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In IT Savvy, Peter Weill and Jeanne W. Ross deliver some bad news to non-IT leaders who like to chastise their IT functions: If your IT isn't a strategic driver, it's a strategic liability. Weill, chairman of MIT's Center for Information Systems Research and Ross, the director, draw on years of research to show how business and IT leaders can make IT drive their companies ahead. In this excerpt, the authors stress the importance of a clear operating model, with anecdotes from two "IT-savvy" businesses.
Consider a pro sports team--a good team, but not championship caliber. What will it take to convert the team into a champion? First, decide how you want to operate to reach your vision. How do we coordinate the players, coaches, scouts, general managers, marketing and facilities? Until the team gets that right, there's no point worrying about who starts the next game, ticket prices, or hiring and training players.
Developing an IT-savvy firm is a similar exercise. First, you have to define a vision. Then you can address how you will create an integrated platform of strategy, players, facilities, marketing, scouting and training to profit and grow. Many firms have not yet addressed how they want the firm to profit and grow, and how IT can help create their platform. In effect, they can't ever become a championship team.
IT does two things well: integration and standardization. Recognizing this, IT-savvy firms clarify what they are trying to do with IT by specifying what they want to integrate and standardize. In doing so, they define an operating model. The operating model states the objectives of a firm's digitized platform and establishes its basic requirements.
At many firms, IT is used to provide short-term solutions to immediate problems. Their approach to IT is broken. To fix what's broken, you have to start by defining your operating model.
CEMEX, the $22 billion building materials company, has an operating model that specifies highly standardized management practices across all its businesses. In the early 1990s CEO Lorenzo Zambrano established a vision for growth that involved rapid deployment of CEMEX management practices in acquisitions. CEMEX built a platform of IT, systems and business processes that captured best practices in finance, HR and supply chain management, and then installed it in successive acquisitions.
Driving the benefits of the firm's operating model, Zambrano has grown CEMEX from what was Mexico's second-largest cement company in 1990 into a global powerhouse. For its largest acquisition (Rinker Group Limited in July 2007), CEMEX needed less than six months to start realizing over $400 million in synergies.
UPS has also benefited from a clear operating model. UPS's vision, dating back to the late 1980s, was to provide globally integrated, highly standardized package delivery services. Management viewed its first package training application as more than just an immediate solution. Package training required global access to a package database. So UPS designed the only package database it ever intended to implement, as well as a global telecom network through which employees and customers could access it. UPS has leveraged its digitized platform to develop customer services that share information on both incoming and outgoing shipments. Its innovative use of package data make it as valuable to UPS as the package.
The decision to standardize both processes and data provided the basic design for UPS' digitized platform. That platform created opportunities for increasingly valuable systems. Michael Eskew, former CEO of UPS, noted that business and IT leaders regularly proposed IT-based customer services that could be quickly implemented. He referred to these suggestions as "happy surprises."
Reprinted by permission of Harvard Business Press. Excerpt from IT Savvy: What Top Executives Need to Know to Go from Pain to Gain. Copyright 2009 Peter D. Weill and Jeanne W. Ross. All rights reserved.