Only 'Knuckleheads' Think IT Isn't a Differentiator - ' CIOs Shape Expectations ' (
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So the idea that IT for competitive advantage is going
away is nonsense?
It is nonsense. We've found that highly
effective IT organizations contribute significant value
to their enterprises. We have to eliminate this notion of
generic IT, of my IT being like everyone else's IT is OK.
It means there should be five parts to everyone's IT
plan for 2008: A clear statement of how IT supports
the enterprise's sources of competitive advantage;
the set of business metrics IT is willing to hold itself
accountable for; a statement of principles that will
drive IT decisions; a clearly stated plan on how they are
building and investing in skills for IT personnel; and a
statement of what IT will be in 2010. That statement
should be different for different companies. 2010 is a
major mental milestone that gives CIOs the opportunity
to shape expectations and the conversation about the
future of IT. If they don't take this opportunity, others
will shape that conversation for them.
We're in a moment of economic uncertainty. How will
broader economic trends affect IT?
The economy is not driving IT strategy
and views right now, but if conditions continue to
change, many CEOs and CFOs will take the wrong
course of action in an environment of inflation and
lower economic growth, in large part because none of
them have managed in this environment before.
I don't know if we'll go back to the same situation [of
high inflation and low growth] as when Jimmy Carter
was president, but latent inflationary pressures exist
inside most companies. So here's the wrong decision: A
CFO who's never managed in this environment will have
a tendency to believe it's a short-term phenomenon
because every other financial crisis in the past 10 years
has been short-term. However, in the face of sustained
upward price pressures, they'll have a tendency to cut
SG&A [selling, general and administration] costs like IT
instead of changing their cost structure, which might
increase the IT budget slightly. It takes a savvy CFO to
recognize that difference—between cutting one to two
percent of my cost structure or restructuring 98 percent
of my cost structure.
I can remember something my dad said in the
late 1970s. We moved to a different house and took a
bigger mortgage, and he said, "Don't worry, I'm paying
it back in cheaper dollars." That kind of thinking is
counterintuitive. You may want to kick up your capital
spending to improve your cost structure. Here's the big
difference between then and now: in 1978 to 1981, most
enterprises passed their price pressures up the chain to
the customer because there was no globalization. We're
finding now you can't pass material price increases on
to your consumers as easily as you could in the past.
That further solidifies the need to change the way
you work, and change your cost structure rather than
slashing. Slashing costs is not sustainable.
What should your cost-cutting strategy be for the
latter part of the decade?
You want to move as much cost as
reasonable to the variable category. Larger organizations
will have to think about better matching their revenue
streams to their cost structure. A quick example: A lot
of IT costs, in reality, are denominated in rupees. No CIO
really knows that. The price appreciation of the rupee
relative to the dollar, plus higher labor rates in India,
are creating pressures that will affect CIOs. They have
a currency risk exposure; IT has never dealt with that
sort of thing before. We're seeing some people who are
considering inshoring back to the States, because this
way they have their cost and revenues base back on
the same level—dollar-denominated costs and dollardenominated
revenues. Somewhere and sometime,
whatever appreciation of the rupee will come through
and hit you.
Could that drive offshoring to other countries?
Yes, but look at the dollar relative to other
currencies. That's why we are starting to hear of major
global companies building IT capability back in the U.S.,
as part of the long-term bet against the dollar.
What is the CFO's' future role and its impact on IT?
The CFO is the most focused executive on
delivering the current quarter and year plan. That gives
CFOs a concentrated focus that can be too short for the
enterprise to get all the value associated with the use
of information and technology. At the same time, many
CEOs' views are out in that 36-to 48-month window.
This creates a middle ground that involves changing
the way companies work. We've seen CIOs create
significant value by delivering changes that impact the
operation in the 12-to 18-month timeframe, changes
that fundamentally change the way the business works.
There's this territory between tactics and strategy. That
is the opportunity space for CIOs to play.
Not only is IT strategic; it's a competitive differentiator, and only
'knuckleheads' think otherwise.
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