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Transforming IT. (This Quarter).

After spending more than $1.2 trillion on information technology products and services during the late 1990s, companies are slashing their IT budgets. In today's harsh climate, pressure to meet current earnings inspires much of this cost cutting, but many executives, believing that their organizations gained little or no value from some of the systems installed during the great technology binge, are reluctant to send good money after bad.

Overinvesting in IT does conceal a deeper problem: many companies are undermanaging technology by using outdated frameworks, processes, and controls--legacies from the time when the IT organization was just a support function--to decide which systems to invest in and how to install them. Today, technology lies at the strategic heart of the business, so there are more choices to sort through, more complex issues to consider, and more risks to fear.

Prudence in spending should be just the start of reform. Companies must understand where technology can deliver real value, not just marginal benefits. A few companies, such as Charles Schwab, Dell Computer, and WalMart, did gain tremendous value from their investments during the bubble years by focusing on the specific productivity drivers of their sectors, suggest James M. Manyika and T. Michael Nevens in "Technology after the bubble." As others learn this lesson, the way they buy and IT providers sell technology will change. At present, note the authors, buyers are seeking ways to get value from their existing investments; in the longer term, they will invest in IT more judiciously to transform rather than merely operate their businesses.

Many companies will also have to rethink their expectations and narrow the scope of their projects. In "How to rescue CRM," Manuel Ebner, Arthur Hu, Daniel Levitt, and Jim McCrory suggest ways of turning around one of the many popular enterprise systems that have proved difficult to implement. Wendy M. Becker, Luis Enriquez, and Lila J. Snyder, in "Reprogramming European cable," examine how European cable companies, having invested to meet demand that disappeared along with the bubble, can save their skins.

Now some good news: companies will emerge from the postbubble gloom much smarter about the way they use IT. And when they do, as John Hagel III notes in "Edging into Web services," new technologies that spring from the Internet will make it easier for them to collaborate with their business partners and to connect with their customers. He expects companies to get real value from this new approach quickly by using it to make their purchasing and customer service functions more profitable in the short run and to position themselves now for strategic rewards in the future.

The common thread of this issue is the need for business leaders and technology managers to collaborate more closely--a development long recognized as important but still rare in practice. Most companies have failed to create true partnerships of this kind, because IT units often report only to the chief information officer, while business leaders have no incentive to run IT with the same rigor they bring to running the business, say Dan Lohmeyer, Sofya Pogreb, and Scott Robinson in "Who's accountable for IT?" If companies really hope to become smarter about technology, they should make their business leaders accountable for getting results from IT investments and make their IT managers accountable for the performance of the business.

Frank Mattern, Director, Business Technology Office.
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Title Annotation:need for better collaboration between business leaders and technology managers
Author:Mattern, Frank
Publication:The McKinsey Quarterly
Geographic Code:1USA
Date:Dec 22, 2002
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