To manage IT as a business, both the CEO and the executive management team must understand above all how technologies can be used to help the business grow. This was the message conveyed by Mark Lutchen (PDF, 12 Kb) , leader of the PwC IT Business Risk Management Practice, who identified a set of critical factors needed in order for management to be able to optimize the value of technology. Among these: the need to develop a strategy that ties in directly with the company goals; to effectively analyze the various facets of IT organization performance; and to effectively manage financial and human resources, applications and service. All of this, he said, must be done while also ensuring that the company’s assets and technological networks remain secure and confidential and that IT organization is maintained in the event of any possible interruption.

One of the CIO’s major responsibilities, explained Lutchen, is preventing the executive management team from making inopportune decisions and approving superfluous IT expenditures. Thus it is necessary to clearly define investment priorities according to the company’s overall needs. It should be kept in mind, added Lutchen, that one of the main problems with IT is that most companies invest the majority of their budget—around 70%—on inherited projects. “New IT projects require only 30% of the investment,” explained Lutchen. In his opinion, the disparity occurs because new technologies are often implemented “without estimating the costs incurred by maintaining these systems.” Therefore, the company must perform an analysis of its true total IT costs “not only in the IT department itself, but also in the various units of the business.”

It is also vital to clearly establish who is responsible for the execution of activities and tasks related to these resources. “Here it is important to get help from the CFO, whose skills, applied to IT, bring the information necessary for visibility,” insisted Lutchen, who stressed the importance of having adequate measurement tools for analyzing IT performance.

During his talk, Lutchen, author of the book Managing IT as a Business, spoke about three different degrees of measuring IT. The first centers on operational results; the second is focused on the CIO’s skills when it comes to his or her command over the company’s upper management and control unit and the third, on getting the most business value out of IT. In his opinion, it is important to create organizations in the IT department that are capable of identifying a change and implementing it to improve the business. These professionals, he said, “Have to feel like the proprietors of the change and not fight against it, since it is going to happen anyway.” Finally, the leader of the PwC IT Business Risk Management Practice reflected back upon the changes that have shifted the role of the CIO. Whereas during the 1990s CIOs were expected to have a sound technological knowledge, he said, they must now have a much more balanced set of skills. Today’s CIOs “must have skills in business, fiscal management, technology, leadership and organization,” concluded Lutchen.

Presentation (PDF, 174 Kb)

Full Story (PDF, 26 Kb)

The key to good IT management consists of managing the information technology division as if it were a company. This was the idea expressed by Federico Flórez (PDF, 11 Kb) , information systems director for the Bank of Spain.

During his talk, Flórez explained how the Bank of Spain four years ago started the process of creating a systems unit to centralize all of the bank’s information technologies. A unit, he said, “that would function as a company that sells its services to the rest of the organization.” With this model, the rest of the financial entity’s units are considered customers and personalized agreements would have to be reached with each one. Their IT unit has the same departments as a regular company, with finance and sales, which ‘sell’ solutions; R&D, which creates the solutions; logistics, which handles the bank’s infrastructure; and business transformation, which takes care of the reengineering of processes. “We even have a communication plan for the department and for the rest of the bank, which addresses how we transmit information and in what type of language,” said Flórez.

One of the keys to success for this type of operation is gauging the results and thus the project entailed spending a year and a half of on the creation of a control panel that reflects the objectives of the bank. “This way we can gauge the impact on these objectives,” explained Flórez.

To manage IT as a business, he stresses, a series of steps must be taken beforehand. First, there must be full support from the organization. Also, the CIO must have already earned a level of prestige as an efficient professional and have the ear of the company’s management. This, obviously, is no simple task, says Flórez, given that the role of the CIO is by nature quite complex. Why is this so? Because the CIO must deal with a growing demand, an increase of business areas and pressure to use outsourcing. “Ten years ago, CIOs were worried about technology but now they have to cover a much wider range of concerns, such as public relations,” he added.

Presentation (PDF, 123 Kb)

Rubén Muñoz (PDF, 11 Kb) , director of technology and systems for Correos España, explained during his talk that in 2005 Correos decided that it wanted to become the leader in physical, hybrid and electronic postal services. With this goal in mind, the organization launched Plan Integra, for which the entity allocated a budget of €150 million over the following three years and whose objective consists of integrating all of the Correos ICT projects. The bulk of the investment is earmarked for infrastructures, with a total of €82.7 million, and information systems, which receive €67.3 million.

Rubén Muñoz said that the decisions must be aligned with the final planning in terms of quality, accessibility and profitability, and with the company’s instrumental plans, which affect human resources, infrastructures, equipment, technologies and marketing. According to Muñoz, ensuring successful ICT management requires the presence of a number of factors. The first is having strategic partners, a need witnessed in this case by the agreements held by Correos with IBM, Telefónica, Microsoft, SAP and Oracle. The second condition consists of having “support and leadership from upper management.” In the third place, a definitive employee training plan must be set up, so as to get the maximum benefit from the technologies implemented.

One of the major moves by Correos is its investment in automatization. In fact, pointed out Muñoz, 80% of the over 25 million daily shipments handled by Correos have already been fully automatized. To this end, various technologies have been integrated, including: optical character recognition (OCR), radiofrequency identification (RFID) for each shipment, PDA devices so that mail carriers can register their deliveries and Wi-Fi for transmitting information to the central system through wireless networks. In his talk, Muñoz reminded the audience about the need to consider more than just the investments that allow short-term returns to be gauged. Sometimes, he insisted, one must consider “projects with an ROI that is difficult to estimate but which contribute to achieving a specific goal.”

Presentation (PDF, 2700 Kb)

Ramón Cabezas (PDF, 22 Kb) , assistant general manager of technology and systems at ENDESA, spoke about the essential need for CIOs to know their business while at the same time having CEOs with notions about technology. Knowing how business work allows a CIO to “reduce recurring fixed costs thanks to the use of ICTs.”

Cabezas has spent much of his professional career working towards saving part of the €400 million that ENDESA spends on information technologies. And the result? “A savings of €154 million, of which €84 million pertains to infrastructures.” A reduction in costs which, according to Cabezas, should be “reinvested in the transformation of the company.”

Another of Cabezas’ proposals consists of having a meeting with the different units so that they explain what they should change and making the different projects compete with one another. At his company, said Cabezas, projects are approved six months beforehand, which requires thorough planning by the other divisions. “It is important to have as much cost transparency as possible, something which entails observance of an internal billing process, a register for orders and way to gauge the return rates, as well as establishing internal service level agreements.”

Cabezas did not shy away from talking about the future of his systems department, which could change depending on which scenario comes out the process that ENDESA is currently undergoing. “If the IPO of Gas Natural happens, our IT management will prevail thanks to the savings attained. If the German offer wins out, the most likely result will be an evaluation of the low costs achieved by the outsourcing of services. One must consider that ENDESA subcontracts services to countries such as Argentina, where specialists charge $19 an hour, a much lower rate than that of their German counterparts. A third scenario would be that neither of the two offers should prevail. In this case, says Cabezas, “work on cost reduction would have to continue.”

Josep Valor (PDF, 13 Kb)  and Sandra Sieber (PDF, 12 Kb)  feel that in today’s companies, upper management should be involved in ICT decisions. This does not require the general manager to have broad technical knowledge, according to the two IESE professors, although they do need to have sufficient notions in order to hold an effective dialogue with their technology director. However, this dialogue is complicated by the differences between the technology director (CIO) and the CEO, because the two are on different wavelengths, they say. “Many times, they have different visions of what ICTs represent,” explained Valor. In the mid 1990s, information systems were conceived as a means of support for companies and the continuity of the business was not affected by system failures as much as it is today. In the current business world, according to the IESE professor, information systems play a strategic role but there are general managers who do not see it that way. In these types of disagreements, Valor explained that the CEO “is generally unaware of what percentage of the budget is being invested in maintenance and is not conscious of the small amount money available for new projects.” Along these lines he added that the general manager at times seems to forget the cost entailed by each IT project and orders changes that involve ostracizing the investments already made despite at the same time expecting his IT director to recoup his investments.

Meanwhile, added Valor, business and the implementation of technologies move at intrinsically different speeds. While business plans change quickly on account of an environment that is shifting at a dizzying rate, the reflection of these changes in a company’s information systems requires some time. Time, Valor says, “which few CEOs know how to give.”

In order to get the CIO and CEO “in tune,” professor Sandra Sieber is a proponent of formalizing the tasks related to information systems. The first step consists of establishing an ICT committee to carry out a set of well-defined tasks, in which the CIO participates. Nevertheless, given that IT managers “know increasingly more about business and are not necessarily systems specialists,” pointed out Sieber, it is important to have a technology expert present along with an outside consultant to provide an objective point of view. It is also, of course, vital to have the general manager and the heads of the key areas involved.

The recurrence of the committee’s meeting shall depend on the role that IT plays in the organization. In some cases a quarterly meeting may be sufficient, whereas others may need to hold them more or less often. In any case the ICT committee should work towards the achievement of the established objectives. In Sieber’s opinion, one of the objectives of the ICT department should be avoiding a continuous influx of suggestions and claims. To achieve this, project planning is essential. “In the past, this planning was done in the office but more and more now it becomes necessary to step outside to discover the true needs of the business.” In general, analysis of the results leads to the identification of more projects than can be tackled in one year. As for which projects to choose? Sieber says that one must consider factors that go beyond investment return. If cost were the only consideration, it facilitates departments designing their budgets so that their projects are accepted.

Sieber says that technology projects involve not only ICT department personnel but the company’s entire user base as well. Thus, it is necessary to clearly delimit who will be participating in the project and establish joint responsibility. “Technical responsibilities lie with the systems department but functional responsibilities correspond to the unit that has originated the project,” she adds.

IT management requires choosing which technologies to implement. This is not an easy decision, since each year two or three new alternatives arise. To determine which technologies should be implemented, Sieber stressed four of the keys to success. First, there must be a point of inflection that allows for their development, which could happen well after they have appeared. “Opting for a technology before this point arrives could be quite harmful to the company, but doing so too late could mean a loss of competitiveness,” says the professor. Another factor is the development of an ecosystem, or in other words a set of complementary services, and another factor is consistency between the parallel interests and yet another is that technology must be capable of overcoming the users’ resistance to change. In addition to these factors which are intrinsically related to technology, “something else that comes into play when choosing between one system or another is the motivation of the decision maker,” she added. In this respect, what is known as “information cascade” determines the adoption of a technology in many cases. In other words, systems directors base their decisions on the information they have, which does not necessarily reflect the current reality. If an IT director says that a product is fantastic because he or she is expected to do so, then everyone else will be forced to echo this, believing that it must be majority opinion, said Sieber. “Taking an opposite stance would be more risky than going along with the general consensus, since if at the end of the day the technology flops, the mistake will affect all companies and it will be more difficult to blame it on the systems director.” In addition to this follower attitude, continued Sieber, is the fact that sometimes the CIO is more interested in implementing a solution that looks splendid on his or her CV than opting for a system that is less known in the market, regardless of how well it may work.

Sieber ender her talk by saying that in order to tune in the CIO with the CEO “a series of explicitly defined activities must be formalized, with  responsibilities being assigned to specific individuals.”

Presentation (PDF, 1783 Kb)