Most CEOs are still out of touch with technology's
potential
Most CEOs are still out of touch with
technology's potential, and their businesses may be paying the
price, writes Bill Bennett.
In March, delegates to the Meta Group's Metamorphosis conference
in Sydney were told that while IT budgets continue to grow, more
than half of all chief executive officers (CEOs) still question the
value of information technology.
Given that IT spending is now the largest expense item for most
companies, Meta warns that this is creating a value gap that can
lead to ineffectual technology investment. Or in plain English, many
CEOs are too dumb to make the best use of technology.
Can this be true in 2001? Surely every senior executive has got
the message that IT is now the engine of modern commerce. Has all
that marketing money spent by IT companies been wasted?
Jonathan Poe, who as Meta Group's vice-president of executive
directions is the man ultimately responsible for researching this
kind of information, says: "If anything, that was an
understatement." He says that, even today, only a small minority of
senior corporate executives fully appreciate the real potential of
IT.
"The actual numbers we used for the Metamorphosis 2001 report
came directly from a 2000 McKinsey study of their clients. We used
it because it confirms what we have discovered elsewhere with our
own research.
"We were kind of shocked by this. When we surveyed executive
opinions we found that more than half of all corporate CEOs regarded
IT departments simply as something that gave them huge bills to
pay."
Perhaps the most amazing facet of this statistic is that things
have hardly changed in the past decade. In the early 1990s, the
question of whether CEOs were patched into the technology revolution
was frequently aired both in the media and in industry forums.
At that time, the conclusion was that half of all CEOs failed to
grasp the potential of IT. This was usually put down to the fact
that senior managers all grew up in a pre-computer era and that once
the present generation of managers retired, things would change.
In those days it was generally accepted that managers past their
mid-40s had problems with technology but young bloods embraced it.
Curiously, 10 years on, that same age is still regarded as the
watershed.
For example, Brian Mitchell, managing director of Oracle
Australia, says that individual CEOs in their early to mid-40s are
much more IT literate than older managers. "They don't see IT so
much as a cost centre as a strategic factor."
But he says this isn't just about age. "Jack Welch is not young;
he's just retired as CEO of General Electric but he has always had a
good grasp of the power of IT."
Mitchell says embracing IT as a strategic tool has more to do
with the management approach than anything else. "In business today,
CEOs need to be more operational than in the past. Those who get on
top of operational issues are generally more IT-oriented.
"The driver here is leadership. GE has a very creative, very
hands-on leadership. Operational management and IT are woven into
the fabric of the business."
Poe says one reason why the watershed age hasn't moved on is that
technology keeps marching forward, while managers don't necessarily
keep pace with changes.
"If you're only moving at the same rate as the rest of the
market, then you'll fall behind," he says. "You have to move faster
than everyone else. Things just don't stay the same. Two years ago,
you were doing enough if you could manage text-based email. Now you
need to deal with rich media."
But something else happened in the past 10 years that should have
changed this dynamic. Why haven't the advent of the Internet and the
emergence of e-commerce persuaded CEOs to take more interest in IT?
The simple answer is that they have - but only up to a point.
Marc Phillips of APT Strategies, a Sydney-based analysis company
that watches online markets and trends, says that his company
recently surveyed 100 senior Australian executives and found that on
one level they are "pretty savvy" about the Internet.
"Generally they get the basic concepts," he says. "They know what
it is, what they can do with it and some elements of what it can do
for their companies. However, I find it almost impossible to name
any CEOs who have a clear Internet vision."
Phillips says that there are three levels of Internet education.
"Just about everybody, including most CEOs, have reached the primary
level. Most people who use the Internet for their day-to-day work
are at the secondary level. Net professionals are at the tertiary
level."
He says that his experience of working with corporates on various
projects is that senior managers find the subject mechanically too
difficult. "We ran some focus groups in January talking about the
major issues to do with wireless Internet - it's a major issue. But
the problem is that before you can talk about the business issues,
revenue models and the like, you need to wade through technical
things, like discussion of bandwidth. The moment anything like that
crops up, they lose focus."
Mitchell says that this problem crops up frequently. He says
boards and corporate headhunters have an insufficient bias towards
an individual's IT knowledge when it comes to hiring senior
executives and CEOs. "There's a strong finance bias and that means
appointing someone who views IT as a cost centre."
This bean-counter perspective on IT has important short-term and
long-term implications for how the corporations concerned work with
technology.
In his recent work with CIOs (chief information officers) Poe
found that somewhere between 70 and 80 per cent of corporations are
still managing their IT departments on a cost basis. "When you view
something this way, your work tends to focus on reducing the costs
rather than realising the potential." he says.
In the short term, viewing IT as a cost centre rather than as an
asset can, among other things, lead to poor maintenance. Poe uses
the analogy of a car. If we own a car, he says, we tend to keep it
clean and in sound mechanical shape. We perform all the routine
maintenance tasks needed to keep things ticking over. We all
understand the cost of not maintaining a vehicle - it will let us
down.
But amazingly, Poe says, many CEOs can't see their IT
infrastructure in the same light. What's more, few CEOs would
consider buying the cheapest possible car. The result is a company
IT infrastructure that isn't up to the task of driving the
business.
While the short-term implications of not valuing IT can be dire,
long-term implications can be fatal. Poe says the com-
panies
that learn how to use IT strategically can reap huge benefits. "They
can break all the old rules we learnt in business school. For
example, it is now possible to grow market share and revenue at the
same time and we have studied companies that have used technology to
double their sales every year for the past six years."
The key issue here is that companies that don't learn to reap the
strategic gains from IT are likely to end up as dog food for those
who do. Poe says: "CEOs who ignore the full potential of information
technology are setting themselves up to fail. Some other company
will step into their market and [capture] customers."
Mitchell is optimistic that this will change and says there is
now more of a trend towards appointing marketing people to senior
positions. A decade ago these people would have had even less idea
about technology than financial types but the rise of e-commerce and
the development of customer relationship management (CRM) has given
marketers fresh insight into the transforming power of IT.
"You need to have creative value-add," Mitchell says. "Some of
today's most successful corporations now have marketing or creative
people running them."
Among other signs of change, Poe told a conference for CIOs in
New York last week that they have a mission to explain the strategic
benefits of IT to their CEOs. His message is: "In the absence of a
compelling value statement, everything reverts to cost."
It appears, however, that CEOs require more substantial IT
education than this. Poe says his company's research indicates that
up to 30 per cent of them are actually incapable of using more than
a tiny fraction of the capability of their own desktop
computers.
He says that many CEOs do not know how to communicate with their
line staff, and a good slice of those who do manage to get to that
stage are incapable of using the communications channel effectively.
One solution is to recruit CEOs from the ranks of CIOs. Indeed,
there was a minor spate of such appointments in the mid-'90s as
companies grappled with understanding the Internet and other
disruptive technologies. Poe says this can work but CIOs don't
necessarily make good general executives, and that matters. He
doesn't want to see corporations throw the baby out with the
bathwater.
Ultimately, he says, the answer is CEO education. They need to
have general skills and a good grasp of what IT can do. They also
need to have a trusted IT team with a clear business focus to advise
them. As Poe says: "It's not what a company knows that will kill it;
it's what it doesn't know."
billbennett@ozemail.com.au
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