Mark McDonald

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Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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#9 IT plays different roles in different companies and industries – twelve things every business leader should know about IT

by Mark P. McDonald  |  April 8, 2009  |  2 Comments

Overhearing executives talk about IT and it quickly becomes apparent that they believe that all IT is pretty much the same.  Your IT is the same as my IT, should be funded the same, managed the same, thought of as the same.  With one exception – the IT that they use or the IT that immediately touches their scope of responsibility.  That IT is either an important part of their business, or it’s the reason why they are underperforming.

The IT that is outside of their immediate world is generic to them — its all the same.

Executives intellectually understand that IT plays different roles in different industries, but emotionally and financially they behave as if IT were an ‘it’ – generic non-descript think, devoid of personality or gender.  They express this sentiment when they ask the following types of questions about IT:

  • What is IT spend as a percentage of company revenue and w in the company and how does that compare with others in the industry?
  • Who else in my industry is using a particular solution and what results are they getting?
  • What do I actually get from IT?
  • How does IT contribute to competitive advantage, how is it strategic?

When executives reduce IT down to a set of budget figure, expenditure, a basis for comparison with others, those are signals that they are applying a generic framework to looking at IT and that is a warning sign. 

CIOs need to clearly connect the enterprise’s IT with the core of its operations, economic model, business model and financial structure.  These connections are not the normal “alignment” discussions, no these connections demonstrate two important things:

One, that modern business in its scope, scale, pace of change is impossible without IT and,

Two that the way your enterprise creates value – the way it makes money would be dramatically different with different types of IT.

The essence of these points is simple, IT is not the same company to company or even within an industry, rather that if the enterprise is unique, then its IT must also be unique, unique in some way that actually matters.

If IT is generic, if its used the same way as other companies, then its not IT that is the commodity, the company is the commodity.  Consider the dire warnings about how the implementation of the same ERP system across the major players in an industry was going to eliminate competition.  It did not happen, sure they gained benefits from standardization, greater collaboration, etc. but they did not surrender the competitive nature because they had the same IT.

So What?

IT being different in different companies and industries is critical for IT to delivering strategic value.  When CIOs and IT executives talk about standard solutions, how they are following proven practice, trying to do what others have done in their industry, they are undercutting IT’s strategic relevance. 

This is not a sermon, but rather it is a recognition that executives need to reposition information and technology needs to be repositioned in the enterprise.  CIOs and IT executives can do this through:

  • Connect information and technology with the operations.  Start with a top-level view of your applications – the major ones that drive your budget.  Then walk through the major business processes in your company.  You can do this using PowerPoint.  Highlight how each of these major systems ‘light up’ across the major business processes.  The goal is to connect show how IT is integral to operations. 

Executives who understand the connection between business flows and technology flows are better able to see opportunities to do both differently.  Thanks to Ellen Berry at the Metropolitan Pier and Exposition Authority in Chicago for sharing this approach as a way to brief new executives.

  • Ground technology in the economic model of the company by answering the question – how do we make money?  What are the decisions, actions and operations that determine your company’s margins?  What are the technologies behind those aspects of the company?  What would be possible if you applied information differently – how would it change your economic model?

An enterprise’s economic model arises from more than just product pricing and target margins.  Information flows, automation, complexity all supported by IT are significant factors in the way to you make money.  Applying IT the same as your industry peers unnecessarily levels the playing field for you and your competitors.

  • Lead IT from the business model, as that is the context for positioning strategic resources.  We discussed IT in strategic planning in item #7 Executives misunderstand IT in strategy.  This is different, as the business model identifies the critical resources and the relationship between those resources required to deliver value.  How does IT contribute to the value proposition, target customer segments, communications and distribution channels, customer relationships, core capacities, the organization of processes, partners, cost and values and culture?

If your business model is unique, then that uniqueness should come through how you apply IT.  Tying IT to the business model is essential for getting the right IT as this relationship highlights that connection as well as the opportunity for extending the business model in the marketplace. 

The subject of Getting the Right IT Using Business Models is the topic of a Gartner Executive Programs report by Richard Hunter.

  • Financial structure refers to the amount of resources required to produce revenue and profits.   CIOs and IT executives discuss the financial model in order to connect capital and information flows.  This builds on item #4 IT applies information to replace cash, capital and operations.  Look at the business from the perspective of the amount of cash and capital required for operations.  Chances are those are areas where information, collaboration and the like can create a unique financial advantage for the enterprise.

IT has largely been driven based on its ability to change the Income Statement (the P&L) as projects concentrate on reducing costs, generating demand etc.  Information and communications have the potential to restructure a company’s balance sheet and free cash flow generation through unique combinations rather than commodity applications.

IT plays different roles in different industries and different companies when executives and IT professionals lose sight of this, then both the company and the technology are commodities.

2 Comments »

Category: 12 things business should know about IT CIO Leadership Strategy     Tags: , , ,

2 responses so far ↓

  • 1 Anon   April 10, 2009 at 6:18 pm

    What happened to # 5? It’s incomplete?

  • 2 Mark McDonald   April 10, 2009 at 9:07 pm

    Anon

    Thanks for your comment

    I have fixed #5 so now it is complete

    Thanks

    Mark