When senior managers at United Parcel Service (UPS) first decided more than 15 years ago that package tracking had become a competitive necessity in the package-delivery industry, they discovered that developing the capability was not as simple as writing or buying a package-tracking application. The company needed to develop networks, databases and processing capacity before it could even begin to offer tracking services.1 In late 1997, Delta Air Lines began focusing essentially all its information-technology spending on rebuilding its airport systems and infrastructure, in part to address Y2K concerns. But shortly after Jan. 1, 2000, in what the CIO described as a “land rush,” line managers submitted requests for IT investments that totaled almost three times what Delta could allocate. Each request presented a business case that promised significant positive returns on investment. But combined, they far exceeded the ability of the IT unit to deliver.2
Such experiences are not unusual. In the last 15 years, a tidal wave of IT-enabled initiatives, from business-process reengineering to enterprise-resource planning, has elevated the importance of investing strategically in IT. The Internet alone has created numerous opportunities to reengineer processes, introduce online products and services, approach new customer segments and redo business models.3 But although the opportunities seem limitless, the resources required (capital, IT expertise, management focus and capacity for change) are not.
Traditional approaches to IT investment attempt to identify projects with the best profit potential. Proponents of the investment must “make the business case” to senior management. The heightened strategic importance of IT, however, has forced companies to think differently. They now must weigh the returns on individual investments against demands for organizationwide capabilities. They also must assess opportunities to leverage and improve existing systems and infrastructures in light of opportunities to create new capabilities and test new business models. The complex trade-offs are leading to new IT-investment patterns.
To learn how IT-investment practices are changing, we interviewed business and IT executives at 30 U.S. and European companies about their e-business initiatives and the IT investments that supported those initiatives.4 We found that many executives were abandoning the security of the business case. (See “IT Funding Practices at 30 Companies.”) However, they were unclear as to whether they were establishing a precedent that would shape future behavior or merely taking a temporary detour.