Getting a grip on information technology: CEOs are learning how to manage their CIOs

Chief Executive, The, Jan-Feb, 2005 by Russ Mitchell

Remember how a simple technology called the Universal Product Code, the zebra stripe labels now affixed to just about every product and package, powerfully streamlined the distribution and sale of goods? FedEx Chief Executive Fred Smith said radio frequency identification will become even more powerful. No more scanning with wands. Tiny, smart and cheap implantable RFID tags will send information without wires, over radio waves, directly into computers; the tags will even communicate with one another. "In an express shipment, we scan everything around 16 times," Smith said. "I don't know what the cost is, but you already have the wireless infrastructure in place" for RFID. That, he added, has "very big implications for all kinds of business."

[ILLUSTRATION OMITTED]

The word "technology," which once inspired so much passion, turned sour for many business leaders after the pop of the Internet bubble and the botched installations of major information systems. Business investment in technology slowed to a crawl as CEOs became far more skeptical about new technology projects, chief information officers and technology vendors.

Judging from a roundtable discussion on the subject, sponsored by Manugistics, it appears that top executives are warming to technology once again. But this time around, CEOs will better manage the IT function. And they hope that, rather than wasting hundreds of millions of dollars, their companies will extract far more value from technology than ever before. As General Motors North America President Gary Cowger put it, "The power, the speed, the bandwidth--they're all allowing us to deliver what we've been fascinated with since the 1980s."

But the wounds are deep. Pushed by Y2K disaster avoidance, and fueled by a technology mania, companies splurged on huge "enterprise resource planning" and "customer relationship management" software projects with results that ranged from problematic to disastrous. Lucent Technologies' Chief Executive Pat Russo spoke for many when she said: "Do I think we got what we paid for? I'd say, not to the extent that we could have."

"I think after we went through the spending of Y2K and this technology onslaught, we took a step back," said John Sickler, vice chairman of Teleflex. "We started to say, 'What percentage of our capital-spending budget is this?' It's becoming a much larger share, yet we're not applying the same return-on-investment principles to that area as we do with other" areas of capital spending.

At the heart of the problem was that the technology decision-making was done in isolation of business decision-making. To better integrate technology decisions into the strategy of the business, more CEOs are installing CIOs who have real business experience as opposed to being pure technocrats. And they are exposing them more directly and over a sustained period of time to leaders of their business units.

Companies also are putting heavy pressure on vendors to ensure their software pays off. "The approach where you go out and buy all this software and then you go pay for a bunch of services that you're buying by the hour, and you're taking all that risk before you even get a payback--is that really the right business model?" posed John Forsyth, CEO of Wellmark Blue Cross and Blue Shield of Iowa and South Dakota. "I sense that people are wanting to see the vendors be more involved and help in guaranteeing the return on that investment."

Changed Relationships with Vendors?

They are becoming more involved, argued Joseph Cowan, CEO of Manugistics, a supplier of supply-chain software. "I tell my people now, we're in the business of really serving our clients better," said Cowan. "We really want to make sure that if you sell them software, they get a return on their investment. If they don't, we'll have trouble selling anything else to them."

Having vendors pay more attention to real world results and less corporatespeak about "partnerships" would please Maurice Taylor immensely. The CEO of wheel-maker Titan International said technology buyers "have more flexibility today" because hardware and software vendors are hard-pressed for business and "don't want to lose you." Unless a CEO can persuade a provider to make a serious commitment to his or her company's success, however, Taylor said, "partnership is just a nice word."

Of course, CEOs can't blame the mistakes of the late 1990s exclusively on CIOs and their tech providers. They themselves made mistakes. The business literature has been filled with admonitions against using digital technology to automate bad processes at least since the 1980s. Yet companies repeat the same mistakes over and over again.

Perhaps the blinders are being lifted at last. General Motors was the most notorious poster child for bad process automation in the '80s when it robotized a Michigan assembly plant on top of old-fashioned manufacturing routines ill-suited to the new technology.

Today, says GM's Cowger, the company is assembling global information systems that combine with carefully planned manufacturing processes. "This has nothing to do with IT per se," he said. "It has everything to do with the way you process, manufacture, organize, lay out and engineer your manufacturing system across the globe. We had to get that right first, get it all going in the same direction with the same metrics."