Ceasing CIO Control

By Erik Sherman  |  Posted 07-19-2002 Print


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Ceasing CIO Control

FACT: U.S. companies spent $130 billion in the past two years on unnecessary software and other technology, while worldwide, as much as 20 percent of the $2.7 trillion spent annually on technology went into unnecessary projects, delays and quality problems.—Gartner Inc., 2002.

Recent budget, spending and outsourcing surveys indicate that split may already be occurring: CIO control over the budget—and what gets built—is, in some cases, on the wane at some companies. According to an April study by Gartner Research, control over a company's technology budget is beginning to erode, with some of it going to the business side: Non-IT spending on technology is up 15 percent this year over last, and is expected by CIOs answering Gartner surveys to reach as much as 50 percent by 2005. In some cases, say experts, that is a good thing—a sign of budgetary and spending alignment between the IT and business sides of the company. But for some companies, those same experts say, the trend might also reflect a backlash against IT, "chiefly if there's been a perception that the old CIO wasn't able to make things work or get the business side buy-in needed to make sure projects were implemented properly," says Forrester's Cameron.

In addition, more IT work is getting outsourced by some companies, and for some CIOs, that can mean less influence among higher-ups. Forrester says the average Fortune 1,000 firm outsources 28 percent of its IT budget to third parties, with the expectation that by the end of next year, it will be 34 percent. And that's average. Chevron, before its recent merger with Texaco Corp., for example, spent 70 percent of its IT budget with third parties. Nortel Networks outsources roughly 75 percent, Cameron says. The danger to CIOs, says Rob Enderle, a research fellow at Giga Information Group, is this: "In times when the economy goes into a tailspin, IT will sometimes get slashed and then can't provide the level of service that a particular business unit wants, so that unit will then go around IT and outsource it, or do it themselves." When this happens, he says, "the CIO becomes more of a service provider to everybody else, so he can become less strategic."

Combine all of that with the new trend to outsource corporate business processes, such as payroll and logistics, and it's enough to keep some CIOs up at night. True, few companies are outsourcing such processes—yet. But less than 15 percent of business process outsourcing contracts, one of the fastest-growing segments of the services sector, are even signed by CIOs, Forrester says.

The upshot? Unless CIOs find a way to become partners on business strategy, much of the technology spending will go out of the company through outsourcing—and that may include technology that may no longer be under the control of the CIO. "There is a very important phenomenon under way, which is that CIOs are in danger of losing some control," says Forrester's Cameron. "Things that used to require technology managers to get involved—complex technologies, sophisticated contracts and so forth—those levels of complexity no longer exist in an increasing number of technology investments, meaning I can go and hire someone to host my Web site and to build it and to run all of my technology. Now the COO can do it."

Further, Cameron says, technology investments are increasingly driven by business relationships, and not all CIOs have forged such ties—but should. John Mahoney, vice president and research director at Gartner, says that unless CIOs start becoming more strategic and start fighting to achieve the same recognition as other executive leaders, "the CIO could face a real prospect of becoming a 'zero-budget CIO' by the end of the decade."

Barbara Gomolski, a Gartner research director, agrees that CIOs are at a crossroads. No question that they're still today's key technology buyers, she says. But outsourcing trends and the recent backlash at some firms should send a wake-up call to all IT executives. "As specific business departments become more familiar with IT and what it can do for the business, they won't necessarily turn to a centralized IT department," says Gomolski, "unless they're convinced the people in IT are working directly for their interests." Otherwise, she warns, CIOs will have to "fight increasingly for the business of the in-house business unit, competing against outside vendors."

Skunk Works 2.0

To fight back, some CIOs have begun developing their own "skunk works" projects, in order to develop a business case to get project funding from senior executives. Bell Canada International Inc. CIO Eugene Roman says he formed a team of IT and business specialists to focus on writing business case proposals, and set up a lab in Toronto called exCITE! to build working prototypes of systems he'd like to put in place. The mission of the lab: prove that positive ROI can be achieved from a technology project—before IT execs go to senior management for approval. Roman says he observed a similar approach at Ford Motor Co., and combined it with lessons learned from several other companies.

At Yellow Corporation, top IT executive Lynn Cadell has been put in charge of Yellow Technologies, a new tech R&D arm that develops technology for both internal use and sale to customers. In the past, expectations for technology were often accepted uncritically by those in senior management. Now, though, such decisions are being controlled by business executives. "Technology isn't going to help if business isn't right," says Bill Zollars, CEO of Yellow Corp., a transportation company based in Overland Park, Kan. "It gets you to the wrong answer faster."


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