What Every CEO Should Know and Do about IT

A leading researcher, Prof. Joe Peppard, has collaborated with the internationally renowned consultant and author John Thorp to publish a very good article, What Every CEO Should Know and Do about IT.
Their research reveals that, while most investment in IT failed to deliver expected value, CEOs still haven't properly understood their own role in effecting the realization of benefits even when they see IT as core to their 'real' business. Organisations with CEOs who do 'get it' generate superior returns from their IT investments. Those that don't, after rounding up the usual suspects, go on to keep repeating the same mistakes.

Indeed most CEOs have no idea about what is going on and what to do about it; they just want someone to sort out their IT. The Chief Information Officer (CIO) is sometimes empowered - whatever that means - to get on with it, but they can only change what they can control; and that is the delivery of IT not how IT will be used - that is properly the responsibility of business managers.

One unsurprising finding is that executives at all levels are unsure what a CIO is and what to expect of them. What is astounding is that 64% of CIO's have a significantly different perception than the CEO and their CxO colleagues of the CIO role.

The article lists a number of principles of value creation (Box 1), that are all important, but I would add one more, that I believe to be the most critical:

Until CEOs understand the need and accept accountability for clearly articulating the roles, authorities and accountabilities of their managers for business appropriate supply and use of IT and the realization of benefits, it ain't gonna happen.

The article usefully restates how to go about applying these principles. It is not as intimidating as it seems: the CIO can be accountable for facilitating the process so long as it is recognized they do not have the authority nor accountability to lock in the changes needed in the system of business to bring about the expected outcomes. Only a role with overall authority and accountability across the business - the CEO or maybe the COO - can do this and hold managers accountable.



Update 2/8/12:
Broken link changed to now refer to an original blog post by Prof. Peppard; this contains instructions for accessing the article.

Businesses failing to capture IT value

In this recent NBR article, which refers to a survey by ISACA and quotes John Thorp, one can identify at least five key issues that are preventing organizations from realizing value from their information system (IS) and information technology (IT) investments:

• The failure to establish a shared understanding of what constitutes value across the enterprise.
• The failure to focus on and measure the realization of benefits.
• The failure of business stakeholders to own the realization and measurement of benefits, and assign appropriate accountability for the changes needed to realize the benefits.
• The failure to adopt effective value delivery practices, such as Val IT, to manage IT-enabled investments as a portfolio of investments, to include the full scope of activities required to achieve business value, and to manage investments through their full economic life-cycle.
• The failure of boards and CEOs to accept accountability for the performance of their value delivery practices.

Organizations that persist with current value delivery practices cannot reasonably expect to achieve value from their IT-enabled investments, except by chance. In fact, they would problably do better if they gambled the investment in a casino! (A Cranfield Univerity study of the IS investment processes of large companies found that just 27% of projects delivered the benefits that justified the investment. This statistic has remained largely unchanged in 30 years despite the advancements in technology and IT professional practices - the things that IT can control.)

Introducing effective value management requires commitment to a change in behaviour and it is needed from the very top. John Thorp has more to say about this in his blog, Managing Change - The key to Delivering Value: "Individual board members and executives are being asked to change their behaviour – behaviour that they may feel has served them well in the past."

"It is difficult to get a man to understand something when his salary depends upon his not understanding it." - Upton Beall Sinclair, Jr. American novelist and polemicist, 1878-1968

Leveraging the Value of IT in Good Times and Bad

John Thorp's article, Leveraging the Value of IT in Good Times and Bad, published in IndustryWeek.com and discussed in his blog today, describes how between 20%-30% of current and new expenditures can be reduced or curtailed and the potential value of investments increased by two to three times. John's advice is for all business leaders:

• IT can no longer be managed as a black box because IT is now entwined in the business processes that make up an organisation's value chain and investments are not about IT but about change;
• Effective governance is needed to make the right decisions concerning investment in IT-enabled change, manage those investments throughout their full lifecycle so that they continue to create and sustain value, and letting go the ones that won't;
• ISACA's Val IT practices for value governance, portfolio management and investment management can be used selectively to improve the quality of decisions and reduce risk.

Val IT 2.0 is a new framework with supporting publications addressing the governance of IT-enabled business investments (see Getting Started With Value Management).

John Thorp is President of The Thorp Network (http://www.thorpnet.com/), author of The Information Paradox, and Chair of Val IT™ Steering Committee for ISACA.

The Information Paradox

John Thorp's book, "The Information Paradox", is about the conflict between widely held belief that investment in IT is a good thing and the reality that this, all to often, cannot be demonstrated. My own experience as a CIO affirms the challenges and experiences described in the book. It gives valuable insight into what needs to change to realize value from IT investments and how to go about it. The book describes the Benefits Realization Approach in terms of three fundamentals and three necessary conditions aimed at changing the way people think and manage. It extends this approach with the concept of Enterprise Value Management to stress that the major effort and challenge that organisations must face is implementing not technology but change.

The three fundamentals of the Benefits Realization Approach are:

• a shift from project management to program management to produce clearly identified business results;
• a shift from free-for-all competition for resources to disciplined, strategic portfolio management; and
• a shift from traditional methods of tracking project delivery to full cycle governance to turn concepts into realized benefits.

The three necessary conditions are:

• activist accountability that includes the concept of ownership;
• relevant measurements linked to contribution to outcomes and to lines of accountability;and
• proactive management of change that is visibly led by senior management.

This book was a key source for many of the concepts used in the IT Governance Institute's Val IT framework.

I suggest these works support another paradox: the conflict between the widely held belief that IT alone is responsible for achieving value from IT investments and the reality that 80% or more of the change needed to achieve this value rests with those who hold this view.

Some hard hitting quotes below from the book demonstrate the challenges faced by CIOs:

"Management thinking has failed to understand the implications of the evolving role of IT in business and how critical IT decisions will affect elements of the overall business system beyond technology."

"The persistence of the industrial-age mind-set leads to what we call 'silver bullet thinking' about the capabilities of IT - and, more specifically, about the power of IT alone to deliver business results. Organisations rush to purchase IT 'silver bullets' in the form of customised business solutions, enterprise application packages and other ready-to-wear IT solutions in the naive belief that they come neatly packaged and stamped benefits inside.' ... the magic bullet theory does not tell us who should aim and fire the gun."

"An industrial-age management practice that encourages silver bullet thinking is the use of one-off business cases to support IT investment decisions."

"Another facet of silver bullet thinking is that most, if not all, of the delivery and implementation focus is on the IT project, with blind faith that any other required changes will fall into place."

"Decisions are generally made in the environment of a competitive free-for-all among stand-alone IT projects, each championed by an executive sponsor interested in pushing his or her pet project....the result is that too many IT decisions are made with no greater chance of success than the average gambler in a casino."

"Tough questioning is critical to get rid of silver bullet thinking and lose the industrial-age mind-set that is proving extremely costly to organisations."

"Senior business sponsors must take ownership of the program and accept clear accountability for delivering benefits."

"... in the case of enterprise application packages, our experience suggests that of the work involved in delivering benefits, 80 to 95 percent lies in the areas of organisation, processes and people - on the business side."

"CIOs will have to leave behind some familiar roles - like chief magician of information technology, and honourable head scapegoat!"

"Business sponsors must join CIOs in leaving behind some outdated roles...that of senior cheerleader, who waves magic pompoms internally as the IT team performs more miracles."