When the Boss Says "Simplify"

October 30, 1999 · by James P. Cramer

These days, says Daintry Duffy, CEOs don’t expect too much from technology investments: just compelling business benefits at bargain-basement prices.

In a large conference room in Germany, corporate executives, IT managers and project staff have gathered nervously around the table. It’s rumored that they’ve been called in to account for the firm’s hugely expensive and severely troubled enterprise resource planning (ERP) project. After introductions, a consultant walks over to a flip chart and writes: “[Name of company] wants to implement the ERP system for the purpose of _______” and asks those gathered to complete the sentence. Dead silence. Finally, the managing director leans over the table, looks down at the functional guys who’ve been pushing ERP hard and asks: “Well, isn’t somebody going to answer him?”

Downcast eyes and apprehensive shifting in the conference room chairs have heralded the demise of many a pricey technology initiative. When a project kicks off with much fanfare only to fizzle after months of work—and millions of dollars—the problem is seldom merely technical. In many cases, “companies aren’t clear enough in terms of the concrete objectives that they want to come out of a project,” points out F. Warren McFarlan, professor of business administration at Harvard Business School. “The fuzzier they get, the more likely they are to get burned.”

When technology initiatives such as ERP and Y2K become integral to business success, such a corporate scorching could prove fatal. And cautious CEOs realize this: They’re keeping a sharper eye on IT investments and demanding more business value from the projects they do fund. On April 30, 1998, The Wall Street Journal published a story alleging a “new” approach to corporate technology funding: a trend it called deengineering. The Journal argued that the failure of so many expensive IT projects has caused companies to prune technology spending to the bare minimum and ax projects where the business objectives were not clearly defined.

But what’s so new about that? IS departments are no strangers to feast-or-famine funding. Firms vacillate from spending freely on IT for competitive advantage to periods of economic stringency, where budgets are cut in the name of a leaner and meaner IT model. What prevents deengineeirng from being a fancy name for an ebb in the technology spending cycle is the new level of board-level involvement in IT spending decisions and the business-driven attitude they take toward those investments.

Certainly, CEOs have become more comfortable with technology. According to a 1998 A.T. Kearney study called Strategic Information Technology and the CEO Agenda 75 percent to 80 percent of surveyed CEOs and other senior executives rated their grasp of IT issues as fairly good or very good. As a result, “CEOs can ask better questions now,” says Joel K. Manby, CEO of SAAB Cars USA in Norcross, GA. “Because of that, they can avoid bigger mistakes.” And by taking a more active part in technology decision making, senior executives can drive down costs by more accurately linking technology expenditures with business goals.

CEOs and their brethren have good reason for their new hard-edged attitude: They’re spending a lot of money. “IT expenditures as a percentage of revenues continue to creep up” by about 5 percent to 6 percent a year, says Dale Kutnick, CEO and co-research director of The Meta Group Inc., a research company in Stamford, Conn. In fact, the A.T. Kearney showed that 68 percent of companies expect to increase their levels of technology investment over the next three years. And by making technology issues commonplace in the boardroom, projects like ERP and Y2K also have a great deal to do with the CEO education process.

This increased understanding is reflected in the technology decisions that are being made in companies. In the wake of a wave of expensive technology projects, CEOs are looking for ways to make their IT dollar go further. Robert N. Charette, president of Itabhi Corp., a risk-management consultancy in Fredericksburg, Va., sees the current IT climate as a move toward balancing risk and opportunity. Senior-level involvement can go a long way toward achieving that delicate equilibrium.

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