highly respected business leaders are realizing that capitalizing on I.T. opportunities is crucial to the overall success of a corporation's key growth initiatives.

The General Electric Company's chief executive, Jack Welch, has put the proverbial stake in the ground in an extraordinarily public manner. In G.E.'s 1995 annual report, Mr. Welch characterizes I.T. as one of the top five growth initiatives that the company has ever faced: "As the millennium approaches, this company will pick up the pace ... to seize five of the biggest growth opportunities in our history: Globalization, New Products, Information Technology, Installed-Base Service and Quality."

The reality -- and importance -- of the issue notwithstanding, the real debate cannot and should not focus on reprioritizing the C.E.O. agenda. Instead, the C.E.O. must engage the organization to ascertain the current state of play on the I.T. front and to evaluate if, and where, there are real I.T. issues to be considered at the chief executive level. Generally, there's no call for debate on I.T.'s historical standing in the corporate world; a corporation's position on I.T. typically can be ascertained in less than 15 minutes with the right set of optics to guide the litmus test.

Regardless of the history, it is prudent to "take the test" and get on with curing whatever the illness might be. There are three simple questions that the C.E.O. should ask the senior management team during this testing
period:

Are we building the right set of market-driving capabilities?

The right market-driving capabilities are those in which excellence yields a sustainable competitive advantage and allows the leaders to
drive the market. Recognize that often it is as challenging to determine which core competencies the corporation must have as it is to develop and build them. Without question, I.T. is now an emerging -- if not yet a critical -- component of most market-driving capabilities.

Are we delivering I.T. services at the right level of cost and quality?

The challenge on the delivery side is to be a low-cost supplier, not necessarily the low-cost supplier. Traditional I.T. delivery components (e.g., data center operations, networks and software maintenance) are not typically market-driving capabilities in most industries. Each of these components is scale-intensive and has lower cost profiles with increased volumes. Top management will quickly ascertain the right cost versus quality level and make the appropriate trade-offs. Surprisingly, more often than not, it is not necessary to be the lowest-cost or highest-quality supplier. The real issue involves understanding the different levels and making the necessary trade-offs.

Do we have the right kind of information to manage the business effectively?

Most businesses have undergone major transformations over the past several years. The end result of many of these efforts has been the ability -- and the desire -- to look at individual business units at a very granular level of performance measurement. The focus is now on customer profitability, supplier performance, category management and the key data and processes that drive these metrics.

As the push for performance measurement and accountability becomes an agreed-upon initiative, a corporation's data and supporting processes are often unable to cope with these new reporting demands. The challenge becomes two-dimensional: to determine the right set of performance measurement reporting tools to run the business and to insure that the existing data are in the right format to be reported.

If the set of answers to these questions contains one or more "we don't know" or "no" responses, then it is highly likely that the corporation is receiving low payback, high risk and few advantaged capabilities from its I.T. investments. In other words, senior executives have either under-invested or invested unwisely in I.T., and are probably getting what they have paid for.

On the other hand, if the responses to the questions are strongly affirmative, then the corporation is either truly "best in breed" or management may not really understand what the market leaders in their industry are doing on the I.T. front. The real thrusts of this diagnostic exercise should be to understand the corporation's relative positioning and to gain a clinical view of where market leaders in the industry reside currently -- and where they are headed.

This high-level diagnostic often provides good leading indicators. Recognize, however, that these exercises are typically only directional; they don't yield much prescriptive insight. The challenge for the C.E.O. is to make sure that the organization and the senior management team are aware of both I.T.'s potential and the downside risk involved in turning around a corporation exhibiting one or more of the top-line symptoms described above.

Answering the three questions provides a simple top-down perspective that the C.E.O. should be able to use to engage the organization quickly without a lot of posturing. The first two questions can and should be viewed together if possible since, if there is a disadvantaged cost position, the potential savings can be redirected to pay for high-priority investments.

Unfortunately, many corporations are both disadvantaged on the cost side and not aligned with high-priority market-driving capabilities; this indicates overspending on the cost side that is exacerbated by a case of "throwing good money after bad," leaving the company without much to show for all the money spent.

Alternatively, some corporations are in a good I.T. cost position but will find that I.T. investments are not aligned with high-priority capabilities; these organizations will also have little to show from their existing I.T. investments. Such companies are typically unable -- or truly unwilling -- to take any risk on the I.T. front and simply are not concerned about building advantaged market-driving capabilities. This position is only sustainable for the short term -- sooner rather than later the capabilities gap will make the "catch-up" investment level required to build parity-level capabilities nearly prohibitive.

Exhibit II portrays the relative cost and alignment positions along with some typical activities required to turn around each particular situation.

Although the best first step is to understand the market leaders' track record on the critical cost, investment-return and capabilities dimensions, it is absolutely essential to have the corporation's I.T. investment priorities aligned with its own strategy. This is a two-step process requiring a thorough understanding of both the key industry dynamics and those market-driving capabilities in which the corporation can build sustainable advantage.

In reality, C.E.O.'s must beware when driving through the alignment process. One size most definitely does not fit all. What works for one corporation with its own unique competitive position, core competencies and I.T. capabilities may not work for another with similar product/service offerings and market positioning.

Indeed, the real issue for C.E.O.'s is how to build advantage in those market-driving capabilities that make the most sense for the corporation. As with any other investment decision, when dealing with I.T. investments, there are some very real constraints and unknowns to address, particularly on the returns side of the equation. More importantly, real sustainable competitive advantage is not built on superior I.T. capabilities alone. Today's successful market-driving capabilities with significant I.T. content also include a full complement of integrated strategy, organization, process and people initiatives. If it is operating in a vacuum, even the most technologically advanced I.T. program cannot fully leverage its information content -- and it will fail to deliver the desired results.

We have helped many corporations sort through major transformations in which the I.T. solution is a significant element of the change program. Quite often, the hardest part is putting the I.T. challenge in the right context on the C.E.O.'s radar screen. We have found that this process may require a major intervention -- the proverbial "burning porch" -- to get the C.E.O. and the management team to understand the urgency of the situation and to support the concept of I.T. as a major factor on the C.E.O. agenda.

Today, more than ever before, C.E.O.'s and their senior management teams are interested in understanding I.T. The size of the investment requirements, the new risk/payback profile and the potential that I.T. now realistically brings to the corporation are finally beginning to attract the senior management attention that has been sorely lacking in too many corporations for too many years.

The challenge of putting I.T. squarely on the C.E.O. agenda is likely to be the single most difficult hurdle that corporations will face in the next few years. The winners have already stepped up and made the challenge visible and real. To envision how your corporation will fare, first look at the market leaders across key industries and see how they manage I.T. Then, look in the mirror...


Authors
Charles V. Callahan, Charles V. Callahan, a vice president of Booz-Allen & Hamilton, has worked for the past 12 years with clients in the communications, media, technology and consumer-products industries to improve their return on investments in information technology and to develop new business capabilities with Internet technologies. He holds a B.S. in management science from Pennsylvania State University.
Joseph Nemec Jr., Joseph Nemec Jr. is a senior vice president of Booz-Allen and the leader of its global information technology group. During his 29 years with Booz-Allen, he has focused on helping Fortune 20 multinationals develop strategy and manage changes in organization, processes, culture and systems. Dr. Nemec earned his B.S., M.S. and Ph.D. from the Massachusetts Institute of Technology and is a member of the 81st Advanced Management Program at Harvard Business School.
 
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