Robert Kugel's Analyst Perspectives

The business/IT divide is a barrier that prevents most companies from achieving their true performance potential. The divide has remained a constant impediment since the dawn of business computing six decades ago. It’s not necessary for a CEO of a company to be able to write Java code or master the intricacies of an ERP or sales compensation application. However, that CEO must master the basics of IT just as he must understand basic corporate finance, the production process and – at least at a high level – the technologies that support that process. Only a handful of business schools give prospective MBAs a good grounding in the practical elements of information technology or preach the necessity of mastering an understanding of IT as they would, say, the efficient market hypothesis.

CEOs and other senior executives (such as the heads of sales, finance and manufacturing, to name three) by necessity have limited time to spend on understanding the opportunities and challenges in using IT strategically. They likely rely on their CIO or IT consultants for this. However, I think every senior executive must know certain essential aspects of IT. This post, the first in a series, will briefly cover the overarching approach to IT. Later posts will discuss important supporting technologies and today’s essential software categories. Each of these subjects is worthy of a chapter-length discussion or indeed a book; what follows is the “elevator pitch” version.

The most essential overarching question a senior executive needs to ask is, “How strategic should IT be to my company?” I think the answer depends on several considerations.

One such consideration, the strategic importance of IT to a particular industry, is essentially a given. If market leaders are innovative in the use of IT to drive and support many or all aspects of the business (such as marketing, sales, production, logistics and product development, to name some of the more common ones), it’s likely that every company in the same business will at least need to match these capabilities.

If no clear leader uses IT for differentiation, another consideration is what opportunities exist to employ information technology in any aspect of the business to gain a competitive advantage.

A third consideration is the attitude of executives and the board of directors to IT. If the culture of a company is dismissive of the value of IT, then it’s unlikely that IT can play a major role until and unless there is a change in attitude. It may not be enough that a market leader owes its position to better use of IT, and that an outside consultant has identified how to address gaps in the use of IT to enhance competitiveness. If the executives believe the company’s success rests solely on, say, superior merchandizing or advanced production, and that IT is just some tool for recording the details, it’s unlikely they will do much more than go through the motions of embracing information technology as a strategic tool. Companies get the IT departments they deserve. CEOs who think IT is unimportant probably cannot attract or retain top-shelf IT talent, who go where they are most appreciated.

The matter of how to use IT strategically in the business is a question that every senior executive must consider formally at least annually and optimally on a quarterly basis. This consideration needn’t go into a great deal of depth or require a multi-day offsite gathering. An hour or so to consider what’s possible and to delegate followups should be sufficient. A consistent, periodic approach produces better results than an ad-hoc one.

While high-level strategy is the most basic overarching issue, managing the low-level details is not far behind. Effective data management is a core capability almost as important as the ability to manage cash (either the physical stuff or the bank balances). Our research consistently shows that managing data is a challenge for companies, and the magnitude of the challenge multiplies with the size of the organization. Data management is critical regardless of where a company decides to put IT on the strategic scale. One reason why companies find it challenging is that few pay sufficient attention to managing it, and it’s nobody’s responsibility. Nobody wants to do it because it’s a very dull job. However, someone in the IT organization, not just the CIO, must have responsibility for data management, someone must establish performance metrics for it and the company must fund efforts to improve it.

A third overarching need is having someone with a good grasp both the business and information technology to bridge the business/IT divide. This individual should lead a cross-functional group that sets the direction of the strategy for using IT to improve corporate competitiveness and performance. It’s hard to say who this individual might be because in my experience it’s hard to find someone who understands both business and IT in sufficient depth. It might be the CIO if that individual understands the business end. It could be someone in a more junior position in finance or marketing or some other role. Taking the role of facilitator could be a career-building step for them. However, this is not a full-time position and it should not be treated as one. The company may consider bringing in an outside consultant, but if it does, that person should have no vested interest in actually implementing something, since those people have their own agendas and are more likely to focus on their areas of self-interest. Separating the guiding and assessing from the implementing and doing may seem inefficient or an invitation to pie-in-the-sky solutions, but it probably will save money, and whoever a company hires should demonstrate a flair for the practical.

These are the three overarching issues that each CEO should formally address on an ongoing basis with respect to his company’s use of IT. If they are not already doing so, everyone running a company needs to carve out time from their already overloaded schedules to better understand and manage the information technology dimension of their business. Over the past 60-odd years, IT has grown in its importance to the daily functioning of a business and increasingly has become a means of competitive differentiation. Technology continues to advance, bringing threats and opportunities. CEOs must stay on top of how IT can serve their businesses.

Regards,

Robert Kugel – SVP Research