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What does business/IT ''alignment'' look like? Also: how online chatter can harm your company; a(nother) rosy prediction for tablet computing; salvaging those IT assets; the expiration of a tax break could touch off an IT spending spree; more.
CFO Staff, CFO IT
March 15, 2004
Rarely has a topic engendered so much agreement yet so little progress as IT/business "alignment." Last year it topped the priority list among members of the Society for Information Management (SIM), a professional organization of CIOs that has been actively studying the issue for three years and extolling its importance for longer than that. And earlier this year, the sixth annual "Technology Issues for Financial Executives Survey," conducted by Financial Executives International (FEI) and Computer Sciences Corp. (CSC), found alignment very much on the minds of CFOs, with companies that considered themselves "aligned" reporting a high return on their IT investments more than twice as often as those that don't (24 percent to 10 percent).
Advising CIOs and CFOs as to how to achieve alignment is a consuming, and lucrative, interest of academics and consultants. But what does alignment actually look like? Most agree that it entails a defined IT strategy that's in sync with corporate strategy. Given that 60 percent of the FEI/CSC respondents said that their organizations have no strategic IT plan, that's one place to look.
But there are others. A long-term study begun in 2001 by SIM in conjunction with The Conference Board found that while many companies have created liaison positions to bridge IT and business units, most of the time the people who occupy those positions tend to communicate IT information to business units and vice versa, rather than to develop meaningful ties between the two. Often, the report says, IT is viewed as a separate career path within companies, with little managerial rotation through IT or encouragement of talent transfer between IT and business units. IT tends to be viewed as an enabler of strategy, but not a driver.
The study, directed by Jerry Luftman, executive director of Graduate Information Systems Programs and Distinguished Professor of Information Systems at Stevens Institute of Technology, in Hoboken, N.J., recommends that the role of liaison evolve from communicator to relationship-builder; that better metrics be adopted to measure IT; that IT be included in strategy-setting; that specific technologies, including data mining, supply-chain management, and others, be exploited for their business value; and that career-development programs be established to encourage job rotation and IT-business crossover.
Clearly there is a long way to go. Only 7 percent of the FEI/CSC respondents said that their company's IT plan is fully aligned with corporate strategy, another 30 percent could point to some alignment, while the remaining 63 percent reported none at all.
The Complaints You Never Hear
It's tax time again, and while that naturally gets everyone's blood boiling, Intuit Corp. hopes the level of ire is a little lower this year. Last year, when customers encountered some features that displeased them (primarily having to do with antipiracy safeguards), they promptly flooded online forums with complaints and threatened a boycott. Intuit managed to smooth those ruffled feathers, and in the process learned a hard lesson about the growing power of the Internet to tarnish reputations. The company now monitors various Websites to make sure it isn't hearing criticisms—or outright falsehoods. It did take last year's complaints to heart, making a number of changes to its TurboTax products, including a feedback mechanism that allows customers to communicate confusion or displeasure directly to the Intuit employee responsible for whichever part of the program is in question.
Intuit spokesman Scott Gulbransen admits that it can be time-consuming to monitor online sites, but says the effort is worth it. Academic researchers now study the phenomenon of online reputations, and the discipline may represent an important frontier for companies intent on better customer service. As Gulbransen notes, "Many people don't like to call and complain," but will happily type away tirelessly. The Pew Internet and American Life Project found that 83 percent of Americans with Web access have researched products online.
Will IT Be a Bonus Baby?
While capital spending has been recovering for the past two years, it still lags the levels seen in 1999 and early 2000. A tax break that expires at the end of this year may help alleviate that. Written into the Jobs and Growth Tax Act of 2003 (HR 2), it piles "bonus" depreciation onto the normal schedule that governs capital spending, allowing big first-year write-offs for money spent on IT and other assets brought online by December 31, 2004.
That's the date the provision expires, which is why many experts predict a year-end buying spree. Given that IT accounts for a sizable chunk of capital spending at companies large and small (and in fact a separate provision in the act gives an additional depreciation break to small companies), it's no wonder that Merrill Lynch economist David Rosenberg told the Baltimore Sun late last year that he expects the tax break to be "wildly stimulative" this year, and compared it to a potential Y2K.
But the break applies to a range of items other than IT, everything from security systems to office equipment. Some experts suggest that with software and hardware continually improving while dropping in cost, companies may look to leverage the tax break on other areas. The Congressional Budget Office expects the act (which includes many provisions beyond the bonus-depreciation perk) to increase the federal deficit by $350 billion over 10 years. Supporters argue that it will create jobs.
Somewhere under the Rainbow
Think you're relieved that the deadline for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 has been moved back several months? IT vendors are no doubt cheering as well.
In December, IT consulting firm Meta Group Inc. said that its poll of IT vendors and business-service providers found that 57 percent of them were disappointed by or had failed to see any significant sales of their products being driven by Sarbox-compliance concerns. But as evidence that hope springs eternal, fully 97 percent said they think Sarbox compliance will ultimately stimulate sales.
Meta Group analyst Stan Lepeak urged IT vendors that are currently "chasing the Sarbox rainbow" to take the time to develop truly useful products, rather than going to market with "warmed-over IT solutions in a loose Sarbox wrapper." Software companies are likely to stress that their products make it easier to cope with Sarbox over the long term; that is, they facilitate what Movaris Inc. calls "sustained compliance."
When PricewaterhouseCoopers LLP surveyed 120 corporate Sarbox project leaders in January, it found that 90 percent of them either had invested in IT as part of their efforts to comply, or planned to do so. Of those, about half viewed IT as "essential" to compliance efforts.
They were nearly unanimous in saying that compliance required more effort than they first anticipated, with one-third citing an increase of about 25 percent, another third putting it in the range of 50 percent, and the final third claiming that compliance was proving to require at least 75 percent more effort than originally estimated. That should prove a useful factoid for the next IT marketing blitz.
Work That Body
One of the primary uses for IT in the workplace is to aid decision-making. A countless number of software programs attempt to help knowledge workers do smart things, usually by churning through data looking for trends, patterns, and similar insights. At MIT's Laboratory for Financial Engineering, however, recent research focuses less on matters of the mind than of the body. Prof. Andrew Lo is currently studying the "physiology of financial decision-making," monitoring the heart rates and body temperatures of securities traders as they work a typical day. One goal is to achieve a better understanding of how risk-based decision-making ultimately shapes financial markets.
But the work may lead to what Lo dubs "physiological monitors" that help traders make better decisions while also helping their firms better manage risk. "At this point it's still science fiction," Lo says, although he has already filed for a patent pertaining to some of the work.
Lo knew he was on to something when he conducted the same tests on students at MIT. One of those students tested exactly as the bond traders had; turns out the student had worked as a bond trader for five years before coming to the school.
One Company's Trash...
While there's probably nothing in your garage or basement that can't find a buyer on E-bay, the same is not necessarily true for the goods that your company may deem ready for the trash heap.
Every year an untold amount of merchandise is damaged in shipping, by fire, during unloading at ports, and so on. Factory equipment wears out, vehicles reach the end of their viable life spans, agricultural products are refused by the buyers. Sure, E-bay is great for unloading those old comic books, but 25,000 pounds of shrimp? That may be a tougher sell.
A company called SalvageSale has stepped in, augmenting the standard online auction with market makers who will contact potentially interested buyers that might otherwise never know the goods are available to bid on. The company argues that, pre-Internet, most salvage sales were local and thus had a very limited pool of buyers. By offering a Web-based marketplace and associated services, SalvageSale claims it can raise the fair-market value of the goods it helps sellers unload, and help them strike deals in a matter of days.
While the company touts the technology behind its online auctions, it emphasizes that it differs from other online venues in that it also offers a range of services, including field inspections, marketing advice, and buyer outreach. In one case, when a truckload of computer monitors were damaged, SalvageSale evaluated the shipment, determined that most of the monitors were OK, and arranged to have the original nameplates and other brand identification removed (the manufacturer didn't want to risk its reputation by being associated with potentially faulty goods, but did want to recoup as much of its investment as possible), and then sought out potential buyers for the newly no-named monitors. The result? Nineteen companies bid, and the client recouped 52 percent of the original value.
Innovators' (Other) Dilemma
CFOs, it's often said (in fact we say it a couple of times in this issue), should be keenly involved with their companies' IT strategies because they are "guardians of shareholder value" and as such must keep tabs on big expenses. More important, they must make sure those outlays are in the service of the corporate mission. The same holds true for CFOs' involvement in what Boston Consulting Group calls the "innovation-to-cash" (ITC) process, a term BCG coined to describe the steps by which ideas become revenue.
When BCG surveyed more than 200 C-level executives at large global companies, they found that a majority (57 percent) were not happy with their companies' ability to turn ideas into cash. One reason, BCG says, is that successful ITC is cross-functional and multidisciplinary. Respondents agreed, saying that innovation isn't just something for the R&D and marketing departments to address, but requires a strong understanding of customers, solid execution, and a corporate culture that values innovation and pursues it doggedly.
While respondents disagreed on what exactly constitutes "innovation," most agreed that innovation is very hard to measure—suggesting a possible role for the CFO. The IT world dominated respondents' picks for the 10 most-innovative companies, with Microsoft, Apple, Dell, Intel, and Hewlett-Packard making the list, along with 3M, Sony, Nokia, GE, and BMW.
In the movie Multiplicity, an overworked Doug Kinney (Michael Keaton) allows himself to be cloned so that he can accomplish collectively what he can't do individually. It doesn't work out.
Now, technology analysts predict something similar for the typical office worker, only this time multiplicity pertains not to people but to the gizmos they rely on. By 2007, says Meta Group Inc. analyst Steve Kleynhans, a knowledge worker will depend on at least four different devices—a home PC, a corporate computer, a mobile information device, and a "smart digital entertainment system."
The traditional desktop computer will serve as the primary device for just 45 percent of corporate workers, larlely because many of them are now "corridor warriors," says Kleynhans, roaming from meeting to meeting and work group to work group. As a result, they need the sort of mobile access to information that a notebook or tablet PC can provide. While tablet PCs have yet to win the kind of sales Microsoft and others hope for, Kleynhans says that when more of the devices are offered with integrated keyboards, sales will improve. He predicts that by 2006, one-third of all notebook computers sold to corporations will offer some kind of tablet (that is, pen-based) functionality, allowing all those corridor warriors to take notes wherever they go.
The idea of equipping workers with multiple gadgets may sound expensive, but Kleynhans claims that if companies study the options coming into the market, they'll be able to reduce overall IT expenses and make workers more productive. He says software firms must begin to modify applications so they are "thin" enough to be useful to employees who will access them from mobile devices.
Nothing, it seems—including the terrorist attacks of September 11, 2001—can galvanize Corporate America to adequately address business continuity, aka disaster recovery. More than two years later, major financial institutions, an industry sector devastated by the attacks and renowned for its reliance on and investment in IT, has yet to achieve broad readiness for a wide-scale disruption. So says Deloitte, at any rate, which recently studied such companies and produced some advice that's applicable to most. Among the recommendations:
"F" Is for "Focus"
A corporate function that once had a cost base equal to 3 percent of revenue now requires only 1 percent. As a result, the executive in charge has enjoyed a concomitant rise in influence.
That's you—in theory anyway. According to a survey of 450 CFOs around the world conducted by IBM last fall, the cost of finance has dropped significantly over the past five to seven years, while the CFO has emerged as a "chief focus officer," less concerned with processing financial transactions and more interested in decision support and control.
True, IBM wants to sell its new "on-demand" services, which encompass not only traditional IT infrastructure but a range of business processes, including finance. But the vision they push, of a more-responsive finance organization that manages to reduce its own costs by another 75 percent, will no doubt intrigue many CFOs.
In its survey, the company asked CFOs about their top areas of focus. Assisting the CEO in creating shareholder value topped the list, while measuring business performance came in second. But when asked to describe the current workload facing their departments, CFOs said that transactional activities account for half, with the balance split between control activities and decision support/performance management. In three years, however, CFOs expect decision support to account for 37 percent of the load, and transactional activities to drop to 34 percent.