Falling toward the bottom line.
Bruce E. Fad
Over the past few years, chief information officers have been under increased pressure to show how information technology expense translates to a perceived value in the business enterprise. It is not surprising that many a CIO, brought in to modernize IT, has succumbed to the bottom line. No mention of value is ever far removed from the phrase 'performance at lower cost.'
I know a retired Air Force major who spent 20 years in the service. His career included many years of involvement with NASA and the space program. To him, the most exciting times of his career were the early breakneck-pace years of the manned space program, before the throttling effects of uniformity and affordability set in.
He used to say, 'After you show that great strides are possible, you often need to step back to address the practical value of your proud achievements.' Whether the results are putting a man on the moon or a mouse on the desktop, every new technology seems to undergo a life cycle of rapid and exciting, yet costly, testing and development followed by a more mundane period of maturity with an eye on the all-important budget.
According to the Gartner Group, information systems technology today is without the standards needed to achieve stability, much less a sense of permanence. Most decisions about IT investment today conform to the '3/24 rule': expect to replace the newly installed system in three years and expect to derive fiscal benefits from the new system in 24 months.
The traditional IS organization concentrates IT in a central organization overseeing all IS functions of the enterprise. Individual business units may have local IT groups, but they function as field offices of the central IT organization.
The industry is shifting toward viewing IS itself as a business unit. The CIO of each business unit draws from an IT service business (which is itself a business unit) for solutions, and the IT service is evaluated like all other enterprise business units. The emphasis is on time to provide unique solutions for each business unit. Sixty percent of businesses will run IS with this mode in three years, according to a recent survey by the Gartner Group, whereas less than one in five enterprises will continue with the traditional setup.
Of course, there is a problem with this emerging model: who pays for the IT and how? Those managing IT projects must develop critical skills in areas like distributed budgeting and costing at the unit level, performance measurement, and risk analysis. These skills hinge on realistic business forecasting.
Like it or not, IT leaders will either be skilled estimators and forecasters of all budgetary aspects of projects - effort, cost staffing, and schedule - or they won't be IT leaders.
The business objectives of the IT-as-a business-unit model are fundamentally the same as those of every other business unit: better, faster, cheaper. This result doesn't usually happen by accident. Achieving better, faster, cheaper also requires risk taking - today's problems are not as simple as yesterday's, and tomorrow's will be even more complex.
The trend towards treating IS as a product, and those responsible for that product as a business unit, has the distinct smell of maturation. Although technology development will continue to be an important aspect of IT maturation, it appears that the reins of business process are imposing more constraints on development.
The Gartner Group survey says all IT decisions during the next five years will be a compromise. Risk-based decisions are replacing ROI-based decisions in reaching compromise. Certainly, any risk analysis will include the important variables of return (or value) and investment (expense), but they will be expressed over a range of possibilities.
The emerging new model of IS as a business unit pushes the conduct of risk analysis and compromise down through all management levels from CIO to group leader. Every IS leader must develop the thinking skills for effective compromise, with results that won't be comfortably predictable.
Information uncertainty is nothing new to IS decision making, but the sense of accountability that comes from operating as a business unit is. The CEOs and boards of today are less likely to forgive system incompatibilities and unsupported products than they were a few years ago.
Fad is manager of business development for Price Systems, Mount Laurel, N.J., a developer of parametric forecasting tools, and a member of the Lockheed Martin family of companies.
|Printer friendly Cite/link Email Feedback|
|Title Annotation:||Industry Trend or Event|
|Author:||Fad, Bruce E.|
|Date:||Oct 1, 1998|
|Previous Article:||The science of call center management.|
|Tax Planning Gains Resources: KPMG.|
|CEOs concerned with energy.|
|Fads, foods and flops.|