Industry Today: The World of Manufacturing

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 Date:3/26/2009

 

Dollars & Sense
Do You Get IT?
The greater the understanding of IT, the more dramatic your return on investment can be, says Suketu Gandhi, principal for Deloitte.

A recent study conducted by Deloitte found that companies who use information technology (IT) effectively perform better than their peers in the long-term. In fact, our analysis of 10 years of corporate financial and economic data found that the operating margins of the “technology intelligent” companies in our study were 25 percent higher than those of the less IT-savvy companies in our study. This dramatic difference has limited correlation to overall spending on IT.

This study begs the question: What makes a company “technology intelligent?” Our work with IT “leaders and laggards” suggests that in “smart” companies, the CEO and business leadership have succeeded in bridging four major “disconnects.” To follow, a look at these disconnects in more detail.

Disconnect #1: IT is not a component of the strategic discussion
The symptoms of this disconnect include the lack of a business-driven IT strategic plan and governance structure, limited business participation in establishing and owning IT initiatives, a lack of clarity about which business goals should be enabled by IT investment, and little or no process in place for prioritizing and funding projects.

From our experience, when a company’s management is able to “speak IT,” there is usually better and clearer communication between business leaders and IT leaders. However in many companies, IT governance and prioritization processes are less than robust; the “pet” IT projects of the businesses who scream loudest are often the ones that get attention and priority rather than being prioritized by their potential business value and strategic alignment.

To fix this disconnect, senior business leaders need to understand IT in a strategic context. If the goal is “get closer to customers,” how might IT enable that to happen? If the goal is “expand into new geographies,” how might IT contribute to global growth? IT needs to be asked, “How can you add value?” These are not tactical questions.

Disconnect #2: Business processes are designed in an “IT vacuum”
The symptoms of this disconnect include the lack of clear linkage between business mandates and design of business processes and enabling IT capabilities, the lack of a clear definition of process “boundaries,” the limited adoption of a true business process orientation, and the limited knowledge among business process owners of process-enabling IT capabilities.

Based on our experience, the potential benefits of leveraging new technologies are achieved only when business processes are designed (or re-designed) to work in connection with the technologies adopted. Irrespective of the nature of the core business processes at issue, the ability to effectively synchronize business processes and corresponding enabling IT capabilities is essential to successfully achieving the value of IT investments.

Disconnect #3: Business gets Information despite IT
Many symptoms of this disconnect are widely reflected in many businesses today. “Shadow” systems, spreadsheets, and unmanaged databases exist in nearly all organizations. Data warehouses have been built to house large quantities of data and to make it secure and accessible, but are not necessarily well-suited to support intelligent business decision-making. Many businesses have not undertaken the hard work of understanding the data, information and insight required to effectively manage the overall company, individual function or operating unit.

In many of these situations, this often results in the creation of “multiple versions of the truth” and perpetuates lack of synchronization among both business constituents themselves, and moreover between business and IT. This problem is frequently exacerbated in companies who have grown largely through merger and acquisition activities.

Disconnect #4: IT leadership does not “have a seat at the executive leadership table”
Often, CIO’s career paths have led them to grow up outside the “business.” Some have been largely internally focused on the mechanics of the IT function. The symptoms of this disconnect in IT include an inability to develop a pragmatic level of business perspective/understanding and/or to communicate to business leaders IT-enabled options and possibilities for creation of incremental business value.

As long as IT is viewed primarily as a “backroom” function, it’s likely to be staffed with tactical versus strategic thinkers. Operating under a more traditional paradigm, many CEOs simply don’t expect IT to worry about contributing to business value. A technology intelligent leader would say, “We need to grow sales; how might IT help?”

Becoming a “technology intelligent” organization
The place to begin is to reward business leaders for understanding IT capabilities and to reward IT for understanding business needs and opportunities. For IT, performance metrics should be tied to value delivered not number of projects completed, which is similar to metrics for building a new factory launching.

Any executive wanting to use IT more strategically should consider taking the following three steps:

  1. Learn: take the time to understand the specific uses and capabilities of IT. For each key function within the organization (sales, marketing, customer service, manufacturing, finance, and HR) identify specific ways IT could help reduce transactional costs and/or provide valuable business insights. Focus on key capabilities, the 80/20 rule is extremely relevant. This “visioning” exercise should be performed jointly by business and IT leaders once every six months.

  2. Govern: take an active role in IT project, process, and organizational governance. Define a metrics-driven financial evaluation process for linking business priorities and IT spending, and manage the governance of this process. Drive the organization on the basis of key capabilities towards appropriate levels of business process and IT standardization.

  3. Evaluate: test your direct reports on their “technology IQ.” Test the IT organization by holding it to the metrics laid out for evaluating IT investments. The four simple categories for all IT spending should be productive cost, support, compliance, and waste. This simple categorization alone will likely lead to beneficial changes in IT investment and prioritization behavior.


Becoming “technology intelligent” is not an “all or nothing” proposition. In some organizations IT may appropriately operate and be viewed as a tactical support-function. It’s certainly worth asking, on a regular basis: “How might IT make a difference in our competitive positioning? How might IT provide value to our business and help us achieve our strategic goals?” The CEO needs to start that conversation. The potential economic returns are worth the time and effort of raising you corporate “IT IQ!”

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.