A conversation with Harvard's James Cash
The importance of information technology (IT) has become a business constant. However, the issues related to managing the business use of IT can change fast, especially when economic conditions are volatile and technological advances are frequent and often confusing. Vaughan Merlyn of The Concours Group recently sat down with Dr. James Cash of Harvard Business School to discuss some contemporary executive team and board level issues in IT management. As a director of General Electric, Microsoft and other companies, Dr. Cash brings a unique perspective to IT business issues.
Vaughan Merlyn: The Concours Group has for some time been encouraging corporations to recruit board members with technology perspectives and a broad understanding of information technology management issues (Directorship, July/August 1997). How much attention is IT getting at the board level these days?
James Cash: The amount of direct attention depends, of course, upon the relative strategic importance of information technology to the company's strategy, products and services. At GE, for example, the board is regularly apprised of the company's strategic reliance on IT. But with more than 20 business units in a wide range of industries, the role of IT varies a great deal. Most visible at the board level is the overall corporate "digitization" effort, which drives detailed use of technology across the businesses. The strategic value of "digitizing" business operations and customer relationships forms a big part of the argument for continuing commitment to IT. An April 2001 Forbes article ("Lion in Winter: Let Competitors Cut Back on High Tech") described how GE and a few others are "keeping the faith" in terms of IT investments. GE's commitment to digitization is reflected in double-digit year-to-year growth in IT spending, while most others are keeping increases in the 3-4 percent range, or are not increasing spending at all.
The situation at Microsoft is quite different, for the obvious reason that they're an information technology company. There the activities of the IT organization are less visible at the board level, but we pay a great deal of attention to the overall IT industry, our customers' perceptions of IT, and the role of IT in our product strategy.
The ubiquity of technology has caused the tide of boardlevel interest in IT to rise pretty much everywhere, and more boards are, indeed, recruiting members with technology perspective. I see even hard asset-driven businesses with tangible, capital-intensive, products paying more attention to IT because they are seeing more of their profits derive from after-sale services, which tend to be IT-intensive. For example, companies sell industrial elevators for less than their costs to manufacture and deploy the product. These companies also sell a remote monitoring system with the elevators, which extends the mean time between outages (for maintenance or failure) that generates substantial customer savings.
Merlyn: Given the pervasive corporate dependence upon information systems and communications technologies these days, how has the aftermath of September 11 impacted IT issues that are being raised?
Cash: A lot of companies are glad they went through the Y2K exercise, because they had recently taken inventory and revisited their processes for recovery from business and systems disruptions. Because of Y2K, they were betterprepared to deal with disasters and they know what their priorities are.
How different companies responded to the September 11 attacks would make for an interesting comparative study. I've read accounts of companies in the World Trade Center that were ready with backup facilities in New Jersey immediately following the attack. The crisis in the airline industry and associated reduction in capacity generated a sudden spike in demand and opportunity for bus companies, rental cars and other transportation alternatives. Some companies filled this need, but others weren't ready. Very significant attention was paid in board meetings as business continuity questions surfaced: What would we have done? How quickly could we recover if we had a major business center destroyed?
One clear lesson of September 11 is that business recovery encompasses much more than IT systems and facilities. It's about people and working relationships. A major financial services firm recently walked me through its disaster recovery plan. It included who would call which customers and other business partners. They don't want customers and suppliers sitting on their hands-they want everyone getting back to work.
Merlyn: With the rise of the Internet, the expanding capabilities of enterprise systems and the increasing sophistication of the technological tools for collaboration and management, there's no shortage of potential opportunities to put IT to business use. What should directors know about some of the CEO's biggest concerns and challenges around IT deployment?
Cash: By far the most challenging issue continues to be resource allocation. How do we make effective decisions related to allocating scarce IT resources? How do we assess the value of IT investments? Even people who have refined management processes for articulating the business cases, and later for monitoring results, still don't feel that they have all the information and evaluation methods needed for making resource allocation decisions up front. Most senior executives are simply not comfortable or confident with the IT resource allocation process, and this seems to happen even when there's strong leadership in the IT function. I expect the CEOs and chief information officers of the future to be absolutely overwhelmed with ideas for putting technology to business use. This puts tremendous pressure on the quality of decisions and the process by which ideas get submitted, evaluated and acted upon.
A second challenge is the selection of the CIO. When looking at the attributes of a person who could most effectively lead the IT function, some CEOs have a bit of a blind spot. It's similar to what happens when American companies expand into a new country and look for local management-after interviewing candidates they will tend to select people with the best command of English, not necessarily those with the best minds or skill sets. The same happens with IT leadership. Companies are looking for people who can translate between business and technology issues, communicate effectively, "speak English." But the CIO needs to be able to do more than that. There are some really critical architectural decisions being made these days, and if the IT leaders don't know how to make those decisions, they risk leading their companies into dead ends.
Similarly, many companies are moving to a twenty-four by seven business environment and finding it easier to say than to do without the right IT leadership in place.
There can be a similar blind spot regarding the organization of the IT function. I see this happening in both the private and public sectors. Senior executives sometimes have preconceived notions about a singularly effective organizational form, especially if they happen to come from highly centralized or highly decentralized environments. The right structure for IT can vary a great deal across corporations, and the right structure doesn't necessarily parallel that of the business. What often seems to work in IT these days is a model where people with specialized expertise come together to work on a problem, then disband and reorganize to address a different problem. Employees are administratively attached to "centers of expertise," but may be affiliated with more than one. For example a wellrun hospital or consulting firm works this way, and their technology infrastructure must be designed to enable this flexibility.
Merlyn: As with many general management positions these days, we seem to be asking a lot of the CIO in terms of both background and ability. Has "CIO" in a large corporation become too big a job for one person?
Cash: The CIO role seems to have grown to the point where it's unlikely that one person will have the full range of skills needed. Someone who's a generalist may lack the depth to make all the key decisions that arise. A common distinction today is between CIO and chief technology officer. Depending on the company, these roles may overlap a great deal, or may be quite distinct. But creating a CTO role may not accomplish what you need.
I think about three different pockets of information technology management activity, and all three have implications for the competitive position of the business. First is managing the operations of the IT function, its process improvements and its administration. Second is leading the work of embedding information technology into the products and services that the business sells. This is a full-time and very senior job in large companies today. I can't imagine how someone would handle that and have responsibility for the everyday business support provided by IT. Third is looking to the outside. This includes ongoing assessment of what other companies are doing in the technology arena, what the possibilities are and how they use technology to increase business flexibility. And because analysts are starting to ask questions about systems performance and infrastructure, this role is part of the public face of the company-how it represents itself to Wall Street.
For one individual to have responsibility for all of that in a large and diverse enterprise may be too much to ask. But no matter how you define the CIO role, you've got to make sure that your IT leadership team includes expertise in all these areas. By the way, all three of these roles involve spending significant time with the real customers of the business.
Merlyn: One of the profound effects of modem communications technology and the Internet has been to enable much more networked business models. Companies increasingly rely on expert business partners for everything from payroll processing to turnkey logistics services. Given the often-significant capital and operating expense involved, IT has long been a candidate for outsourcing. How far do you recommend corporations go in the outsourcing of IT?
Cash: I don't believe that you can outsource everything. Every time we think we've reached the point where we can, something else comes onto the IT plate. There's always some potential competitive advantage to employing technology uniquely, and we see this most clearly when a new technology set comes into play. With the Web and all of the collaborative technology out there, companies still do for themselves the things they feel are the basis of competitive advantage. Once the competitive advantage has disappeared, they feel more comfortable farming the systems out.
There are also functionality gaps to fill. We see this with enterprise resource planning (ERP) systems. Some people had hoped an ERP could cover the entire enterprise computing spectrum, but there are always gaps that require local patches to fill. So there always seems to be something else you need to pull inside the company for organizational learning purposes, for competitive advantage purposes, or simply to provide special functionality. That forces you to stay in systems integration mode, coupling inside resources with outside ones. And systems integration remains a big challenge for many companies, no matter how much they try to outsource.
Meanwhile, IT outsourcing is part of the broader pattern of companies' increasing reliance on outside expertise and external collaboration. When business conditions are volatile, and you can't rely on normal demand patterns, collaboration can really pay off. GE Plastics has encouraged customers' design engineers to run design programs on GE's systems in order to directly drive GE's manufacturing processes. Conceptually, there's really nothing new-we saw this, in theory at least, with electronic data interchange (EDI). The key is what this does in periods of high volatility. Providing transparency to what is happening with its customers gives GE a real sense for forecasting. It's worth huge amounts of money because it helps avoid excess inventory and other problems.
Merlyn: Given all of the business demands and pressures on the IT function, what's your advice to today's CIO on how to succeed?
Cash: One important lesson we highlighted in the Concours research project Leading IT in Internet Time has to do with time management. Because information technology is linking companies in a collaboration mode so much more than in the past, the CIO should be spending more time with external customers, not just internally focused. This requirement is significantly more important in companies that embed information technology in their products and services, as well as their business processes.
At the top of the list, and more important than any tactical challenge, is the personal challenge of managing lifelong learning. The role of CIOs and their associated challenges are changing so fast that explicit plans must exist for selfassessment and continuous improvement of their skills and knowledge, both in the short term and over their careers. Their success with this requirement will determine their long-term viability.
CIOs who are well equipped for one business and technology era are often not equipped to succeed in the following era. Like any senior executives, CIOs can never rest on their laurels. The one thing you absolutely have to do is stay ahead of the game personally and professionally.
Merlyn: How can boards help their ClOs succeed?
Cash: In the board's evaluation, a CIO succeeds when the company exploits information technology successfully (note that this does not always mean using leading-edge technology). And the leading indicator of successful exploitation of IT is a very active and engaged executive team. So the starting point for the board is to make sure that the company hires and retains and promotes technology-savvy business executives who have high aspirations and expectations for the use of IT. Next, the board must ensure that the CIO has the skills, knowledge and personal attributes to facilitate IT-related discussion, decision-making and resource allocation among the executive team. The board must pay close attention to the career development and assignment patterns of CIO succession candidates, just as with other key executive candidates. Finally, the board must ensure that the CIO's organizational placement (where he or she reports), performance evaluation and compensation are designed to attract and retain a high-quality individual-one who can enable the corporation to succeed in exploiting IT.
[Author Affiliation]
Dr. James Cash is the James E. Robison Professor of Business Administration at the Harvard Business School, where he has served as chairman of the MBA program. He is an expert in the strategic use of information technology in the service sector, and in the development of performance measurement systems for large information technology organizations. He sits on the boards of several major corporations, including General Electric and Microsoft, and is an advisor to The Concours Group.
[Author Affiliation]
Vaughan Merlyn is a vice president of The Concours Group, a management consulting, research and education firm that specializes in turning human and technological assets into business performance and value. He has 30 years of experience as an IT industry executive and management consultant and is an expert in technology-enabled business strategy, performance improvement and organizational effectiveness.
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