Why Aligning IT Can Land You in Trouble

For many years now, CFOs have been told they must ensure that IT spending and strategy conform with the overall goals of the business. But some approaches to IT alignment can create more problems than they solve, according to Rudy Puryear, global head of Bain & Company’s IT practice. Puryear has been building and leading IT strategy practices for almost 30 years, and he’s been involved in hundreds of alignment projects. He met with Business Finance to explain how companies fall into what he calls the “alignment trap,” and how they can get out.

Business Finance: Can you summarize the research that underpins your position on aligning IT?

Rudy Puryear: We set out to understand the link between getting IT right and business growth. We surveyed business and IT executives in over 450 companies, and two major things came out. First, if you really do IT right — if you get the right level of alignment and effectiveness — there’s a very significant correlation with business growth. In fact those companies tended to grow about 35 percent faster than the rest of the companies in the database. And they actually spent about 6 percent less on IT.

Second, we uncovered this notion of the alignment trap. Organizations for years have understood that it’s really important to align IT strategy and direction with the business strategy. But that’s actually pretty hard to do. Over the years, many lines of business have gotten frustrated with central IT organizations, and they’ve said “They can’t meet my needs; give me my own systems and my own IT group and developers and let me do it myself.” So in many organizations, as a surrogate for aligning IT strategy and business strategy, they’ve aligned the IT resources; each division got its own billing system, its own payroll system and so on.

There was an unintended consequence. You drove unnecessary business and IT complexity into the enterprise. You ended up with redundant, fragmented systems and technologies, many of which were subscale. It was all under the umbrella of “alignment is good,” which it is, and yet when it didn’t really work well they said “let’s align it more,” and that exacerbated the problem.

When people are in this trap — they’ve aligned the resources and it has driven this level of fragmentation — two things happen. IT costs go up; companies in the trap tended to spend 13 to 14 percent more on IT than the others in the survey. And growth was constrained; they tended to grow at a rate about 15 percent less than the others.

BF: How can a CFO tell if the organization is in this trap? What are the red flags?

RP: If the rhetoric he or she hears all the time is “IT costs too much and takes too long.” If the business wants to take an initiative in the next month or three months and IT’s response is “We can get it on the road map in the third quarter, start it in the first quarter of ’09 and it’ll take us a year and a half.” If IT is frequently blamed for the lack of business performance and the business people area saying “if only I had the IT systems.” Or if it’s generally understood that the company has extremely valuable data assets, but they’re effectively locked up in the complexity of the IT environment.

Where IT systems have been over-customized, and there’s been a tendency to build your own as opposed to buy off-the-shelf solutions; and where everybody’s frustrated by setting IT priorities and it never seems to work. Those are some of the classic telltale signs that the organization may have fallen into the alignment trap.

BF: So what should the CFO do about it?

RP: The CFO has to think about some of these indicators I’ve described and get a sense for whether the organization might have unnecessary complexity, highly fragmented subscale activity, and whether it has done a good job about deciding what in IT ought to be shared across the business and what must be business-unit specific.

Because CFOs are the ultimate custodians of how a company spends its money, including on IT, they have to think about what drives up IT cost. That includes ineffective governance; if we don’t have an effective way to really make decisions about priorities and focus, it can drive cost up.

And it includes expensive package customization. Many [companies] spend enormous amounts of money over-customizing. Then, when the vendor releases the next version, they’re no longer compatible with that. I’m convinced that for probably 70 percent of the needs of most organizations, off-the-shelf is good enough.

In addition, it’s not unusual to find that a significant number of developers are in high-cost locations. That’s not to say that you have to move them all to Mumbai tomorrow, but you do have to think about how you source talent.

A very simple message is: Get effective, then get aligned. If you’re suffering from too much alignment, additional alignment is going to worsen the problem. You may have to actually back off some of that alignment in order to get effective, and then move to align. That sacrifice of alignment might be where I’ve got 12 different manufacturing platforms and I need to move to a standard platform, and everyone says “The standard one doesn’t meet my needs as well as the other one.” And yet sacrificing that alignment is going to mean that you can be far more nimble from a manufacturing standpoint going forward than you were when you had 12 different platforms.

The CFO has to be a strong partner with and advocate of the CIO — and maybe sometimes even the bad cop — to make sure that the right kind of fiscal accountability is in place and the right kinds of metrics are in place to drive this complexity out.