Pulling IT All Together

  • Pulling IT All Together

Jeanne W. Ross, Ph.D., is director and principal research scientist at the MIT Sloan School of Management's Center for Information Systems Research (CISR). Her research examines organizational and performance issues related to IT governance, outsourcing, and business agility. Her latest book, "IT Savvy: What Top Executives Must Know to Go from Pain to Gain," co-authored with CISR Chairman Peter Weill, was published in 2009 by Harvard Business Press.

How does your latest book fit in with your prior work?

It's a summary of research we've been doing since 1995. We've taken the key ideas and boiled them down for non-IT executives. We want to help them learn how to use and manage IT more effectively in their organizations.

What does it mean to be an IT-savvy company?

IT savvy is a characteristic of firms and their managers, which is reflected in their ability to use IT to consistently elevate the organization's performance. IT-savvy firms distinguish themselves from others by building a digitized platform of business processes, IT systems, and data to help them execute their operating strategy. This platform not only utilizes IT capability to repeatedly execute business processes, but it also provides the information to identify where future profitable growth will come from. Then, with marginal investment, these firms create the new products and services that are faster to market because they reuse the platform.

What is the business value of being IT savvy?

Our research shows that IT-savvy firms are 20 percent more profitable than their competitors are. And they spend as little as 50 percent of their IT budgets on operating and maintaining their current systems, whereas the average company spends 71 percent, and many firms spend up to 80 percent. This leaves IT with more resources to fund new business initiatives.

You advocate for IT to play a larger role in business planning and operations.

Absolutely. IT units have never struggled at delivering things. But not everything IT is asked to deliver is of value. It may be technically sound and potentially useful, but if IT doesn't help the organization to change, all you've added is cost. IT-savvy organizations understand that how they spend their IT dollars is more important than how many IT dollars they spend. When they request IT tools or services, they need to first understand how these requests will add value to the organization.

How does it happen that IT-savvy companies know to do this?

It's how they do everything. Before they invest in people, they ask, "How are we going to invest wisely so that we get good value for us and for our people?" Before they invest in new facilities or equipment, they ask, "Why are we doing this? What's the desired impact on the organization?" You don't see companies that are great at IT but terrible at everything else. And you don't see companies that are great at everything except IT. We can go out to any top-performing organizations, and I'll bet they're doing a lot of things right with IT.

Where do you start with the non-IT-savvy company that knows it has a problem but doesn't know the way forward?

There are two things to think about. The first is to ask, "How do we want to operate?" You can't just build a little IT here and a little IT there because there's this thing you want to do and that thing you want to do; that will just leave you with all these little siloed things you can do. Incredibly, many executives don't answer that question. If they knew how they fundamentally wanted to operate, then they would better understand their IT priorities.

The other thing is to start thinking about how decisions are made around IT. You can't let those who scream the loudest influence how IT dollars are spent.

You discuss decision-making in your chapter on IT governance.

That was the hardest chapter to write. It's a difficult topic, and in most organizations, there's not a lot of clarity. The concept of governance is that we're going to be very clear about who gets to make IT decisions, how to assess the ultimate value gained from those decisions, andthis is really hard, so we often forget to do itwho's going to be held accountable. All this needs to be very transparent in the organization.

How does moving to a digitized platform help eliminate IT and process stovepipes?

Often people want to have a different operating model for every process. But if you say, "I want to do marketing this way, and production this way, and logistics this way," you haven't told me what defines you. You haven't told me how you fundamentally want to operate. You haven't set priorities. Each process may be very good on its own, but without process integration, you don't get the change or the value you need from your IT investments.

How do you define priorities for creating a digitized platform?

You first have to figure out which processes you're going to integrate, depending on your operational priorities. These could be order-to-cash, make-to-ship, or problem-to-resolution. Companies that are focused on their people might identify hire-to-retire issues. And, you have to be strategic: Some processes are easily integrated but not very valuable. Others are hard to integrate, but offer the potential to inform decision makers at all levels of an organization. Typically, these latter opportunities will add the most value.

Once you identify your priorities, the hard part is to take these end-to-end processes which invariably belong to multiple functions, or differ from one business unit to the nextand standardize them for the entire organization. That's where technology can only do so much, and leadership has to take over.

Who leads the effort to become IT savvy? The CEO, the CIO, or someone else?

Effective leadership is critical. Someone has to be at the senior management table saying, "Technology is an important component," but it doesn't matter who is leading the charge so long as they can see it through. Anyone with the ability to think strategically, who understands what technology can and cannot do, who has good communication skills and a little charisma, can provide the leadership so long as he or she can rally management behind the effort to become more digital.

How is value measured in an IT-savvy organization?

What underlies real value is the ability to use your information well. Just because you have better data doesn't mean you will make better decisions. One company that does a great job in this area is Seven-Eleven Japan. They understand that to make money, they need to turn inventory quickly. So how do you do that at 11,000 stores? It's not by having headquarters decide what's in each store. It's by helping people in the stores make good decisions about what should be stocked on the shelves.

Seven-Eleven Japan does that by feeding store managers information on what sold yesterday, what sold last year, and what's selling at other stores. And twice a week, a consultant visits each store to go over what's selling and what isn't, and what to do about it. So it's not just sending out data and expecting great results, it's helping people use the data effectively.

Where does cultural change come in?

When firms recognize that they want to function in a digital economy, they also recognize that some things just ought to be automated, and they start making that connection. And it involves letting go of how things have been done in the past. Proctor & Gamble (P&G) is an interesting example. This is a firm where brand managers are told to do whatever is needed to make money: Take that product, market it, develop a pipeline, do great things. But the company then said, "Oh, we also have to save money, so we're going to grab some of the things you do and we're going to do them for you."

The immediate reaction from all these autonomous brand managers was huge resistance. And it's not just at P&G: It happens at every company we've watched. But after they get over it, they recognize, "My goodness. All this silly stuff is not my problem anymore." And the next thing you know, they're saying, "Yo, management. Take this, too. I don't need this." Over time, P&G created 70 shared services, and that number is growing.

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