“The other 10% of the time, you lose the company”

You may have noticed that I like quoting what Howard Schneiderman said, many years ago,  while he was at Monsanto, reproduced below. (I’ve referred to the quote thrice before, over the years):

When you turn down a request for funding an R&D project, you are right 90% of the time. That’s a far higher rate of decision accuracy than you get anywhere else, so you do it.

And that’s fine. Except for the 10% of the time you’re wrong. When you’re wrong, you lose the company.

I was reminded of the quotation while reading Sean Park’s recent post on Boardroom IT, itself triggered by an article in FT Digital Business by Ade McCormack.

McCormack asserts that technology management is a board issue, and cites three reasons why IT management “fails to stem from the boardroom”:

  • the “tech-free” careers of many of today’s business leaders
  • the feeling, in many IT departments, that “users” should not interfere in IT decisions
  • the power of the “vendor” in undermining the relationship between board and function

He then goes on to recommend five steps to “move technology management into the boardroom”:

  • Investing in boardroom development to ensure that the board grasp the strategic importance of IT
  • Ensuring that the “IT function” has strong management
  • Demonstrating that top technologists are valued
  • Insisting that best practice is normal
  • Considering outsourcing, but giving the function first refusal

Sean, while endorsing what Ade has to say, goes further. He indicates that he only invests in companies where the board demonstrates its understanding of the strategic importance of IT.

There are some important points being made here, and I’d like to add my sideways-on view:

1. It’s about access. I am less concerned about whether the CIO is on the board or not, what matters is that the CIO has access to the boardroom. Easy access. And one way of measuring access is the number of times that IT topics make the board’s agenda. I regularly hear about companies with CIOs on the board which would not meet Sean’s criteria. Putting a CIO on the board is a bit like joining a gym. Value is only obtained when you exercise.

2. It’s not about measurement, it’s about outcomes. Boards need to know where the company is going, and the role that technology must play in getting the company there. Too often boards abdicate that responsibility and seek to govern via ratios. That’s a bit like managing a war by looking at the body counts on either side. If IT is a construction industry it should be run like one, with fixed prices and penalties for change or delay. If IT is an investment business it should be run like one, with clear expected returns and the willingness to divest when required. If IT is a sales and marketing business, then IT estimates and forecasts would be expected to have the same level of confidence as sales forecasts, tightening over time. The trouble is, the word “project” covers all these types: construction, investment, sales/marketing, with different behaviours and expectations. This issue is made worse by the current “battle of professions”, particularly between finance and IT.

3.  This time it’s personal. Enterprise 1.0 was an easy ride for most boards in this respect: the understanding of the strategic value of IT was consistent across the boards of different companies: consistently low, that is. And as a result, the failure to derive value from IT was common and consistent. Now, with Enterprise 2.0, the rules have changed. As Andrew McAfee has noted a number of times, what Enterprise 2.0 does is to accelerate a company’s capacity to differentiate, so the gap between winners and losers has increased sharply more recently. IMO one of the reasons for this acceleration is the entry of Generation M into the workplace. Today is about acceleration, tomorrow, as more of that generation gains employment, we’re going to see ballistic growth in that difference.

Too often we argue about the strategic value of IT, and allow that argument to descend into measurement farce. As we continue to move into a digital age, understanding the strategic value of IT is now “table stakes”.

What matters is understanding what’s at stake. It’s called the company.

10 thoughts on ““The other 10% of the time, you lose the company””

  1. Hi JP,

    Anand Sanwal blogged on this topic recently in a post titled, Technology Management is a Board Issue. Not Really

    I responded to agree with him, although Sean Park saw things a bit differently.

    In my view IT exists for one reason: to manage the flow of data between business assets.

    If you take this approach, then techniques used in the Oil & Gas industries for many years can be applied in any sector.

    In Oil and Gas, the introduction of digital monitoring equipment means flows of product are analogous to flows of data. These flows are displayed, monitored and trended in dollars per second.

    This means business processes can be optimised around value, and the contribution each asset makes to the cost/value of the flow can be evaluated in business (monetary) terms.

    Today, business resources (which includes people) and IT assets are either providers of data, consumers of data or provide the conduit through which the data can flow.

    The role of IT is to support, process and optimise the flow of data to maximise business performance.

    One of the main differences between professions like engineering or architecture and IT is that for many years they have been fully documented.

    Like IT, the very complex projects they manage involve many related assets, processes and people. Yet unlike IT, the business and the professionals can easily understand each other and these days disasters are fairly rare.

    Why? Because they have simple means of communicating with each other. After all, how could complex things like skyscrapers or bridges be built without blueprints or engineering diagrams?

    It is this easy to understand big picture of the business and IT relationship that has been missing.

    To create this picture, and enable business and IT to speak a common language, understanding dataflows is critical. It is the understanding, documenting, and engineering of them which is key to managing complexity.

    If we have a simple picture of how each dataflow moves across and through the assets of the business the responsibilities, roles, risks and costs of every IT resource (or group of IT resources) employed in support of each business activity (and/or set of business activities) can be clearly visualised and, thus, understood.

    By attaching value meta data to data flows and cost information to IT assets, we can start to assess the ratio between IT support costs and the value of the contribution of IT to the business.

    Which means IT can speak to the board in the language it understands, that of money. It also means that IT will be fully documented, providing a standard for governance and a foundation for professionalism.

    If you would like to read more about the above see IT exists for one reason and others at my blog.

    regards,

    PJW

  2. One thing I have always wondered about the whole issue of CIOs-on-boards is whether, when there is an “outside” CIO on the board, the company’s actual CIO feels competitive or cooperative with that person.

    What I’ve observed is that the internal CIO is rarely on his/her own company’s board. The board brings in a former CIO from another company for that IT expertise. What dynamic does this set up?

    –Kim

  3. Hi JP.
    The problem for most of us is that company hierarchies and silos stand between our business plans and the community/market. The fitness of a plan is more often than not judged by the guys saying no 90% of the time (as in your example), rather than the community of people/market for whom it is intended.

    The challenge is to find a way to allow the community/market to make its own selections more of the time. In short, we must find ways to act more like complex adaptive systems ourselves – to enable evolutionary practices and processes.

    I’ve rambled on about this some more here:
    http://preview.tinyurl.com/36h8mf

    Best dc

  4. I can only testify that – even as custom, proprietary software was driving his profits higher and higher – the chairman insisted that “this is not a software company” when asked to fund a new development. And IT did a poor job of communicating the value of the project.

    IT on the board is good, but effectively communicating the value of IT is the winner.

  5. JP,

    I work with Ade McCormack, mentioned in this post. He has a brand-new book published called The IT Value Stack, and I’d be happy to send you a copy if you are interested in reviewing it for your blog. I think you would find it thought-provoking.

    His blog is http://www.itvaluestack.com.

    -Andrea-

  6. I note Sean’s points. I do believe there should be a CIO on the board becuase practically every aspect of executive business has an IT element. The problem is that most CIOs today aren’t ready for the role.
    I agree that outcomes are important and one can get too obsessed with the metrics. However the complete absence of value articulation is a serious problem. One that makes IT effectively unmanageable.
    Keep up the good work!
    Ade

  7. Ade, I agree with you. Been following the “business value” argument ever since Paul Strassman wrote The Business Value of Computing. Sadly, too many of the people writing on this subject do so for “shock value” and sensationalism, and the downtroddenness and mulishness of our industry plays into their hands.

    Value articulation is not easy for a variety of reasons, but that does not mean we should abdicate from it.

    I’ve appended some of my earlier posts on the subject in case you’re interested. In the meantime, thanks for the book, I’m enjoying going through it slowly.

    http://confusedofcalcutta.com/2007/05/05/musing-about-the-roi-of-it/

    http://confusedofcalcutta.com/2006/08/08/it-project-rois/

    http://confusedofcalcutta.com/2006/08/16/more-on-project-rois/

    http://confusedofcalcutta.com/2006/11/25/musing-about-making-shared-service-models-work/

  8. The problem with a CIO on the board is that the board members get into ‘how long would it take to do this?’ and ‘Is that a SQL database’ kinds of discussions directed at the executive techie. It takes some professional facilitation and board discipline to focus on governance and high-level strategy and including the CIO rarely makes that easier.

    Not the CIO’s fault, but true nonetheless, and many CIOs don’t have the comm skills to lead the board through that landmine.

Let me know what you think