Weill’s world

7 Nov 2007

Peter Weill (pictured) is director of the Center for Information Systems Research (CISR) and a senior research scientist at Massachusetts Institute of Technology. CISR was founded in 1974, and conducts field-based research of practical benefit to senior IT and business management. Weill has conducted extensive study into the role, value and governance of IT in enterprises.

In his work he has shown how companies with solid IT governance and clear views of investments are more profitable and see higher returns on equity and he has published several award-winning books, numerous journal articles and case studies on IT governance.

What has your research shown about what’s seen as the CIO dilemma – having to ‘keep the lights on’ but also adding value and moving towards innovating?

I don’t think it’s a dilemma. As we’ve seen in our research down at MIT, to do innovation or to create topline value, IT has to prove that they can run their own business and that means a couple of things, including good unit cost in IT – something that is still an issue for us as an industry. How do you get good benchmarks for unit cost, how do you know the vendor is giving you a good unit cost? I’m much less concerned about total spend on IT than I am about unit cost. And unit cost varies by country. The second thing is SLA (Service Level Agreement). If you think of a 2×2 [graph], of unit cost and SLA, you have to decide where you want to be for each of your infrastructure services. Actually Intel have an annual IT report that they produce every year. I think it’s not a dilemma – if you don’t do the first issue, which is provide services of cost and quality, you haven’t got a chance of stepping to the next level.

And to me, the next level’s not innovation actually. The next level is then delivering new projects. If you think of a pyramid, the bottom layer is service delivery. The next layer has three elements – project delivery of business initiatives, the second is relationships and the third is governance.
And those three have to be also in good shape before you can do the business innovation, growth of topline, IT lead.
Because if you don’t have those two layers, what happens is, you trip up and we don’t coordinate and we end up with not being able to deliver on business projects as well as our own services.

In that case, how mature is IT in terms of being able to measure all of those things?

What you’ll find is an amazingly strong correlation: top performing firms are better at managing IT. They’re better at managing everything, but they’re more IT-savvy. If you think of high/high in terms of spending on IT and savviness, there’s a 20pc premium on return on invested capital. And if you look at low spend and low savvy, it’s about 25pc negative premium.
What it tells you is that IT savvy is one of the ingredients of getting value from IT and so it’s a bell-shaped curve. The work that IVI is doing as a way to increase the average by having a consortium-based maturity model, is absolutely brilliant. [IVI director] Martin Curley is one of the few executives that’s well known worldwide in this area and does a wonderful job of being an ambassador. He and his colleagues and IVI are trying to do something that’s never been done before. And it’s a way to increase maturity.
Back to your question, the interesting part about this is that you will always be compared to the average in your industry, so it’s a constant battle. It’s not as if you’re going to one day get mature. If everybody follows the maturity model, all that happens is that the IT industry’s effectiveness moves one step to the right and everybody does better.
And that may help in determining whether we should spend money on IT versus advertising or whatever but it won’t distinguish individual companies. And that’s why I think this has to be an open source consortium.

We’ve seen different frameworks – where does this fit in? What’s the unique selling point of this particular framework?

That’s hard to say and it’s not been empirically validated yet. Frameworks are only useful when they’re empirically validated and that’s the problem with many of the COBITs and ITILs. They aren’t empirically validated, typically, and they need to be. It’s one of the things that distinguishes MIT is that we do empirical validation of all our frameworks.

What are the skills a senior IT leader needs to have, in your opinion?

We did this really interesting study of CEOs and other non-IT senior executives and asked them what are the things the IT organisation has to do, and they came up with ten. And then we said what are the things you have to do as non-IT leaders to get value from IT and they came up with eight. Then we ran the numbers of these eighteen things against predictors of firm performance and what we found was only four things distinguished a company. So all the rest are table stakes. And the rest included enterprise architecture and running efficient IT operations and prioritisation. The four things that really made a difference from a leadership point of view – two on the IT side and two on the business side – were delivering new projects, developing new business applications or acquiring them. The faster you can do that, the better.
And the second within the IT organisation was business process re-engineering and organisational change. Now, I would say the IT organisation plays well to the first. But the second has not historically been part of the IT organisation so this is a real opportunity to step up because the senior executives are saying ‘we want you to do this, you see across the firm’. The only exception to that is companies that have process owners.
That’s on the IT side. On the business side there are two things that distinguish companies in terms of getting value from IT and one of them is being very clear on needs identification – something that is very difficult to do – and prioritisation. What is the need and how do we prioritise?

The second thing the business organisation needs to do is have effective IT oversight. So how do we get value, transparency of the process, governance or metrics?
If you’re high performing on those, in our analysis, you get more business value from IT. All of the other things – managing the IT budget, managing the IT function, funding IT; no difference.

You make the point that IT historically hasn’t been part of organisational change. But is there a danger that by putting IT in charge of a ‘soft’ or ‘human’ area that it becomes too much the preserve of technical people?

That’s a good question. Well, firstly the CEOs in this research are asking IT to do it. They don’t mean alone. What they mean is, we’re going to make organisational change together and the senior executives see much less of a DMZ [demilitarised zone] between IT and the business. They see those people all working for the company and they are to work together towards change and creating value.
Do you give someone, a single person, ownership for organisational change? No. I think it’s something that’s the responsibility of all senior executives. But in the end, people who are writing systems and making investments have the opportunity to do process re-engineering and to do change management. At least if not do it, enable it.
Now do we have the skills in IT to do that right now? I think there’s a huge shortage in Ireland, a huge shortage everywhere and it’s not being taught in computer science degrees anywhere in the world really. We don’t probably teach it at MIT. What we do is teach it in MBA programmes which are more integrated in their nature.

Do you think this education and skills development should be happening much earlier?

It should be happening in high school. I think one of the things is we’re seeing kids coming out of high school with more technical skills than they’ve ever had before but they’re not well prepared to make a change in anything – organisations, families. There’s a different skill set.
Communicating is something that we do at MIT that all of our engineers, technical people and students are required to take classes in – oral and verbal and understanding the steps in organisational change, the risks involved. And we’re a technical institute so it’s a big change.
But that said, I think the other side of the equation is, we should be teaching more systems thinking to business leaders so in accounting degrees, economics and arts degrees, you should be learning something about systems thinking because that will help you bring the wisdom from both.
We’re at a time in the world where education needs to be more general. You get the job because of specific skills but you get promoted and have an influence because you have a broad education.

By Gordon Smith