Transforming Banks for a Digital Future: The Winners, The Losers, and the Strategies to Beat the Odds
Bain's survey found that companies grew faster and lowered costs more dramatically by focusing first on making their IT departments effective. The consultancy defined "effectiveness" as getting projects done as specified, on schedule and on budget. Based on that definition:
- 85 percent of respondents to Bain's survey characterized their IT operations as ineffective. Those who focused on effectiveness over alignment fared better in lowering IT spending and boosting growth, according to Bain. Those who considered their IT operations effective saw positive results in cutting costs and boosting growth.
- Firms achieving effectiveness and alignment (seven percent of all respondents) saw their companies' three-year compound annual growth rate jump 37 percent while their IT spending rates dropped more than 10 percent.
- Achieving effectiveness but not alignment also paid off: The eight percent that reported that status cut IT spending by more than 17 percent and boosted growth more than 10 percent.
- On the flipside, companies that deemed themselves ineffective in IT and not aligned with business-- 74 percent of all respondents--saw their IT spending rise 1.3 percent and growth sink three percent.
- For firms claiming to be aligned without yet reaching effectiveness (11 percent), the results were worse: Spending jumped 8.4 percent while growth dropped almost 10 percent.
One major problem, Bain found, is that technology and business executives misunderstand the concept of alignment. Instead of syncing up strategies, companies tend to allot IT resources to different business units and call that alignment. But that leads to increased complexity, rife with fragmentation, redundancy and subscale operations. "By definition, that complexity is going to drive up spending," says Rudy Puryear, head of Bain's global IT practice and author of the survey report.
It also leads to more ineffectiveness, by Bain's definition. But the usual response--to push for more alignment--can be fraught with peril. "When companies find themselves [ineffective], the response is, we need to be more aligned," Puryear says. "But if they're over-aligned to the point where you get those unintended consequences, the 'ah-ha' is that alignment isn't always the best thing."
While many current and former CIOs acknowledge the benefits of having an effective IT operation, they don't believe effectiveness and alignment should be mutually exclusive. "I'm not a believer that you wait for one before you start the other," says Karenann Terrell, CIO of life sciences firm Baxter International. "There is a complexity to doing both, but that's the job."
The language of IT is often foreign to those outside IT--and alignment and effectiveness are no different. To Terrell, effectiveness involves excellence in process management and execution, and in making them repeatable and consistent. Alignment also relies on a proactive relationship with the business. "That means trying to move away from being order takers to people who are proactive, with business skills, and see how IT can enable the business," she says.
But when it comes to top executives, such as CEOs and CFOs, alignment takes on a different meaning. "To them, alignment is, 'I don't need you up beside me, with me doing all the thinking; I need you doing the thinking,'" she says. "That's the way the business looks at it."
When Gerrard served in top IT functions at AVCO Financial Services and Citigroup, executives expected him to naturally align his IT strategy with business needs, he says, but narrowly defining effectiveness and alignment creates a misunderstanding of what the actual goals of IT and business should be. "The whole idea of alignment implies you have these two separate entities cruising along on courses that are parallel," he says. "Drop the word 'alignment.' Integration is more where you want to get to."
Evaluating success based on IT spending and project success can be misleading. Companies that invest in growth-related projects, for example, might not see the results for years. Too often, Gerrard says, companies will blame CIOs and IT departments for being ineffective when the IT organization isn't the cause. It could be, he says, that the business was unclear about its expectations or needs, or corporate priorities shifted a project off course.
Before situations like that arise, IT departments must establish credibility with the business and transparency around their objectives and project selection. "Do what you say you're going to do, for the amount budgeted," Gerrard says. "Sometimes you run over budget, but the business can understand why, so you won't hurt your credibility."
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