How to Tap IT's Hidden Potential

Some of the biggest names in the business world have used information technology to their competitive advantage: Merrill Lynch, American Airlines, FedEx, Barclays, to name a few. Despite their example, such companies are still exceptions.

Simply put, top executives at most companies fail to recognize the value of IT. It can help a company transform data from its operations, its business partners and its markets into useful competitive information. It can be the source of profitable innovations in the way a company interacts with its customers and suppliers. But there is still a tendency to think of IT as a basic utility, like plumbing or telephone service.

In many industries, IT consumes a significant amount of capital expenditures and gross revenue. Though recent research has shown that managing IT well can significantly increase a firm's profits and deliver substantially higher returns on IT investments, its potential is overlooked, and even its workaday application is often mismanaged.

The result isn't just missed opportunities—it's also wasted money. Analysts estimate that hundreds of billions of dollars are blown every year on IT projects that fail to achieve the desired goals.

The reason for all this is the metaphorical glass wall that separates the IT group from the rest of the business at most companies. The wall prevents IT from being part of the discussion at the highest levels of company planning, robbing a firm of its full potential.

Success in the digital economy of the 21st century demands a strategic role for IT. And for that to happen, the glass wall between IT and the rest of a company has to be shattered. There are several steps that can be taken to achieve this. But to implement them most effectively, it is important to first understand the origins of the wall and what sustains it.

How the Wall Was Built

There are five primary reasons for the glass wall's existence: mind-set differences between management staff and IT staff, language differences, social influences, flaws in IT governance (defined as the specification and control of IT decision rights), and the difficulty of managing rapidly changing technology.

Interaction between logic-driven IT personnel and managers who deal mostly in gray areas can be exasperating for both sides. Too often the result is a minimization of such interactions, leaving the IT team feeling misunderstood, unappreciated and isolated.

Unfortunately, the chief information officer often reinforces this separation. That's because he or she usually is an IT professional chosen to be a director of technology, rather than an executive who is expected to fully integrate IT into the company.

The situation is exacerbated by language differences. IT people use jargon and acronyms that are indecipherable to others. Executives speak the language of business, fully expecting to be understood by everyone in the company. Much is lost in translation, leading to suboptimal results that IT is blamed for, which causes resentment and cynicism toward management.

Another divisive factor is the persistent perception of those who are oriented toward science and technology as "nerds." The recent boom in IT outsourcing has worsened this estrangement. Now, IT professionals are almost pitied as dinosaurs whose jobs will soon be sent offshore.

IT governance is another factor. IT decisions are often made by the wrong people with insufficient input, and the resulting failures drive a wedge between senior managers and their IT colleagues. There is some irony here in the fact that outsourcing often appears to improve IT management, in part because a governance committee is needed to manage the relationship with the outside providers. If a similar committee had previously been in place, outsourcing could probably have been avoided in many cases.

Finally, applying IT to business needs, especially when a company is innovating, is still an experimental process with few standards. Technology changes rapidly and is subject to fads, which can be confusing even to IT professionals.

As a result of all these factors, senior executives at most companies have little desire to deal with IT and its role in their business and relegate this function to the CIO. In addition, many CEOs find the financial and business returns on their IT investments obscure and difficult to quantify, and feel that no matter how much money they spend on IT, there is always pressure for more applications, the latest hardware and software, more people and faster networks. So they focus more on containing the costs of IT than on tapping its potential. Meanwhile, the rapid growth of outsourcing over the past five years has discouraged many CEOs from developing competitive strategies that rely upon IT services provided by potentially unreliable external sources.

A Blueprint for Demolition

The reality today, though, is that CEOs can't ignore IT and expect to succeed. Technology has accelerated the pace of change in business, making it crucial for companies to detect, assess and respond to every opportunity and every threat as quickly and as effectively as possible. And that kind of agility can only be achieved by fully embracing the operational and strategic importance of IT.

CEOs who use obsolete metrics such as head count or benchmarking the competition to decide on the role and evaluate the performance of IT in their companies run the risk of being blindsided by competitors who take full advantage of IT innovations. Furthermore, IT is key to a company's ability to satisfy regulations such as the Sarbanes-Oxley Act on corporate governance, the Health Insurance Portability and Accountability Act and legislation in various states on the privacy of customer information.

We believe that the following seven steps will help shatter the glass wall between IT and the rest of a company so that the information-technology function can be fully integrated into the company's business culture. This will clear the way for the realization of IT's greatest value.

Begin with IT literacy—and commitment—at the top. The impetus for effective IT management must come from the CEO and the board. There has to be a willingness on the part of the CEO and the other executives to know enough about IT to understand its functions and its value to the company, in the same way that they understand accounting, finance and marketing.

Senior managers must also communicate to everyone in the company that IT has the potential to affect the competitiveness of the firm. Decision makers and planners throughout the organization should be encouraged to think strategically about IT and to offer suggestions and innovations.

Including IT considerations in company meetings and in-house written communications will help set the right tone. Companies with limited in-house expertise can conduct workshops and briefings with outside experts to increase IT literacy throughout the firm.