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CEO Perspectives

  • July 01 2001, 1:00am EDT

In last month's column I reviewed the results of Hackett Benchmarking & Research's ongoing information technology (IT) benchmark. The study's findings highlighted the gap between the promise of technology and the actual benefits realized. This month's column will discuss the implications of the study's findings for IT planning.

There were three major conclusions drawn from the benchmark data:

  • IT investments have not delivered the expected reductions in operating cost.
  • The use of technology to enable best-practice implementation has only been partially successful.
  • Many companies fail to fully deploy one technology before being overrun by the next wave.

Further analysis of the benchmark data shows that top performing companies that avoid these pitfalls realize between 30 percent and 50 percent more value from their IT investments. Clearly, the opportunities are significant. For executives seeking to increase the return on their technology investments, there are some clear insights to be gleaned.
Measure and act. Over the last few years, companies have significantly improved their processes for evaluating IT projects and developing business cases. However, the improvement in the up-front analysis has not been matched by a commensurate increase in tracking the realization of the benefits set out in the business case during a project or after completion. All too often, attractive business cases lead to projects that are late, over budget and fail to meet expectations.

Leading companies differentiate themselves through their ability to do two things very well. First, they define clear accountability and metrics for IT project success. They establish a single point of accountability and set measurable goals. More importantly, they link achievement of the goals to meaningful personal incentives. Second, they continuously measure results throughout a project's life and immediately take action if required. For example, if a project is falling far short of expectations, they do not hesitate to cancel it and redirect resources to projects that offer better returns. Conversely, poor performers continue to throw more resources at a failing project. This simply exacerbates the problem and has the damaging side effect of starving other projects of resources.

Implementing new technology does not equal implementing best practices. All commercially available technologies purport to be "best- practice compliant." What is not made clear is that they are also eminently capable of enabling worst practices. The simple rule is that technology selection is less important than technology deployment. Put another way, it's not what you buy but how you use it. Too many companies have relied upon technology to miraculously transform a poor process into a great one. Benchmarks consistently show that implementing technology without simplifying or standardizing processes drives costs up and service levels down - the exact opposite of the desired result. Companies that benchmark in the top quartile consistently view the deployment of new technology as inseparable from the simplification and standardization of processes. The result is that they are able to operate at 30 percent lower cost than companies that simply automate current processes.

Focus and finish - fast. All companies suffer from project overload. There are always many more initiatives that companies would like to pursue than they have resources to complete. Every year, prioritizing initiatives becomes an all-consuming activity that results in compromises being made to gain consensus. Unfortunately, this often results in cutting back on resources allocated to projects started in a prior period and reallocating them to the latest hot, new initiative. The impact is that full deployment is slowed down or never completed and the expected benefits are not realized.

A secondary effect is that many new technologies build upon existing technologies and assume their presence in order to perform at full potential. For example, a failure to complete deployment of a single ERP system across a company can significantly reduce the benefits to be derived from new analytical tools. If data has to be extracted from multiple sources, each with its own definitions and architecture, the quality and speed of delivery will be compromised. Minimizing the risk of failing to fully deploy technologies can be mitigated in two ways. First, the resources to complete initiatives are protected from reallocation, assuming the original business case remains valid. If there is reason to consider reallocating resources to a new initiative, then the full cost of delaying or not completing the original initiative should be added to the costs of the new initiative. If the new initiative still exceeds the minimum acceptable criteria, then the reallocation makes sense.

The second tactic is to implement new technologies faster. The days of IT projects taking three to five years to complete are long gone. Implementation in 18 months or less is the norm. The shorter the timeframe for implementation, the lower the risk that resources will get reassigned prior to completion.

In summary, there has never been a more valuable time to upgrade IT planning and management processes. The level of business dependence placed upon IT and the sheer scale of the investment required mean that return on IT investment is now synonymous with shareholder value creation.

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