Tarnished image: The state of IT credibility

It was budget time at Allied Building Products Corp., and the CEO wanted to know how the company could increase sales and profits in the coming year. "How much money do you need?" he asked his senior managers. "How many people do you need?"

"I said, 'Whatever extra dollars you would give to me, give to Jamie,' " recalls Brian Reilly, chief financial officer at Allied. "I get a better return out of money spent in Jamie's world than in mine."

Jamie Kutzer is CIO at the East Rutherford, N.J.-based company, where the CFO's extraordinary generosity with his budget is testimony to the extraordinary reputation of IT there.

Sadly, that type of relationship between IT managers and business managers is uncommon. Budget overruns and return on investment underruns have plagued IT and tarnished its reputation for decades. IT's performance has been poor in completing projects on time and within budget.

Tarnished Image
Credit: David Hollenbach
And it has grown worse during the past few years, according to research conducted by The Hackett Group in Atlanta, which regularly benchmarks the performance of nearly 2,000 companies, including 97% of the Dow Jones Industrial companies and 81% of the Fortune 100. According to Hackett, average-performing companies reported an IT project completion rate of 67% in 2002, down from 72% in 1999. The decline is more striking for the completion of one-year IT projects, which dropped from 58% in 1999 to 51% in 2002.

The Y2k nonevent, the dot-com bomb and disappointment over the cost and performance of complex systems have diminished the stature of some IT shops. Many IT leaders acknowledge that there's a credibility problem in IT. At Computerworld's Premier 100 IT Leaders conference in February, 45% of 135 survey respondents said that IT had an image problem, which they attributed mostly to IT being too slow and too expensive.

IT is a "joke" in many boardrooms, says Joe Noga, a partner at Tatum CFO Partners LLP, an Atlanta-based CFO placement company. "What I hear is, 'Holy Christmas, they told me it was only going to cost 1% of sales, and it's 4%.' Or, 'They told me this thing was going to be installed and working in 18 months, and here we are 30 months into it, and we don't have the first part working,' " Noga says. And the explanations from IT managers often aren't helpful or particularly clear, he says.

Some IT executives acknowledge that IT faces cyclical reputation and credibility problems. For example, they point to the massive amount of money and labor thrown at the year 2000 problem. Total U.S. spending on Y2k from 1997 to 2000 was $125.9 billion, Meta Group Inc. estimates.

Although many industry experts and CIOs say the paucity of problems that occurred after the date change was a result of the effort put in by IT departments, some board-level executives say they think the problem was hyped and, thus, overfunded.

"I believe that credibility has been damaged and is being justifiably questioned," says Jerry McElhatton, president of global technology and operations at MasterCard International Inc. in Purchase, N.Y. One reason, he says, is that systems are much more complex than they were 20 years ago. "These enterprise systems are massive, and they require significant infrastructure changes," he says. "It's a huge undertaking, and people just miscalculate and underestimate what it takes to get these [projects] completed."

Many companies lack the capital to invest in modernizing IT, and IT has a history of not delivering ROI on such investments. These problems "test CIO credibility in some companies," says Robert A. Kotch, president of SIM Associates Inc., an IT consulting firm in Purdys, N.Y. Others point to CIOs who persuaded management to spend lavishly during the dot-com era on e-commerce initiatives that never paid off.

Susan Unger, CIO at DaimlerChrysler AG, says that even during the height of the e-commerce boom, the automaker invested only in IT projects that were expected to deliver sizable returns. "We didn't get a huge increase in our IT budget then, so we haven't experienced a big decrease to our budget recently," she says.

For Unger, credibility depends on how CIOs have been perceived by senior management and what they have accomplished during their tenure. "If they had great credibility to begin with, they should be all right today," says Unger. "If they didn't, they probably lost it well before the dot-com era."

Chivalry Isn't Dead

Allied Building Products' IT shop wins credibility among business unit managers with a can-do spirit tempered with realism. As CFO Reilly says of CIO Kutzer: "Jamie's attitude is, 'You call me, and I'll get you the answer,' rather than 'I'll send you a report, and you run the business the best you can.' The gentleman before him promised too much, too fast, or he just said, 'You're not going to get it.' "

Not overpromising is important, Kutzer says. "Just last week, I walked into somebody's office and said, 'I'm here to manage your expectations,' " he says. Kutzer explained to the supply manager why the distribution software to be installed at a branch office was likely to be troublesome for the first three weeks. By doing so, Kutzer says he was able to help the manager set his hopes realistically.

Throwing cold water on user expectations is the right thing to do sometimes, but it can't stop there, Reilly says. "We'll go to Jamie and say, 'Here's what I'm looking for. How long will it take you?' And he says, 'How about if you did it this way instead?' He's sort of re-engineering the question." Kutzer has a strong background in business operations and distribution that helps his credibility, Reilly says.

But not everyone believes IT has a credibility problem. "I've seen a noticeable improvement in the reputation of IT and IT leaders in the past few years," says Linda Roubinek, an information systems officer at Nationwide Mutual Insurance Co. in Columbus, Ohio "IT has become more of a core competency in business, and business leaders are starting to see technology as an enabler to delivering business plans."

Roubinek outlines several things Nationwide is doing to make IT both effective and appreciated. For example, she says, the CIO introduced a "sponsorship model" by which IT and business units are joined at the hip before a project starts. "Funding is agreed upon between the systems and business partners, and they go together to our corporate leadership for the money," she says. "They collaboratively work out what the ROI is and the goals of the project before requesting funding."

Every six months, Roubinek says, the IT and business partners take a fresh look at each project, recompute the expected ROI and request funding for the next six months. Risk mitigation plans are updated at that time. Any project heading south could get killed at one of these reviews. "We have developed the managerial courage to stop a project when we feel it's not meeting our original expectations," she says.

Corporate Systems Vice President Damien Bean's strategy for success at Hilton Hotels Corp. in Beverly Hills, Calif., can be summed up in one word: discipline. "We run IT like a business," he says. "The entire IT budget -- every last cent -- is funded out of the business side, and we charge back. We absolutely hit our budgets. We are very disciplined, and we deliver what we promise."

Bean puts the issue of IT's reputation into perspective: "I don't think IT executives are suffering a credibility gap more than any other senior function." He says if IT deserves a hit for its role in the excesses of the late 1990s, financial executives deserve it even more.

One way to elevate the stature of IT inside a company may be to outsource the commodity functions and retain the strategic ones. Owens & Minor Inc., a Richmond, Va.-based medical supplies distributor, has outsourced day-to-day IT development and operations to Perot Systems Corp. What remains is a small CIO office. Populated by a dozen people who act as links with the business units, the office "steers IT in the direction we need to go," says Don Stoller, director of information management. Stoller says Perot Systems gives him more flexibility to get the right skills for projects. "I don't know if we could have maintained the credibility, and the delivery of projects, without outsourcing," he says.

So while IT remains in the doghouse at many companies, IT managers elsewhere have employed a variety of strategies to win respect. The most successful ones say there is just no substitute for quality work delivered on time and on budget.


Copyright © 2003 IDG Communications, Inc.

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