CIOs’ New Choice: Get Strategic…Or Else!

Even before the technology bubble burst, Ralph Larsen, then Johnson & Johnson’s CEO, was growing worried about how much the company might be spending on technology, as he had no precise idea. Following a companywide crash of J&J’s e-mail systems in the fall of 1997, Larsen asked his corporate controller, JoAnn Heisen, to step in and take over as CIO to turn things around. Heisen’s mandate from Larsen? “Fix it,” recalls Heisen, who embarked on a cost-cutting mandate aimed at shaving IT costs by $50 million per year by 2003. “Nobody knew what was wrong; they just knew it wasn’t working. Nobody was talking to each other.”

Since the economic downturn, CEO aggravation with IT has gone increasingly public. Companies such as Kmart Corp., Samsonite Corp., Whirlpool Corp. and Hershey Foods Corp. have ended up losing millions on failed technology. In February 2001, for example, Nike Inc.’s supply chain management system went haywire, leading to excess inventory and delays in orders for its sports gear that cost an estimated $100 million in lost sales. Complained Nike CEO Phil Knight: “This is what we get for our $400 million?”

And more companies are likely still feeling the pain: A new Gartner/Morgan Stanley study of 25 years of tech spending estimates that U.S. companies lost $130 billion on unnecessary software and hardware in the past two years alone. Worldwide, says London-based Gartner research director Andy Kyte, companies waste as much as 20 percent of the $2.7 trillion spent on technology. Kyte’s analysis of benchmarking projects Gartner has undertaken with companies worldwide pegs the loss to project delays and needless purchases.

Why the lousy track record? Sometimes guided by the CIO, sometimes not, a lot of companies stampeded into the wrong technology, bought too much and didn’t implement new technology properly. They also underestimated the time needed to make it all work. And CEOs, especially during the tech-boom years, often drove spending for projects without clear goals. “People viewed technology then as black magic, so why understand it,” says Charles Phillips, a managing director at Morgan Stanley Dean Witter & Co. who heads up a monthly roundtable of 300 CIOs from global companies. Admits Richard Resch, the chief executive of Green Bay, Wis.-based office furniture maker KI, formerly Krueger International: “We became fascinated by technology and stopped thinking.”