The Once and Future CIO

F. Warren McFarlan (Baker Foundation Professor & H. Gordon Professor of Business Administration Emeritus, Harvard Business School) is something of a dean of CIO conferences and an often-quoted voice in CIO Magazine. So it seems only fitting that he should kick off CIO’s first conference in Cambridge, literally across the river from the venerable halls of HBS. Drawing from his 48 years of studying IT, McFarlan literally rolled up his shirtsleeves and shared, in his trademark intense, yet self-effacingly humorous style, his perspective on what has stayed the same, and what’s different, in IT.

What has stayed the same?

• The ever-falling price of bytes and bits. The price of computing power has decreased every year, and will continue to get cheaper for as far as we can see into the future. CIOs complain about the legacy systems they inherited, but those systems were shaped by the constraints of the time in which they were built. Likewise, the strategic systems being developed now will reflect today’s constraints, so some of them will look pretty crummy 5 years from now. Says McFarlan, “IT is a rotten field to grow old in unless you like to reinvent yourself.”
• Change management. “In 1968, I said the dominant challenge of computer technology is change management,” McFarlan said. “It’s one of the few things I said in 1968 that I will own up to in public today. IT is a field of applied human psychology.” McFarlan said that instead of worrying about coding, IT now needs to focus on change management. He cited examples like Pfizer, which no longer develops its own technology. Instead, IT focuses on managing change.
• The strategic grid (factory, support, strategic, turnaround) that McFarlan has been sharing with his students for more than 20 years still applies today.

What has changed? Almost everything, and he noted the following major changes in IT:

• Open standards. All great systems before 1992 were proprietary, like Sabre. Today, it’s all about open systems and being able to access your e-mail through the web from any computer anywhere in the world. McFarlan cited the example of Li & Fung, a 100-year-old Hong Kong-based trading company that sources apparel for mostly American and European 300 retailers from some 4,000 factories in 37 countries. Today, all 300 customers are completely extranet enabled, using the web to view and approve designs, get invoices, etc.
• The extended enterprise. The borders of the firm are expanding. Companies like Nortel are outsourcing accounting, HR, even IT. Global business process outsourcing is here to stay, according to McFarlan.
• Technical literacy (but without understanding.) Users are technically literate today, but have no idea how hard it is to do IT right. “When I came into the field, users were illiterate, and knew they were illiterate,” said McFarlan. “Today, no one admits to being illiterate. They can do e-mail, word processing, spreadsheets, use Google, look up stock prices. And they don’t know squat about what it takes to develop and run a robust set of bulletproof systems.”
• Smart companies have board-level technology oversight committees. McFarlan cited a long list of big-name companies that do this, including Mellon Financial, Home Depot, FedEx, Novell, P&G. “In an information-enabled society we live in, the board needs to have a fundamental view of what IT is doing, where it’s going, and how it matches up with what the rest of the world is doing,” he said.

McFarlan concluded by observing that the biggest technological transformations – the advent of electricity, railroads, communications, automobiles, aircraft – all happened over the course of about 80 years. And the biggest change always occurred in the second 40 years. “The first 40 years, they paved the cow paths,” he says. “In the second 40 years, they broke things down and began operating in different ways.” The same thing goes for the evolution of information technology, with the browser unleashing the power of the web 40 years after the Univac One heralded the dawn of modern IT in 1955. “A lot of my CEO friends like to say the Internet came, it was, and now we’re back to business as usual,” says McFarlan. “They’re wrong.” It’s time to rethink the cow paths. And that’s exactly what companies that will lead the way for the next 30 years are doing.

-Alice Dragoon, CIO magazine Senior Editor