The CIO's Agenda--Make IT Affordable, Workable, and Credible
Written By: Olin Thompson
Published On: August 10 2004
recent forum included a round table discussion of CIOs from different companies
and industries. They summarized their charter as make IT affordable, workable
and credible. These realities impact all IT users, professionals, and vendors.
According to one CIO, "Cutting cost is like breathing." The word affordable was defined as getting what the business wants while spending less.
Their marching orders include taking 10 to 15 percent out of the base cost of IT per year, every year. That base cost is defined as the cost of maintaining the existing applications and infrastructure which is estimated as 90 percent of all IT spending. Maintaining applications includes paying support fees, upgrade cost to new releases, and programming involved with existing applications. Maintaining the infrastructure includes adding storage as databases grow, adding processing power as demand grows, and addressing security issues. They see infrastructure improvements as a requirement to be self-funding. If the CIO wants to spend money on improving the infrastructure, the investment must come from savings in other places within the infrastructure budget. They saw outsourcing, rationalization, and "hitting the vendors" as the path to take out that 10 to 15 percent.
The remaining 10 percent of the IT budget was for new applications. With applications, these CIOs saw that absorption of the applications gated new purchases as much or more than budget. Implementation resources, training and user acceptance limited the purchase of new applications.
Making IT Workable
With new applications, the CIOs were concerned about risk. "An existing application cannot be replaced without considerable business benefit and low risk," said one CIO. "The replacement of a core application is hard to imagine," he continued. His definition of core applications focused on doing business everyday, supply chain execution, inventory, order processing, etc. How much risk would he take with core applications? "None."
Applications that worked outside the core were seen as a place where these CIOs would take a chance with new vendors, ideas or products. The primary criterion is isolating the risk and impact of a failure.
For some applications, these CIOs will work with a start-up vendor. In these cases, they expect a say in what is delivered, to have control, and receive a financial incentive. "We decide on the people as much as on the technology," stated a CIO.
A question from the floor asked about single source versus best of breed. The CIOs joked about that being a never-ending debate. The consensus was that single source was always better if the functionality was "close enough". However they would consider best of breed solutions when they saw a significant functional gap between what the business needed and what the primary vendor offered. The best of breed application being "better" was only relative to the specific needs of the business and the gap between the primary vendor and those needs.
The subject of integration caused one CIO to state, "Well, we do not get very good marks on that front." All saw the need for increased integration and stated it was a significant effort within their shops today. "We need basic integration, not star wars integration," said one CIO who said that most of the vendors who approached him appeared to want to impress him with how complicated they could make it.
IT has to be made more manageable. For example, many applications now have an absolute requirement of being available 24x7. With the Internet, users are accessing the system any time and from any place, including worldwide users. Applications requiring 100 percent up-time mean new approaches and investments in infrastructure. It also means new approaches to back up, security, and other operational issues.
Sustainable applications must both be available whenever required (some but not all 24x7) but also evolve with the business. With significant investments in applications that have limited flexibility, these CIOs are looking for help in letting their applications evolve with the needs of the business. Business process management was seen as a possible tool in help these business evolve their systems.
Industries are fragmented and applications need to reflect the normal conditions and operating procedures of the company's industry. The CIOs know that their users will no longer accept applications to be close to their needs, they are demanding that applications have a 100 percent fit to their needs.
Making IT Credible
As one CIO stated, "CIOs should be embarrassed." These CIOs said that the industry and the CIOs themselves have a credibility problem. Corporate management sees IT projects as over budget, over schedule, over promised and lacking in real returns. Often, end users see IT as part of the problem, not part of the solution. While many blame the vendors, the CIO shares the blame for not managing the vendor properly or even being "soft on the vendor". CIOs must also create more "user-friendly" IT departments to work closer with the end users.
CIOs must be more visible as a leader in the company. The CIO should be proactive in proving the value of IT and leading continuous improvement efforts both inside and outside of IT.
CIO must be more operationally focused. The money is made or lost in operations and the CEO and CFO expect the CIO to be a business executive looking for ways to cut cost, improve productivity, and contribute to the bottom line. Cost reductions in IT are an absolute, but contributions to the operational aspects of the company are seen as driving the business forward.
These CIOs, from different companies, different industries, and representing an array of company sizes were quite unanimous in their views of the role of the CIO and the pressures of that job. Their role is to make IT affordable, workable, and credible. Corporate management, users, IT professionals, and vendors need to understand these new realities to effectively interact as a customer or supplier of IT.
Thompson is a principal of Process ERP Partners. He has over twenty-five
years experience as an executive in the software industry. Thompson
has been called "the Father of Process ERP." He is a frequent author and an
award-winning speaker on topics of gaining value from ERP, SCP, e-commerce and
the impact of technology on industry. He can be reached at Olin@ProcessERP.com.