by Thomas Wailgum

Why the New Normal Could Kill IT

Mar 12, 2010
CIOData CenterEnterprise Applications

IT has survived seismic shifts before, but the global economic slowdown and resulting business demands have rocked the CIO's kingdom on a new scale. You've spent years trying to be too big to fail the business: Are you now too big to s쳮d?

Plenty of seismic shifts have rocked and reshaped IT in the past. Some big rumblings’ epicenters had origins in an unstoppable technology shift; other fissures had nothing to do with PCs and servers. Consider the recent shocks: the Internet revolution and dotcom bust; Y2K and 9/11; the consumerization of IT; and the unstoppable broadband and mobile explosion.

However, the latest shock—the global financial meltdown—is like the recent 8.8 earthquake that shook Chile and knocked the earth off its axis. And for IT leaders today, it’s important to realize that the aftershocks are still coming.

Ethernet Noose
CIOs are killing themselves in the New Normal because of too much complexity and too much legacy. Image: Mike Wu / flickr

First off, here’s what happened: Things haven’t gotten necessarily more technologically complex as of late. Sure, Web-based computing, the “data, data everywhere” phenomenon and IT consumer trends have made IT’s life tricky. But they aren’t exactly breaking news anymore.

No, this all started on Wall Street, spread across financial markets and propagated pandemic-style to the general public. The subsequent global financial meltdown and Great Recession forced companies to scrutinize and examine factors that once never saw the light of day. For IT, in particular, a harsh light finally glared on unfavorable licensing agreements and much-too-much shelfware; ill-conceived purchasing and integration strategies; and questionable software married to entrenched business processes. And non-IT executives seated at the boardroom table were more than likely horrified by what they found during closer inspection of IT’s operations.

In many corners of the corporate HQ, in fact, there are plenty of execs who, from time to time, would probably take pleasure in watching IT fail, a la Lehman Brothers. This most recent inspection of IT’s ledgers and strategy probably amplified that feeling.

But those frustrated executives are nearly powerless to do just that—to let IT fail. That’s because the modern-day IT shop—a fiefdom that has long wielded influence even though it suffered from a perception of little business competence—has become too big to fail today. Let IT keel over, and watch everything you hold dear go to hell. Just try it.

Why is that? Look at ERP systems, for instance. These are the financial, administrative and procurement backbone of every organization. ERP spend gobbles up huge chunks of the corporate allocation pie.

So how are ERP software suites viewed today? With about as much love as Toyota execs have for “unintended acceleration.” In a recent survey, 214 business executives stated the inability to easily modify their ERP system deployments is disrupting their businesses by delaying product launches, slowing decision making, and delaying acquisitions and other activities that ultimately cost some up to $500 million in lost opportunities.

A couple of verbatim responses should make the hairs on the back of your neck stand up: “Capital expenditure priorities are shifted into IT from other high-payback projects” just to perform necessary ERP changes, noted one respondent. Said another: “Change to ERP paralyzes the entire organization in moving forward in other areas that can bring more value.”

Stop investing in ERP? OK. Go for it, Mr. CEO. Have fun closing next quarter’s books.

It’s not solely about Finance and ERP’s inextricable bond, though. Go right on down the list of business functions and departments, and you’ll soon see that IT has its tentacles firmly affixed: Business Development—BI tools. Operations—Forecasting Software. Customer Service—Call Center Applications. Security—Networking. Sales and Marketing—CRM and Lead Generation. Manufacturing and Shipping—Supply Chain Apps.

Try doing any of those without IT.

Yet instead of galvanizing IT’s position inside the enterprise, the opposite has happened in too many enterprises. Decades of business-IT acrimony combined with demand for new consumer-oriented Web-based applications (which IT has been slow to embrace) and layers upon layers of accrued tech legacy have boiled into frustration and anti-IT sentiment.

The global recession’s impact on business—what’s being called the “New Normal”—made everything that much worse.

This is your wakeup call, big-league IT execs. After nearly five decades of gate-keeping prominence, corporate IT is in trouble and at a crossroads like never before in its mercurial and storied history as a corporate function. “The era of CIO dictatorship ends with 2009,” writes Altimeter Group partner for enterprise strategy Ray Wang.

You may be too big to fail, but you’re not too big to succeed. What will you do?

IT’s Life in the New Normal

The new normal makes life even harder for CIOs—and may cost many their jobs.

In the view of McKinsey & Co., the global management consultancy, the new normal is “not merely another turn of the business cycle, but a restructuring of the economic order,” wrote McKinsey worldwide managing director Ian Davis in March 2009. He goes on:

For some organizations, near-term survival is the only agenda item. Others are peering through the fog of uncertainty, thinking about how to position themselves once the crisis has passed and things return to normal. The question is, “What will normal look like?” While no one can say how long the crisis will last, what we find on the other side will not look like the normal of recent years. The new normal will be shaped by a confluence of powerful forces—some arising directly from the financial crisis and some that were at work long before it began.

In corporate America’s paper of record, The Wall Street Journal, Walt Shill, head of the North American management consulting practice for Accenture, declared that “strategy, as we knew it, is dead.” It’s now all about operational flexibility and how fast businesses can seize opportunity. If strategies and forecasts have to change daily or weekly, then so be it.

This new world order calls on CIOs to meet its demands in three explicit ways: “They will have to make the IT function dramatically more productive, use IT more effectively to meet larger corporate goals, and embrace disruptive technologies that will shape the new economic terrain,” states a fall 2009 McKinsey on Business Technology article. Says Michael Chui, a senior fellow and IT expert at the McKinsey Global Institute: “CIOs are being told: You need to become more productive. But also: We need to get more out of you. It’s a real push, and it’s absolutely the new normal environment.”

Haven’t IT leaders heard all this rhetoric before? Sure, Chui says: business-IT alignment, improved productivity, being a catalyst for change, that’s all table stakes, he says. But here’s the difference. “In the past, a CIO could be successful at being great at one of them or perhaps successful at maybe two,” Chui says. “Now, in the new normal, you really have to excel at all three of those categories. The bar is much higher.”

Of course, CIOs and IT staffers can’t also forget about the “doing more with less” mantra that’s still fashionable. But the lasting effects of all this new pressure might, in fact, lead to a power outage for CIOs. If IT’s already too big, then having “less of IT” may become de rigueur in the near future. Gartner, for instance, says that by 2012, 20 percent of businesses will own no IT assets at all.

Which would leave those 20 percent of CIOs to do what, exactly?

Complexity Goes From Aggravating to Fatal

Given the aforementioned warning signs, it’s easy to speculate that the CIO’s role and the department’s sovereign power might be slip-sliding away. Certainly, there’s a horde of tech trouble at the gates, and users today have as much patience as those stranded in long lines at the DMV.

No doubt, most businesses 10 years or older have IT legacy that has led to business complexity. IT’s top priority for 2009—for 2009!—was “modernizing key legacy applications,” according to a Forrester survey of 2,200 IT executives and decision-makers. Those systems and applications cobbled together over the years are no match for today’s push (terabytes of data flooding those systems, which Gartner predicts will grow by 650 percent during the next five years) and pull (users demanding sweeping, individualized access to the data).

Now watch how, using a 2009 survey of 353 software buyers and sellers, that complexity leads to financial duress and ultimately to IT failure:

Complexity Hinders Software Success. “Two-thirds of survey respondents say the enterprise IT environment is more complex than it was five years ago,” notes the survey report. “The proliferation of technology combined with intricate organizational dynamics has raised the level of business IT complexity to the point of holding back software success.”

“Financial Upside” Is Left on the Table. Fifty-three percent of respondents said that, on average, “fewer than half of users are effectively using installed software in the enterprise,” states the report. “That means most companies are leaving benefits such as reduced costs, increased revenues and improved competitive differentiation on the table—benefits that were cited as the rationale behind the software investment in the first place.”

IT Still Gets Blamed for Failures. Nearly 60 percent of respondents claim that the CEO still holds IT responsible for a “lack of success.”

“CIO’s have lost a lot of control in guiding how technology is used in the enterprise,” blogs Altimeter Group’s Wang, “because the world of consumer tech has out-innovated enterprise-class technologies.”

Just before he left Sun Microsystems, Tim Bray, the former director of Web technologies, had this to say (in a blog post) about the current state of enterprise systems: “Doing it wrong. Enterprise systems, I mean. And not just a little bit, either. Orders of magnitude wrong. Billions and billions of dollars worth of wrong. Hang-our-heads-in-shame wrong. It’s time to stop the madness.”

How to Find Your Way Through the Fire

Here endeth the doom and gloom. What follows are several ideas, constructs and strategies for CIOs and their IT departments.

New Mindset Required.

In his blog post, Wang notes 11 skill shifts that CIOs need to make. For example, engaging with business has to change from an autocratic mindset to a partnership one; traditional business processes resembling “replication and incremental refinement” have to shift to “disruptive and transformative”; infrastructure management moves from “reliable and expensive” to “flexible and cost effective”; and an enterprise apps strategy consisting of “on-premise mega-vendor apps and legacy suites” evolves to “augmentation with best of breed solutions in hybrid deployments.” In other words: CIOs and IT need to become fast, flexible partners.

Biz Speak Only.

Nothing new here, but today’s harsh business climate necessitates clear and consistent communication. Abbie Lundberg, the former CIO magazine editor in chief who now works with CIOs on executive communication skills, says that even if IT shops are doing a good job, poor communication skills at the top can sink any CIO. “As long as IT is speaking in IT or engineering terms, IT will seem like a dark art—arcane and irrelevant,” Lundberg says. “I see a lot of IT organizations doing many of the right things, but without that communication piece, they just aren’t getting the traction and acceleration that they need right now.” (See Lundberg’s insightful interview with Steve Bandrowczak, former CIO at DHL, Lenovo and, most recently, Nortel, who discusses what IT leaders can learn from sales and critical communication strategies.)

Know Internal and External Customers

McKinsey’s Chui says that it’s imperative that CIOs and IT understand the ever-changing technology wants and needs of not only internal users and managers but their company’s external customers. “Some [of this new] demand comes from new hires and more IT-savvy managers,” Chui says. “But part of it really comes from the new normal, where you are seeing customers and consumers who have an increasing amount of power and knowledge, partly because the discussion around brand doesn’t occur through paid advertisements any more. That makes it incumbent on the business to understand those sorts of technologies and how you interact.”

Don’t Be Afraid of a Little Failure.

The imperative for CIOs is to explore and experiment with so-called disruptive technologies (Web 2.0, social media, cloud computing) that users and customers have embraced. But IT can’t be intimidated by failure, said several leading CIOs at the recent National Retail Federation show. For instance, Neville Roberts from Best Buy said: “CIOs must foster the right culture so [IT staffers] don’t have a fear of trying new things. There’s always a new shiny toy out there,” reported Evan Schuman at Storefront Backtalk. McDonald’s CIO David Grooms added: “You should try and fail really small…. You test, take some risks, adjust and go back. But you really can’t take that long. You can’t take three years to develop an app. You must launch and learn.”

Be Ready: More Will Be Asked of You Than Ever Before.

Cut and grow: That’s essentially what’s being asked of CIOs right now, say Lundberg and Chui. “I call it the ‘CIO’s Dilemma’: How do you create efficiency, on one hand, and help grow the business, on the other,” Lundberg says. “It’s a business dilemma, too. But it’s the CIO’s Dilemma because IT is really at the core of how businesses operate.” In fact, CEOs are expecting good things from their companies in 2010: 74 percent of executives interviewed for a McKinsey survey expect a rise in profits in 2010, versus only 46 percent in 2009.

Some CIOs have already responded: Capgemini’s 2009 Global CIO Study found that 55 percent of the 490 respondents say they are giving priority to projects that contribute more to the business, and 34 percent are prioritizing projects that take advantage of new market conditions.

When asked whether IT today was too big to fail, Chui takes a slightly different tack: “I would say it’s too important to fail.”

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