Despite years of awareness of the problem, there's still a glaring disconnect between IT execs and their business counterparts. According to Accenture's recent research comparing line-of-business perceptions with those of IT leaders, CIOs must do more to extend their relationship-building efforts beyond the CEO's conference table.
Earlier this year, we surveyed 300 senior business and IT executives. While almost three out of four IT executives claimed to understand their company's business "extremely well" or "very well," less than half of non-IT executives credited IT executives with that level of mastery (see chart, p. 68).
Why is it so critical for CIOs to develop deeper relationships within their company?specifically, with the managers responsible for operating units and key administrative functional areas, including R&D, sales and marketing, production and distribution, finance, and HR? Simply put, these leaders oversee the units that ultimately make or lose money for the company. It's the CIO's job to help them meet or exceed their profit-and-loss (P&L) goals.
In our experience, CIOs and other IT executives often have a more precise understanding of business processes than many general business executives. But we've also observed that for senior business executives, "understanding the business" means more than knowing how the processes flow. It means having deep insights into a complex interplay of processes, people, culture, relationships, and P&L economics among customers, suppliers, and internal stakeholders.
In short, LOB managers know where and how the money flows. To the extent that they apply this more complex definition of the business, their perception of a knowledge gap between themselves and their IT colleagues holds water. In our work with LOB managers at many organizations, we see that they tend to focus more on their units' specific business-performance parameters.
CIOs need to understand three things: what LOB managers value; why it's up to IT to make the communication effort; and how to build relationships with the LOB managers.
It's not enough to have a top-level view of your company's business. The CIO must understand how LOB managers are being judged, which means having a granular knowledge of their incentives and how they're compensated based on business performance. Usually, managers are judged by their operating results?the profit or loss generated by their unit and the unit's growth. They constantly ask:
What does it cost to make, deliver, and service our products?
How do we price them intelligently and competitively?
What's the projected profit?
What's the projected return on assets and capital?
LOB managers also worry about meeting competitive threats. For them, a key part of their mutually dependent relationship with IT is the assurance that IT knows how to apply technology to improve business performance?for example, lowering manufacturing or delivery costs over a product's life cycle, improving time to market for new products, and increasing customer satisfaction. In the future, business users may also be more involved in application development as SOA becomes more widespread.
Many business managers think IT serves them less adequately than IT believes it does. When asked if IT makes a major contribution to the company's ability to compete in the market, half of the IT executives in our survey said yes, compared with only 30% of the LOB managers. And asked if the executive management team and the CIO collaborate extensively, 29% of the IT executives said yes, compared with 22% of the LOB managers.
Keep in mind that surveys of this nature often reflect more negative opinions than what you typically encounter in daily business life. Nevertheless, they identify opportunities to realistically and candidly assess how executives view the performance and business impact of IT and the senior executives who manage it. In doing so, they help CIOs make improvements.
To gain this granular business knowledge, CIOs have to grasp specific metrics that revolve around these questions:
How does the company make money?
What are the cost structures of each line of business?
How does the value chain work?
As CIO, you need to roll up those LOB numbers and take in the big picture. In addition, you must determine which units drive the company's P&L, and how they're achieving these results. While this may sound simple, one of our clients found it isn't so straightforward.
The retailer's IT team deployed supply-chain technology to take advantage of state-of-the-art, just-in-time processes. That works fine in manufacturing situations where there's a predictable and steady flow of orders in and goods out. But IT failed to take into account that the purchasing department, to prepare for the Christmas holiday selling season, had to order from Chinese sources in bulk well in advance of when the inventory environment was ready.
The result? The system worked well for most seasons of the year, but not in the run-up to the major holidays. Unfortunately, disruptive bottlenecks occurred during the times of the year when the company made the lion's share of its money.
As CIO, you also need to understand your own department's cost structure. This will give you a crystallized view of where your current priorities lie, and whether they're in alignment with the lines of business and the company as a whole.
Consider this situation: At one of the world's largest consumer packaged-goods companies, a disagreement arose among LOB managers over whether IT was doing a good job. To resolve the dispute, we tried to determine where IT spending was being applied to the company's value chain and key processes.
Frequently, addressing these issues involves looking at multiple aspects of the IT department. But we always start out by determining the business cost of everything IT does. Rarely does an IT management team know the answers to these questions and have access to sufficiently granular data to prove it.
Usually, we have to reconstruct IT costs according to product lines or business processes. In the case of our consumer packaged-goods client, we found that far and away the largest share of IT spending was devoted to HR, legal, and accounting. Those departments were consuming 70% of IT spending, while only 30% was being spent on lines of business.
What's more, the sales organization, which had strong views on how value was being lost through inadequate IT capability, was getting the benefit of less than 5% of IT's assets. This was what was allotted to the department that serves as the conduit through which all the money comes into the company. Once this analysis was done, it was clear that the company's demands on IT were poorly aligned with business needs.
How should you begin a conversation with LOB managers? As with most communication, it's best to start by listening.
Earlier in my career, I was a consultant at the West Coast headquarters of a large international hotel chain. Every Tuesday, the CEO would host a lunch for his LOB managers, at which they'd discuss the issues they were facing. Tellingly, neither the CIO nor other IT representatives were part of the group.
Even though the various lines of business?reservations, catering, housekeeping, real estate, laundry?had their own vernacular, their conversations shared a common foundation: one of operating results and key business metrics. Sitting in on those meetings, I could easily see what motivated the LOB managers, and I understood how to communicate with them on their terms.
Striking up a dialogue doesn't mean setting regular lunch dates with every LOB manager. Start with just one. By understanding that person's concerns, you'll automatically gain a basis for communicating with the others.
It's worth the effort for several reasons. For one thing, IT is primarily a service provider; its executives must be able to speak the language of the internal customers who use its services. Second, no CIO can educate all of the LOB managers in sufficient depth about IT?there are many more of them than there are of you?so working closely with some is the most practical way to learn how to accommodate all. Finally, the more you know about the company's moneymaking machine as a whole, the easier it will be to bring a technology-focused worldview to the discussion.
Don't assume your existing level of communication with LOB managers is adequate. Despite decades of discussion about the importance of dialogue between IT and the business side, a substantial number of LOB managers say it isn't happening.
Nearly a third of the business managers we surveyed said that IT executives aren't good communicators. Furthermore, only 13% regarded IT executives as good communicators. By comparison, 26% of the IT executives polled thought their group communicated effectively?which means that three-quarters of CIOs are concerned about their own capabilities as communicators.
To improve this situation, focus on what LOB managers worry about most. Once you grasp these issues and structure your IT department to support their goals, your relationship with LOB managers will be sure-footed and profitable.
Gary Curtis is global managing director at Accenture and head of the firm's strategic IT effectiveness practice.
How do you think you rate in terms of your business relationships? Tell us how often you communicate with LOB managers.
CIOs must understand how to help LOB managers meet or exceed their P&L goals. Here's how to get the information you need to forge successful relationships with functional managers.
Start honing your communication skills; focus especially on the value chain, products, and services of the business.
Become an expert in the anatomy of LOB operating results: value chain, cost structure, key processes, and margin/profit economics.
Engage an LOB-level "executive coach" to provide advice and feedback.
Educate your senior IT staff in these same skills, and then assign them to specific LOBs to oversee those relationships and delivery of IT's value.
After six months, and working with LOB partners, construct a balanced scorecard entirely in LOB business terms, focusing on how well IT is doing its job of delivering value to each LOB.
Report regularly to business managers around the balanced scorecard.
Understand the LOB managers' near-term and long-term challenges.