Blogging Note:  Like Gary Trudeau I am taking a week off from blogging, but I would like to share a past post that may be helpful. The origional posts were made in the Summer of 2009, but much of their points remain true.  I have made links to the original posts to make it easy to navigate to the details for each item.

12 things every business needs to know about IT

“If only the business understood IT, then the company would get move value out of IT.”  This statement is a common belief among IT professionals.  Understanding begins with the basics, framed in a language that is acceptable to the audience rather than the teacher.

A company has difficulty understanding IT in the language that IT speaks: applications, databases, technologies, etc.  But, what language do executives and managers use to understand something and its role in the company.  The answer is straightforward, think back to the last time you were at a party and someone asked you/or you asked someone “What do you do?”  Chances you talked about your job title, role and position in the organization.

Talking about IT using the language of organization, its role, what it does, position, etc provides a starting point for teaching the business about IT.  Using this staring point here are a twelve things that every business leader needs to know about IT.

#1 – IT is horizontal. This item points to the particular or peculiar position (depending on your point of view) that IT holds in an enterprise.  Effective enterprises take advantage of that horizontal nature to drive proven practices and integration across the enterprise.  Less effective organizations struggle with IT’s lateral nature, which often arises, at budgeting and funding times as everyone benefits from IT but no one wants to pay for it.

#2 – IT is a hybrid organization. This item, compounding with the first, makes IT a mystery to many executives.  The hybrid nature of IT is its role in both current operations and future transformation projects.  Effective enterprises recognize both roles and manage these roles differently.  Other organizations are frustrated by these roles either seesawing between cycles of development and operations, or by separating the two functions into entirely different organizations.

#3 – IT is part of a capability. Technology has been an end to itself for more than 30 years and effective organizations understand the fallacy of that belief.  They look to change technology in coordination with information, business process and human capital.  The old adage of ‘people, process and technology’ is well worn and sometimes trite, but effective organizations understand its meaning while others only hear rhetoric.

#4 – IT applies information to replace cash, capital and operations.  Effective organizations recognize that they manage assets that go beyond their balance sheet.  They target information as a tool for cycle time, quality and operational performance improvements.  Others view information as a resource to be hoarded, often in data ‘warehouses’.  Effective organizations see information as a resource to be applied to raise business performance.

#5 – IT is complex because the business is complex.  This notion is lost on many executives both in IT and the rest of the enterprise.  They see complexity as an intrinsic quality, one that cannot be readily controlled.  Effective organizations work to make themselves complex where it matters and simple everywhere else.  This means that they leverage IT as part of a capability and look to change more than just systems when they transform their enterprises.

#6 – Executives can easily misapply IT. Take the first five items together and it is easy to see how executives and IT professionals can get IT that is costly, inflexible and delivers a mixed level of services.  Effective organizations have a clear Information strategy, understand customer and market expectations and most importantly communicate those expectations clearly across the enterprise.

#7 – Executives misunderstand IT in strategy. The elements of corporate strategy involve decisions regarding the competitive nature of the enterprise, its products and markets.  Given that view, it’s easy for executives to think of something that is operational in nature – like IT – to be something that is supportive but not necessarily strategic.  Effective enterprises understand the connections that translate strategic intent into operational performance and build upon traditional classic strategies to derive approaches that leverage all elements of a capability.

#8 – IT can evolve faster than management thinking. The truth of this statement is behind the ‘lag’ that many report between the adoption of new technologies and the benefits realized from those investments.  That lag has been the excuse for poor results in ERP, CRM, SCM and other technology investments.  Effective enterprises apply IT in coordination with changes in the way they manage and work across the enterprise.  They invest in management capability at the same time as technology capability.

#9 – IT plays different roles in different companies and industries.  True enough but too often the cost, uncertain value, and complexity of IT driven by the other items on this list have led executives to adopt ‘industry standard solutions.”  Effective enterprises follow that same path, but they leverage item #3 and change the other aspects of a capability to create competitive advantage.

#10 – IT financials require improvement. Effective enterprises right now are looking for better alternatives to funding IT given its horizontal #1 and hybrid #2 nature.  Allocating IT budgets, chargeback, project Roy’s are all methods that are nearing the end of their useful life.  Check this space for future innovations.

#11 – IT requires ongoing investment in its core, like other operations, just faster.  Effective enterprises recognize the power behind Moore’s law and the need to invest in IT as an operational resource, the same as their supply chain, sales force etc.  Effective enterprises invest more in IT because they see the results of IT

#12 – IT effectiveness and business effectiveness are linked. The real reason that business leaders need to know about IT is that IT is an important part of any effective business.  While that sounds like a claim that is more often opinion than observation, it is something that we have been studying at Gartner Executive Programs for some time.  The good news is that the two are related.  The better news is that we can quantify the difference between high and low effectiveness performers.  The best news is that IT effectiveness matters, it is linked to enterprise effectiveness and this makes all the other 11 things meaningful.

I have no issue with the metric itself.  Its clear, easy to calculate and it has an intuitive simplicity that says that there should have some meaning to it.  Unfortunately, being easy to calculate does not mean that the metric has any value in making management decisions.

IT spend to revenue is of less use (useless) to management because its one sided – on the downside.  Here is what I mean.

CIOs with an IT spend to revenue ratio about the industry average quickly find themselves forces to cut/restructure the IT budget to bring it into line with the industry average.  IT is a luxury in this case and IT budgets are fat because the IT budget is above the industry average.  We can debate the merits of such a management shortcut in another post.

CIOs with an IT spend to revenue ration below the industry average however, do not find themselves getting greater budget increases to bring them into line with the industry.  No these CIOs are rewarded by keeping the undersized budgets while executives see firms more invested in IT as being the ones at a disadvantage or uninformed.

See the one sided nature of the metric.

A good metric provides information that informs a decision that could go either way.  In this case, it is all one way – in favor of being at or below the industry average.

This metric is pernicious for another reason, namely that when sales go up, the IT budget is not allowed to expand at the same rate as sales.  Here the CFO states that IT is a source of leverage and it should not rise as fast as sales.  If there is not upside to the metric then the downside bias shows itself again.

Finally metric is increasingly irrelevant in terms of managing IT or managing sales for several reasons.

• First, IT transaction volumes have largely divorced themselves from revenue levels since the widespread use of customer and supplier Internet portals in 2003.  I talked about this in an early post about a capacity gap.    But the point is clear, there is little to say that IT resource demand increases at the same or greater rates because of sales growth.

• Second, sales revenues do not drive IT spend.  IT spend is more driven by your choices about product, process, organization, and customer views as well as service levels, structural costs, and contracting terms which all have little to do with sales.

• Finally, there is little causality at best, between sales levels and IT.  Sure when IT systems fail it’s tough to book revenue, but there is no general relationship between changes in IT spend and changes in sales levels.  IT spend is not like marketing or sales spend in this regard.

So what are we to do?

We need to recognize that the metric has no meaning because the numerator does not influence the denominator.  You might as well measure the weight of the Board of Directors and compare it to changes in sales – they have the same ‘connective’ logic between them.

Replace IT budget / revenue with a metric that has meaning – like IT headcount to Free Cash Flow.  That is a metric one CIO is using and it makes more sense because it can be managed.

Measure IT headcount because more than 70% of most IT budgets are already contractually committed – effectively removing them for short-term management changes.  IT headcount is the result of factors the CIO can control, like the level of automation, the skill of their people, the structure of their operations and the nature of their IT investment budget.

Free cash flow is a better numerator, as it is more indicative of a company’s health.  Management can influence free cash slow and manage it to some extent in either a strong or weak economies.  Case in point; look at organizations building cash in the recession.  Free cash flow is also something that IT can influence as IT systems integrate process and information flows which improves end-to-end process and cash performance.

I know it is harder to measure, free cash flow and IT headcount, but it should produce a clearer signal and inform better management decisions and actions.

One final note, remember that the value of IT exists through time, so any measure of IT should be shown across time – usually via a control chart to separate the true performance signal from day to day operational noise.

First kill all the metrics, starting with IT budget as a percent of revenue or sales.

It is hard to criticize a book dedicated to looking at the challenges facing IT leaders on a personal and professional level. The goal of Adventures of an IT Leader are admirable, present IT in a human light using a combination of techniques from Goldratt’s business novel classic “The Goal” to the case studies that are featured monthly in the Harvard Business Review.

The authors clearly know their stuff. Unfortunately, in my opinion, the authors have not been able to translate that knowledge into an effective business/IT book. While this book is interesting, well written and flows pretty good it does not provide the busienss person — particularly one with a jaundiced view if IT, or the IT professional with the insights needed to change their circumstances.

The book seems to be written for the business person to help them understand IT. The protagonist Jim Barton is a business leader asked to assume the role of CIO without any technical experience. This again is a great goal, however there are some significant issues in the book.

I do not recommend this book be given by an IT professional to a business executive. Particularly if you want to show a business person what life in IT is all about.

Furthermore I would not recommend a business person read this book in an attempt to learn what IT is all about.

While these recommendations are harsh here are my reasons:

1. A business reader can easily interpret the book as making IT look incompetent, from managers who do not understand what their staff do (Chapter 3) to their inability to control major projects (Chapter 7), to their in ability to protect the company (Chapter 11).

2. From a business perspective, the book resolves every IT issue with spending more money. Sure the leader shuts down a project, only to pay $3 million and get nothing, then have to start the project up all over again for more money. The solution pattern offered in the book could easily support business suspicions that IT is about spending money than creating value.

3. IT people may play well with each other but play poorly with the business. The major project (Chapter 7) that was led by the business is cancelled and pulled back up under IT. The new CIO takes over responsibility for the IT budget across the enterprise – because they cannot get infrastructure projects funded. The business and IT cannot agree on the status of projects, turning a meeting into a finger pointing session led by the IT person (Chapter 6)

4. The book brushes past major concepts and challenges in IT with short and passing explanations. Terms like shared service, web 2.0, and infrastructure are discussed in passing which undercuts their importance to the business and the future of IT.

5. That you only have to be a CIO for a year, one in which you handle a crisis but do not seem to deliver any major value, and that you will get your dream job and move up to COO at a bigger company. I know the authors had to end the book, but ending on such a triumphal note when the performance during the year was mediocre at best sends the wrong message to the business reader.

CIOs in real life who work hard, face real challenges, and make real progress. The book does not show much of this. They also have the job an average of 4 years not 365 day wonders. Its true that this is a business fable, but if you are trying to educate people even fables have significant grains of truth to them.

There are other books that describe IT better ranging from “IT Savvy” (Weill and Ross), “The New CIO Leader” (Broadbent and Kitzis), “Straight to the Top” (Smith) among others.

The authors do a good job of sequencing a set of events that IT leaders will recognize: runaway projects, de-motivated staff, security issues, etc. While this book is ok for IT people to read, it does not put these challenges in a particularly interesting light or an environment where new concepts and approaches can be illustrated.

IT professionals will recognize this environment and say that is accurate. That is a good thing. However, the book is not the story of an IT turnaround – rather it is a descriptive story based on the new CIO lurching between IT topic areas (Cost/Value, Project Management, Runaway Projects, IT Priorities/governance, IT and the board) rather than discussing the combination of things that raise IT performance. The authors have drained the story of suspense, decisions, actions and results that are essential in using the business novel format.

IVK – the fictional loan/mortgage originating financial services company has all the characteristics of a poorly run IT shop: lack of standards, a hero culture focused around the CISO, good people in management roles who seemed outgunned. While Barton, the new CIO builds up a white board with key ideas; these ideas are more accumulated than implemented. The result is an IT shop that is more transformed by events than by management and leadership.

The book uses these circumstances to introduce and review concepts that were developed several years ago such as Death march projects, power maps, IT portfolios, etc. Many of these tools are self referential as coming from the Cutter Consortium – the home of one of the three authors. IT professionals will recognize these techniques as they are well established. They will learn little from them as they are not exercised in the text – merely catalogued and described with partial samples attached at the end of some chapters.

I kept reading this book, hoping that it would get better as I agree with the premise and the need to build bridges across IT and the rest of the enterprise. Unfortunately in my experience and from reading this book – I can see where it can do more harm than good — particularly as a tool to help business people understand IT.

Sorry for such a critical review. I am not trying to bash the book, but when I look at it from a business perspective I see it doing more harm than help. I hope that I have explained the reasons behind my rating in this review.

Review also posted to Amazon at: http://tinyurl.com/nub7bg

It is more important that IT understand the business.  The reason is simple; IT cannot be successful in an unsuccessful business.  Business knowledge is situational making knowledge of your enterprise more valuable than general trends or ideas.  

With that in mind, here are a dozen things that every IT professional must know about their enterprise.

1)   Realize that the enterprise has choice in terms of who, how and where they get their IT.  This is a new one and one that undermines many of the core practices in IT.  The internal IT organization is no longer the only game in town and more competitors are coming (Cloud, Software as a service, Social Computing, etc).  If you do not become the object of choice in your enterprise, then do not be surprised when the enterprise does not choose you.

2)   Know how your business peers make the money that pays for your projects and salaries.  That sounds harsh but its true.  Unless you carry revenue responsibility you are not ‘making the rain that waters the company.’  You believe IT understands the business better than the business, but it’s the business that turns their knowledge into profit.

3)   Know how your enterprise makes money or delivers its mission.  There are thousands of ways to be successful-which ones are at the core of your enterprise?  IT people need to know the foundation of your economic model and what defines success.  Are you high volume/low value, customer intimate, low volume/high ere value?  If you do not know this then you only know the technology.

4)   Recognize that an executive’s number one priority really is #1.  IT professionals praise their ability to multi-task viewing it as a form of productivity.  In the business, multi-tasking is ok provided you deliver on your priorities.  So IT professionals need to know the executives top priority, deliver to it, not be surprised when the downgrade things to get to #1 and

5)   Know the business need(s) you are addressing in your project, your operational responsibilities, your service etc.  A business need defines why you are doing something.  A need can be a problem or an opportunity that defines the value you are delivering.  If you do not know the need then you are working at a task rather than creating results.

6)   Know the way things get done in the enterprise, the social systems and influence networks that define where attention goes and action comes from.  As they say, you can’t know the game until you know the players.  This factor increases in importance the higher up the organization you go.

7)   Remember what defines success in the enterprise.  There are many ways to define, declare and measure success.  Knowing what success looks like from a business, technical, process; financial and social perspective is the first step in building success.

8)   Realize that when executives can’t see value, the only thing they can manage is cost.  Business leaders drive much of their cost based discussions about IT because they cannot see the value.  So when IT presents the business with a ‘bill’ for service they naturally ask, what did I get for it?  If you are good at item #5 you can describe the value.  If you cannot then there is nothing else to talk about but why it is so expensive.

9)   Realize that when you talk of the ‘Business and IT’ you divide the enterprise and puts IT in a pejorative position.  Language is important.  The word ‘and’ is normally inclusive connecting two different groups ala peas and carrots, soap and water.  However when IT uses ‘and’ the emphasis is on placing the word between itself and the rest of the enterprise separating the two as if they are not part of the same system.   IT and the business = us and them.

10)  Admit to the fact that there are still IT projects.  IT professionals like to say that ‘there are no IT projects, only business projects’, but that is not always the case.  There are many IT projects that have limited or low business value.  That is ok, don’t try to puff these projects up into something they are not – it damages your credibility.  Rather recognize the IT projects and execute them as quickly and cheaply as possible.

11) Consider that when you tout the hero you tell others that your organization is a zero.  IT is complex.  Stress levels soar when IT does not work.  This creates an environment that rewards the hero who saves the day.  Recognize that heroes are fine for telling stories.  But if you need them to operate, then you do not have a sustainable organization and therefore the business or anyone else cannot rely on you or your team.

12) Have confidence in IT’s contribution to enterprise performance.  The notion that IT is a commodity gets plenty of attention and a self-fulfilling prophecy as soon as you believe it.  If my organization knows the other 11 things in this list and uses them every day to focus on value, create success and delivering results you are contributing rather than commoditizing.

Know the business so you can know your role and contribution.  While there are more than 12 specific things you need to know, this list provides a start for building the core of your personal and organizational knowledge.  These things should serve as a reminder as I am sure that many of you already know the enterprise.  If you are lacking in a particular area, that is ok because I am sure that there will be someone in the business who will be glad to offer their insight and or opinion.