The widening gap between companies that use IT strategically and those that don't

The first mention I saw about a growing gap between companies that 'get' IT and use it effectively and those that don't was in research published by Meta Group (now part of Gartner) in 2004. They predicted that there would be an increasing gap between internal IT organisations that were strategic in their orientation and those that were operational. They predicted that those that were operationally focused would find themselves outsourced, downsized and had they know then - replaced by cloud applications.

There is plenty of evidence that Meta Group were right. A study published late last year by Accenture titled "Mind The Gap: Insights from Accenture's Third Global IT Performance Study" covering 225 of the worlds largest companies concluded that the gap in performance of IT in high performing organisations was 42% in terms of innovation and 37% for execution. Accenture identified 9 areas that high performing IT organisations excelled at:
1. Strategic IT alignment
2. Effective IT Governance and clear strategic business cases for all IT investments
3. Clear application architecture
4. Focus on information management not technology
5. Implemented a standarised platform and service management approach such as ITIL
6. Effective solution delivery and highly visible project performance
7. Effective workforce management
8. Effective and proactive IT security strategy
9. Intelligent use of outsourcing to access hard to get skill sets and agility

The question as a CIO then, is what do you do if your IT organisation is not viewed as strategic? Is it possible to change thaose perceptions or is a change of employer required?

Also look out for my article in the current issue of CIO Magazine on the challenges for the CIO of the future (Sept-Oct p. 80-81).

Strategic use of IT - Computershare

Continuing with the theme of operational versus strategic IT investment, this week is a brief look at Computershare, an Australian company that started life providing third party share registry services to Australian listed companies. The company has expanded both internationally and into complementary high volume services such as handling parking fines and administration of rental bonds. It has increased revenues 36% over the past 5 years and profit  by 106% and employs 11,000 staff in 20 countries. It really is a great Australian success story.

It's relevance to this blog is that Computershare has used and developed its IT platform extensively to continually automate its processes and services. In short its IT capability forms an integral part of the company's sustainable competitive advantage. Using the analysis developed in this blog over the past few weeks Computershare stands out on some key criteria:

1. The board of directors and senior management take an active interest in IT strategy and spending (none of this reporting via the CFO)
2. IT spending averages 10% of revenue (9.9% in 2011), significantly higher than the 2.2% average for operationally focused IT operations
3. Portfolio management underpins all IT investment decisions
4. The strategic importance of IT is recognised by the board and senior management - it even gets a mention in the annual report to shareholders.
5. R&D makes up 41% of the IT budget compared to industry average of 30%
6. Contractors and outsourced IT is mininimal, 95% of IT manpower is in-house allowing critical knowledge to be developed and protected.

So should you race out and spend 10% of your annual revenue on IT? Well that depends on whether IT is part of your competitive advantage or not. What Computershare illustrates is that IT investment and management should be a series of deliberate decisions consistent with its place in an organisation. Cutting IT costs while claiming IT should be strategic is just plain fantasy, bad management or both.

Is your IT team strategic or operational?

"Do not expect value from a CIO with an operational profile" proclaims KPMG in their report "Cost to Value 2010 Global Survey on the CIO Agenda", but how do you determine what "operational" is?

Last week I provided a simple survey to determine if your IT team has a primarily operational or strategic focus. Of the 15 criteria listed there are 5 criteria that have stood out in my research to-date as being diagnostic, that is companies with a strategic focus almost always have these traits and those that are operational almost never do. The 5 criteria are:

1. Who does the CIO report to?: CIO's that have a reporting line into the CEO or top executives are 70% likely to be strategically orientated. CIO's who report to the CFO or COO are never strategically orientated. This makes sense, if IT is strategic to the business then the CEO wants to be involved, if it is something that should be neither seen nor hear (nor ever break) then it goes to the CFO. Many CIO's seem to forget this and think they can be strategic for behind the CFO, the results suggest otherwise.

2. Are portfolio management techniques used to manage IT investment?: This one surprised me. In 99% of companies with a strategic orientation portfolio management was in use, in operationally focused IT teams it was 11%.

3. When IT investments are being considered what are the key criteria for approval?: 98% of companies with a strategic IT orientation focus on strategic fit, while only 23% for companies with a operational focus.

4. Are IT benefits managed?: For companies with a strategic IT focus 70% actively manage benefits, for operational IT that percentage drops to 0%!

5. Is the CIO focused on value delivery or cost cutting?: 85% of strategically focused CIOs focus on value while only 22% of operational focused companies do.

So what does this all mean? Well, it has significant influence on what the CIO can achieve in a organisation and it also provides a guide as to what the CIO should be focusing on to align with how IT is truly viewed by the executives.

There will be no blog next week, back on the 21st of November.