Try to get six people to agree on anything—Thai or Indian food, blockbuster or art film, or even when to slow down for a yellow light. Now try to get six executives to agree on the basic principles that lead to well-aligned companies. Sound impossible? We knew it wouldn’t be easy, but we had to try. n For the flagship piece of this “Closing the Gap” special issue, we assembled a dream team of sorts—three CIOs, a CEO, a head of administration and finance, and a head of sales and marketing—for some frank talk about the fuzzy and far-reaching subject of alignment. These brave panelists were handpicked from companies (old and new, big and bigger, and from a variety of industries) that in one way or another are making serious efforts to integrate IT into business planning. (See our panelists’ introductions scattered throughout this article.) With the help of moderator Thornton May of Guardent, a digital security company based in Waltham, Mass., this gang tackled some tough questions: What is right and wrong with the alignment of IT and business strategy? What causes misalignment? Where do business and IT leaders fall short? And most important, what can be done on both sides to better align business and IT strategy? n The answers may surprise you, but the big shock for us was how our panelists easily agreed on these points. “It’s interesting how all of us are thinking alike,” said Starbucks CIO Ted DellaVecchia during our discussion. Operating outside of one company’s politics or the constraints of a particular project, the panelists agreed on some basic tenets. n Naturally, there was polite dissension. The panelists were divided on the role business executives should play in vendor management and even on the most basic question of whether alignment has improved in the past two decades. “My first year in IT we talked about alignment,” lamented former Dell CIO Jerry Gregoire, “and 27 years later, we’re still talking about alignment.” Here’s hoping that 27 years from now, CIO will report on “What Ever Happened to Misalignment?” In the meantime, read on for the insights and experiences that led to “The 8 Commandments of Alignment” on Page 93.
Thornton May, moderator: Jack, I thought we might start [by hearing your perspective on alignment] as a CEO and as a person who didn’t pop out of the womb being a technologist, if you will.
Jack Brennan, chairman and CEO of Vanguard Group: Seven or eight years ago we started something called our IT voyage. Everything at Vanguard is nautical. Our logo is a ship, and we have crew members and we eat in galleys. The idea was encapsulated in one statement that our CIO reminds people of all the time: If there’s a failure, it’s the head of the business who gets fired. That statement was intended to make everybody acknowledge that, one, the IS department is integral to the business, and two, it has no money. Nobody other than [Vanguard] pays them. We’ve been through a radical shift philosophically and operationally; we’ve tried to integrate the business and technology units and people as tightly as possible. It took a lot of trauma. Many people who don’t work here anymore couldn’t make the adjustment. They wanted to be able to blame IS when things didn’t go well. And it took cross-fertilization of IT people working in the business and vice versa. It’s never good enough, but I feel great relative to where we were when we started this voyage.
I spend three hours every two weeks with the senior leadership team on nothing but IT issues. We’re not micromanaging, I hope, but we are looking at IT strategy, opportunities and challenges. A full 30 percent or 40 percent of my time is spent on IT-related issues.
Lori Thompson, former senior vice president of sales and marketing at the Keds division of Stride Rite Corp.: Sitting here listening to Jack, I’m completely jealous. The fact that he spends 30 percent to 40 percent of his time on IT clearly indicates that there isn’t going to be as big an opportunity [for there to be] misalignment. If you read everybody’s scenarios [distributed to the panelists by CIO before the forum and appearing throughout this article], probably the biggest message that came out was communication. Without communication there is a big problem—just trying to get a handle on all the tools that are available, and how [IT] can understand the end result that we’re trying to accomplish and then help us develop programs and tools to make it work. A lot of it has to do with the corporation’s point of view. If the corporation believes that IT is indeed important, and needs to be integrated in the business, it will be. But if there is a “let’s wait and see” [attitude]— “maybe the Internet will be important, or maybe it won’t; maybe e-commerce will be important, or maybe it won’t”—then the corporation is not going to move forward.
Jerry Gregoire, former CIO and senior vice president of Dell Computer Corp.: When I joined Dell, IS was reporting through finance. One of my requirements was that the CIO’s role take on a peer relationship with all the other departments, which was not the solution to alignment but it sure was a help. We learned a lot of valuable things about alignment because, during the last two years I was with Dell, we were growing $1 billion every six weeks. To manage that kind of growth, we were continually realigning the entire company. Among the conclusions that we came to was alignment has as much to do with the architectural choices you make as with the mind-set of the management team. Some new technologies have come along that allow you to integrate your company not at the application layer but at the data layer. And by [doing this], you can give development resources back to the divisions and say, “Look. Build what you want to build, in whatever order you want to build it, and fund it at a level that you think is appropriate. The only thing that we ask is that you build it in this way.”
May: When you first came [to Dell], you guys were going down that SAP rat hole.
Gregoire: A mutual friend described SAP as pouring wet cement over your company. Michael [Dell, chairman and CEO of Dell] had sold the idea to the board that SAP would solve the problems of having a global understanding of what was going on in the company. [The company] spent $67 million on the project before I even arrived. After spending six months with it, I went back to Michael and said, “I think we can get the software to run at these kinds of volumes, but here are all the bad things that are going to happen if we do.” And to his credit, he went back to the board and said, “I was wrong.” Every once in a while I call it right. Had we gone ahead with SAP, we would not have been able to sustain that billion-dollars-every-six-weeks growth. ERP assumes that no matter what state this portion of your business is in, everybody is going to do it the same way. That’s at the opposite end of the spectrum from alignment.
Ted DellaVecchia, CIO and senior vice president of Starbucks Coffee Co.: If you take my fundamental approach to IT, and that of the companies that I tend to work with, our approach is alignment of all business units—IS being one of them—recognized as a discipline just as important as marketing or sales. That requires, however, a general management approach, and it requires CIOs and top leadership to have had some form of business experience. People who have managed P&Ls or have been part of marketing organizations and so on have a clearer view of how information and technology can be directed toward business goals. I look at the CIO’s role as making all of the executives better information executives, and providing them with the what-ifs: “What could you do differently if you had this information? How, when and where do you need this information delivered?” Lori mentioned communication being a fundamental approach to repairing some of these issues. It’s not just communication between the divisions and departments; it’s the communication of business information that helps businesses succeed.
May: Starbucks is all about brand. What role does IT play in that?
DellaVecchia: The brand is built around our corporate passions and what people perceive that name to mean. The IT function must act within the core values of the company—passion, appreciation for our customers, seeking quality in what we do, partnership with our employees and representing Starbucks as people would expect.
John Mahoney, executive vice president and chief administrative officer of Staples: Even though we don’t grow $1 billion every six weeks, we’ve had very significant growth. Staples started an IS department probably the way anybody in a great entrepreneurial environment would start one: We did what was necessary to be able to record transactions and share information. We did it largely with applications that we integrated from packages. We got to the point where, like a lot of companies, you have the IS team in a pit. You’d throw some meat over the top of the pit every once in a while to keep them sustained, and you’d ask them for things. And they’d push things out over the top, and you’d either like it or not. Then along came the Web revolution. We have 1,000 stores, direct-marketing businesses and warehouses all over the country, so many of the things that we do day-to-day could be done better using the Web. We started at that point to say that we weren’t going to have the IS folks taking orders but at the table involved with the business strategy. We have a fairly elaborate business strategy process that we go through every year, and the CIO has an important influence on the business decisions. Particularly in the last two years or so we’ve created great cooperation among the business units. Only when you get the good alignment do you get the kind of rapid improvement that we’ve been able to see.
Sue Kozik, CIO and vice president of corporate centers at Lucent Technologies: Some of my observations will be from someone just beginning to work with an organization that uses IT very differently. Lucent has prided itself on being different from Ma Bell, and there’s still a lot of talk about that. We develop technology, so the question about the value of a centralized IS group is still under some discussion. Jerry mentioned that when he joined Dell he said, “Listen, the IS organization needs to be a part of the business,” and that’s happened here. In the six months since our CIO joined, he went from reporting to the CFO to reporting to the chairman and CEO. We’re now in a role to really address some of the issues that you’ve all mentioned.
The issue Lucent faces today is that we are not really focused on a certain group of priorities. There was a lot of autonomy in the business units, and the need to create some common prophecies and even to discuss IT’s value as a service to the organization wasn’t as prevalent. Now we’re getting the organization to think about common business prophecies. When we switched from AT&T, there were some rules that I’m certain were guided by our friends at the FCC [Federal Communications Commission]. Lucent had been handcuffed to some degree as to how to focus on our emerging businesses and still carry the more mature businesses that we are now in a process of divesting. I’m sure to outsiders it looks a little murky. But as we spin off probably a third of the company, that leaves room for an awful lot of acquisition and focus on broadband and the Internet. We’ve been to the board just last month to talk about process management architecture and identified some key processes: order management, supply chain, employment, sales and finance. We’ve got to get some commonality in the way we do those things because we’re literally around the world. While we leave room for local need and local regulation, we don’t quite need the local autonomy we’ve had, and we certainly missed opportunities to be as effective as we want to be.
May: In this rapidly changing economy, how do you align with a business that may not know itself or is reinventing itself?
Kozik: Lucent is taking a leadership role—the CEO is letting us leapfrog from being those guys who run the servers to those who can facilitate the process. This is a very exciting time. At the end of the day, though, it’s sort of a watch-what-you-wish-for situation because the pressure is on for rapid delivery.
May: From what I’m hearing, it’s more like behavioral alignment right now. If I could ask [the non-CIOs], if you could change any behaviors on the part of your CIO, what would you change?
Brennan: I’d make him even more aggressive than he is. We have a discrete unit called our strategic technology research group, which is a mix of businesspeople and technologists thinking about big issues for the future. I would make our CIO even more critical of businesspeoples’ willingness to accept change and use technology to lead the way.
Mahoney: We’re putting kiosks in our stores to help our store associates sell expanded products and services. The CIO is responsible for that project, and when we talked about the technology the CEO asked, “Are the kiosks going to face the customer?” The CIO replied, “Well, uh, boy…that’s operation’s answer.” The CEO said, “No, it’s not. Your job is not to put technology in the store. Your job is to drive a new program for the business.” If I could change something, it would be to have the CIO take even more ownership over the outcomes of projects.
Thompson: I would like to have him be more challenging of the way business is done. We think that CIOs have more insight into the future of technology and know that there are ways to do processes better, faster, quicker, and not to just sit there. Status quo needs to be challenged.
May: That’s a great insight because the CIO in many cases is so deluged with operational detail that [he] thinks, “Oh! Now you want to reinvent the business? Go away!” Let’s go to the CIO’s side. What would you change about the [other executives]?
Gregoire: The interesting thing about the CIO’s job is that every other job in the company is either a dial-tone job or a development job. I don’t want to start an argument here, but CFOs have a dial-tone job: Everybody understands what they’re supposed to do; nobody wants them to lead the way into a frontier of accounting. Then there are the jobs like marketing that tend to be all about development. The CIO job is a mix of that. Most IT budgets are 80 percent dial tone and 20 percent new development. The 20 percent of the budget gets 80 percent of the scrutiny. If there was one thing I would change, it would be to say, “We certainly need to continue to scrutinize that 80 percent dial-tone budget, and on that other 20 percent of the budget, we ought to allow our IS organizations to spend as much money as they want to.”
If you look at what drives users crazy the most, it’s getting in these endless lines of priority waiting. Yet we squeeze that development budget every year for no good reason. Projects aren’t going to cost anymore; you’re just going to spend the money faster. We did come to that corner at Dell. We had a $360 million IT budget, and—you’re going to laugh—at some point during the budget process, I had to say, “Stop! Don’t give me anymore money!” I couldn’t hire enough people to spend it fast enough. The result, we were bringing up new functions faster, certainly much faster than our competition.
Kozik: Our problem is not the amount of money available (I won’t say how much, but as opposed to millions, ours starts with a B), but it is focus. One of the things I would say to the CXOs is, “Hold us accountable for building a business case or value proposition for the activity.” In other words, sometimes we do things because they’re interesting. We need to separate the good ideas from the great ideas. So help us focus, and when we make the decisions, stay with us. But I come back to something Lori said, which is, “Communicate these decisions to the organization.” Our challenge with a lot of the academic engineers—we probably have more PhDs per square foot than most of you—is that they have a field-of-dreams approach to IT: If we build it, they will come. We now know it needs to be based more on customer needs and decisions.
May: Many of you have [talked about] reinvention and innovation, which means we’re moving out of our comfort zone—meaning we’re probably going to make some mistakes. What kind of mistakes are allowable for CIOs? It’s one thing to say, “We want you to be innovative,” and it’s another thing to say, “You can’t make any mistakes, and we want it all to run like clockwork.”
DellaVecchia: [Senior executives] have to encourage trial and error. The most valuable component of making mistakes is to learn and recover from those errors.
Brennan: We don’t want to bet our reputation on experimental stuff. We want lots of little experiments going on all the time. We know we’ll make mistakes, and that’s fine, but we don’t want enterprise-scale mistakes. We would rather be a day behind and perfectly confident that it’s going to be right.
Kozik: An interesting thing has happened to the IT discipline in the past three to five years. The old approach to developing applications was sort of multiyear. [Now] I think most of the better organizations do things in more manageable chunks usually measured in months. That allows you that experimentation.
May: Now Jerry, at Dell, I don’t see Michael [Dell] saying, “Hey, just go out there and wing it, see what happens!” What was the approach when mistakes were made?
Gregoire: There were a lot of mistakes. Some of them were visible, [such as when] we had to pull laptops off the market, and some were pretty big not-so-visible mistakes. The issue is not how big the mistake, it is how fast you recover afterward. If you can’t recover fast, you’re screwed.
DellaVecchia: It’s interesting how all of us are thinking alike. One of the things we do at Starbucks is called time pacing. If you were to draw a mental chart, put the entire big, hairy audacious goal in the upper-right-hand quadrant and then build a stepped approach to achieving that goal in smaller segments. If you do need to change, the segment of recovery is much smaller because your mistake is smaller.
May: Jack, one of the things you do at Vanguard is the whole process where you create this thing called “the agenda,” which focuses and forms alignment.
Brennan: [This happens] when we see an opportunity that’s cross-boundary, when we’re not quite sure what we want to do, but we want to have a concerted effort to understand how a technology may affect our clients. We pull out our best-line people, immerse them in this as a full-time job and call them the agenda champions. They basically fan out throughout the company and say, “What does something like online technology in 1993 potentially mean to Vanguard?” Two routes happen: One, it dies, or two, the businesses demand to take it over themselves. That’s what we call a success—when they say it’s no longer good enough for somebody in the centralized unit to be handling this.
May: Sue, you mentioned that you have a unique challenge because you have a lot of mensa-type folks.
Kozik: We’re very encouraged that a process management approach is going to be key to some of our success going forward. The subtitle is “the what before the how before the who.” I think that goes against the normal behavior of first we pick the people, then they decide the answer and then they see if it matches the problem.
May: The business is responsible for IT enabled value creation, so how do you get CIO DNA into the corpus of the general business population?
Brennan: You have to make it one of the critical success factors at the human level. I don’t think there’s an ambitious person here who doesn’t understand that to be a senior member of the leadership group, you’ve got to be IT-focused. You’ve got to make it a conscious effort, and it has to be very visible or else you’ll still be talking about [alignment] 10 years from now.
May: One of the things I’m hearing from everyone is that we should spend some time on alignment; we may not be spending enough, but everybody is busy. How do you free up the time?
DellaVecchia: It’s a matter of getting your company in the rhythm. Here’s a metaphor for those of you who play golf. It would be like [thinking], “If I could just get my hands to go right on this grip, everything else would be fine.” But it’s an entire rhythm. The whole swing requires everything to work in synchronicity.
Gregoire: Everybody intuitively knows that rework is a lot more time-consuming than doing it right the first time. If you take the time to get alignment up front in the planning phase, you’re going to have a more frequent outcome that works the first time.
May: One point to add is the whole area of vendor management—businesspeople who get involved in managing relationships with the vendors—the IBMs, the professional service providers, the Andersen Consultants [now named Accenture]. When you sit at CIO bars, one of the things (forgive me for the vernacular) that really pisses the CIO off, is basically say, Oracle loses a job, a bid or something at a company and then it goes around the CIO and to the CEO.
The panelists: Can they really do that? I don’t believe it.
May: This is what I’ve heard; it’s a hateful rumor. I mean, because it’s not just internal to the organization, we’re going to have to use what external suppliers provide. How aligned are we in the management of our external suppliers?
Brennan: We want IT professionals supervised by competent IT people, and we want IT vendors supervised by competent IT people. We actually audit what we’re doing by watching how much money we’re spending with various vendors, particularly consultancies, to make sure that nobody has ingratiated themselves with the IT folks. We don’t want amateurs dealing with very complex, technical issues and solutions. One of the roles your partner from the IT organization plays for you as a business leader is vendor management.
Mahoney: I agree. At Staples, we don’t have anybody that’s smart enough to overrule the CIO on a decision like that, so we’re pretty safe. [The panelists laugh.] We also do a lot to benchmark what our spending is, both in the aggregate and item by item.
May: Historically, good behavior used to be, “Hey, the business side makes business decisions; [the CIOs] make technology decisions.” But as we migrate to where you’re spending a significant portion of your total operating budget on information technology, it may be appropriate for business executives to play a bigger role in vendor choice. What do you think?
Brennan: I disagree. We spend up to 45 percent of our budget on IT. We have a very tight governance process where the head of the business has a right to say he’s not being well served. But the evaluation is net service from IT, not micromanaging how it happens. The idea that someone like me would tell them whether an Oracle database is the right one or not is just absurd.
Gregoire: Especially in the past five or six years, I had less and less trouble sharing the decisions on vendors. I think it was good to illustrate to users that consultants put their pants on one leg at a time just like everybody else. And it helps a lot when users realize that 100 percent of the software that companies are shipping is broken out of the box. There’s this notion that if you buy this package, it’s going to work, and nothing can be further from the truth. The vendors have cranked up this huge marketing machine. Just watch [ads during] any NFL football game that say, “We get IT done”—the notion being, we’re just sure your IS department isn’t living up to its potential, but we can help. Hundreds of millions of dollars are being pumped into shaking confidence in IS departments. It’s blowing expectations far beyond anybody’s ability to deliver, including the consultants.
Kozik: I leave room for the blurring of the technology and the business. We spend a good deal of time not debating who gets to make the call, but we try to figure out how we can partner so that at the end of the day, what’s being promised in the marketing literature really can deliver for the company.
May: Jerry, you’ve also mentioned, “Well, 27 years ago, when I was knee-high to a grasshopper, we were working on alignment, and we’re still working this issue.” Among this gang of six, if you will, do you agree that organizations are becoming better aligned?
Gregoire: No, I really don’t. We may be getting better, but it’s only because the tools are allowing us to do it. We’ve had no breakthroughs organizationally or sociologically. It’s happening organically. The bright spot on the horizon is that we are getting very close to a point where users can develop their own systems within the context of an infrastructure. Alignment won’t be solved, but it also won’t be an issue.
Mahoney: We don’t have IT initiatives anymore; we only have business initiatives, and IT supports them. So maybe that makes me say that it’s more aligned. But certainly, technology is coming out of the computer room and touching everybody’s life, and therefore, I think you have to say that it’s better than it used to be.
Brennan: One of the interesting things you have here is four infant companies: Dell, Staples, Starbucks and Vanguard. Lucent and Stride Rite have different challenges because they have histories. It’s a lot easier to be a younger company, I think. Getting alignment is simpler in a company that’s 10 to 20 years old than it is in one that’s 100 years old with PhDs and white coats.
Kozik: We’ve been talking about getting a seat at the table. I say we’re at the table, and the good news is, we’re eating dinner rather than serving it. It’s time to start acting as that business partner and working on the broader business issues. I’m encouraged, but I think we need to start turning our attention to making the business more successful rather than worrying about our discipline.
Brennan: It’s clear to me that understanding that there is no difference between IT and the business is a critical part of success, and an environment where your IT and business professionals are in sync is a great opportunity to create competitive advantage. That’s what it’s all about. That’s how investors make money and companies succeed. That’s got to happen, and I think, frankly, it’s already happening in the best companies we invest in.