A decade or so after making major investments in enterprise resource planning (ERP) systems, many manufacturing executives are getting more involved in the decision to buy applications that fill gaps left by the major enterprise applications, according to AMR Research Inc. Manufacturers are beginning to spend substantial money on global trade, logistics management, inventory optimization, and warehouse management — functions that are outside the core ERP systems, says Jane Barrett, research director for AMR. Unlike the ERP implementations, however, line of business (LoB) managers are getting intimately involved in these purchases — from selection, to implementation, to ensuring the promised return on investment (ROI).
This trend is the natural consequence of businesses having spent millions on ERP without anyone on the business side stepping up to be accountable for the long-promised benefits, according to Roddy Martin, general manager and vice president of value chain strategies for AMR Research.
"For the past few years, the IT organization has been whacking in systems without the necessary leadership from the business side. They did not play a role in putting in these big IT investments," Martin says. "Now the business has woken up. They're saying, 'We spent $2 billion on SAP, and we're not sure we got the business value.' They have not played the role they should have played to ensure ROI. Now they want to take leadership of IT to get value back from these investments."
In one sense, this is good news for CIOs. As technology leaders, they can advise business executives on how technology can help the enterprise achieve its objectives. What CIOs can't do, however, is make sure that the business leaders do what is necessary to achieve the anticipated ROI. The CIO can spearhead the implementation of a customer-facing CRM application, for example. However, if one of the benefits is a reduction in customer service head count, there's nothing the IT chief can do to make that happen.
Therefore, with business managers' increased interest and involvement, IT investments will more likely pay off to the degree expected, thereby raising the profile of IT and the CIO, right?
Not so fast there. In reality, old-school CIOs who have risen through the ranks of technology, gaining visibility for their ability to execute on projects, are getting shunted aside in favor of managers with front-line business experience.
"Traditional CIOs are falling out of the trees," Martin says. "We're seeing considerable swap-out of the technical CIOs being replaced by CIOs who participate in the business discussion. Next-generation CIOs are playing at the business strategy level."
More supply chain and business leaders are appearing in CIO roles. For example, SABMiller plc CIO Brian Nicholas was previously a supply chain-focused executive at Accenture. Another brewing giant, Anheuser-Busch Companies Inc., named 24-year company veteran Joseph Castellano to the top IT post in April. Castellano most recently served as vice president of corporate human resources. (Both executives declined to be interviewed for this article.)
In addition to spending money to automate functions that are outside traditional ERP, manufacturers have increasingly taken on enterprise integration projects that will lay the foundation for more agile business processes. It's not surprising, then, that business executives are suddenly feeling the need to get intimately involved with the technology on which the future of their business rests. "The business relied on IT to manage and execute the IT projects without supervision, never realizing that new business architectures were being laid," Martin says.
Now, many LoB managers have had a change of heart, understanding both technology's potential benefit to the business and that they need to commit fully to technology projects to realize those benefits. LoB management used to be content to hand over technology initiatives for IT to manage on a project basis, Martin adds. "It used to be: 'You install the system and give us a call when it's complete.' That won't work anymore."
There is too much at stake and too much to be gained from the thoughtful application of technology, where business and IT work together to ensure that technology benefits are delivered. LoB managers are naturally playing a more prominent role as technology is infiltrating every aspect of the business and all the systems have to work together.
"[LoB managers] are finding gaps they need to fill," Barrett says. "More technology projects are being funded at the departmental level" rather than through a centralized IT budget, she adds.
According to AMR's U.S. Enterprise IT Spending Profile, 2006-2007, on average, 65% of IT projects were funded through the traditional IT budget, while 35% were funded through a functional department's budget, reflecting a rise in LoB influence.
IT-Business Alignment Now
Fundamentally, the rise of LoB managers in technology purchasing decisions reflects a misalignment between IT and the business. At most manufacturing companies, as in other industries, business executives have been involved in technology decisions but never understood the ramifications, so they could not fully commit to the projects. "IT did not know how to engage the business leaders," Barrett says.
The old saw that business and IT people speak different languages, sadly, still applies. Cross-functional teams are one strategy for bridging the business-IT gap, Barrett says. This is where you see Centers of Excellence or Centers of Competency made up of people with different roles.
"These are groups that come together cross-functionally to look at how to achieve business process improvements," she says, adding that the existence of such a group is a hallmark of a company's maturity.
Many of the larger companies are run as holding companies, with individual units maintaining much of their autonomy and not much emphasis placed on standardization. Smaller companies tend to show more maturity in their approach to IT, Barrett says, in that employees are more apt to work cross-functionally and, therefore, be more comfortable communicating with one another. "At smaller companies it's less likely that people will be rigid in their silos," she says.
Companies with an evolved IT division generally view their CIOs not as technology czars, but as an integral part of business planning and setting corporate strategies and vision.
BRM: A Rare Breed
Another way to get over the business-IT gap is to make it someone's primary job function. As a best practice, some companies are installing business relationship managers (BRMs) in IT, with dotted-line reporting to the LoB manager, according to Martin.
"Their role is to act as the bridge between IT and the lines of business. This helps IT move beyond being technology 'order takers.' "
The presence of a BRM obviates the need for IT folks to make their annual pilgrimage to the business units asking for a list of the next year's IT projects that they then cut and paste onto a project plan and later execute in isolation.
The BRM is a rare breed — someone with an affinity for and appreciation of technology who also appears savvy and credible to business managers, which requires a strong grounding in business. "If they look too much like IT people in disguise, they will not foster credibility with the business," Martin says.
The question is whether these individuals are to be found and developed from the business side — that is, businesspeople who are IT-savvy — or from IT — that is, IT people who are business-savvy.
At Tyco International Ltd., IT and business people working in the same room are indistinguishable in terms of their skills and behaviors, according to Martin. Such a merging of identity and allegiance is rare and difficult to achieve, but indicative of true alignment, he adds.
"BRMs must have a dotted reporting line to the business and a solid reporting line to the CIO. They must have two sets of goals, generally 60% IT and 40% business," Martin says.
If these executives are answerable only to the CIO for IT goals, they will be compelled to uphold IT standards and are likely to continually deny requests from LoB managers. On the other hand, if they have only business goals, they are more likely to accede to business requests and compromise IT standards and processes, if necessary, to be successful. The BRM's role is to balance both business and IT goals, and to learn to live in the ambiguity.
The trick for manufacturers is to find or develop a BRM who is so well-versed in business issues that he or she is automatically included in business planning and strategy development sessions for his or her insight and experience. This is in contrast to technology managers' typically having to ask for an invitation to these planning sessions.
The BRM's role is dual-directional: to get the business to understand current and future IT capabilities, and to translate the business requirements into the IT portfolio under the auspices of the CIO and then to help manage that portfolio of projects.
At the end of a project, Martin says, the BRM, IT specialist, business process owner or sponsor, and a finance person must be able to articulate the project's financial contribution to the business. If decreased head count was part of the bottom line, the sponsor must make sure that has been accomplished. Or if the project's success depends on users being trained in the application, the IT specialist should work with the BRM to provide that training.
It is at this point — post facto — that benefits are often squandered, attention lost, and value frittered away. This is the time when the alignment will be tested the most.
A precondition of migrating to a "relationship" model of IT-business interaction is that IT must be in control and capable of executing successfully. "If the basics are not in place, this will fail. Business executives will likely insist IT get its house in order before it looks to a more sophisticated role with the business," Martin says.
The days when a CIO would be rewarded based on executing IT projects on time and on budget are over. Today's CIO must be a business executive, first and foremost, just like all the other LoB managers.
"This is a journey that most companies go through," Barrett says. "Just changing business processes won't do it. They really have to change the role of the CIO."