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The Metrics Trap...And How to Avoid It

By Christopher Koch

April 01, 2006 — CIO —

Joe Drouin caught a lucky break when he became VP and CIO of TRW Automotive in 2002—or so he thought at the time. A consultancy brought in to benchmark all of TRW’s internal functions—everything from IT to legal to sales—found that the company was spending less on IT as a percent of overall revenue than the industry average, which was about 1.5 to 2 percent.

Not one to look a gift horse in the mouth, Drouin played the metric for everything it was worth, highlighting it in every PowerPoint presentation he could during his first year as CIO. "I used it to say, we are managing IT effectively, and here’s the confirmation from this outside firm," recalls Drouin. "It made me one of the good guys in the eyes of the CEO and COO." At one point, the CEO, who believed that inexpensive IT was good IT, joked that he expected to see Drouin and his staff outfitted with T-shirts that had the percentage stamped across their chests in big, block numbers.

But as that first year wore on, Drouin felt less and less like wearing that T-shirt. "I was guilty of using the number not because it demonstrated the value of IT but because it showed a positive trend," he admits.

The shallowness of the benchmark became clear as Drouin prepared his first budget presentation. The CEO asked him to break out IT spending as a percent of revenue for TRW Automotive’s 12 individual business units, each of which had its own legacy infrastructure and independent IT spending patterns. As it turned out, costs ranged significantly across the units. In fact, some units were spending two to three times more than others on a percentage of sales basis.

Suddenly, Drouin didn’t look like one of the good guys anymore.

He looked like a manager whose costs were out of control.

Much to Drouin’s chagrin, the CEO initially tried to use the percentages to reduce the budgets of the higher-spending units. But it quickly became clear that the spending had no correlation to business success. Some of the units spending less on IT as a percentage of revenue were not doing as well as units spending more. Worse, if TRW Automotive’s overall revenue fell (which was a distinct possibility given the auto industry’s struggles), Drouin’s IT spending as a percentage of revenue was going to rise even if he didn’t spend an extra dime on IT.

"It’s disappointing to be measured on one simple metric, only half of which I have any real control over," a sadder but wiser Drouin says now.

 

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