Pity the poor, lowly IT department inside Corporate America. It has suffered staff cutbacks, money crunches and even an identity crisis in the new millennium.
Just a few years ago, influential market watchers, including Forrester Research, were forecasting the demise of departments whose sole purpose was to oversee IT assets. In a landmark study, Forrester, for one, heralded the death of IT in successful e-businesses. The report's primary thesis: IT organizations were becoming obsolete due to escalating e-business initiatives that separated IT staffs from business-process units whose clout and influence were on the rise at the time. Some market watcher went so far as to suggest the entire power structure behind IT decision making within corporations had shifted to the point where having an IT department was no more strategic than a big business having a well-equipped motor pool.
"IT won't be the buyer," said principal analyst Bobby Cameron at the time. "It will be the business-process owner."
And yet, despite dire prognostications, somehow the branch of enterprise customers responsible for the selection, deployment and management of IT assets survives. Despite severe cutbacks, many IT departments are exiting the recession in a more strategic position than when they headed into the economic downturn. Some have emerged even stronger. Few people today are forecasting the death of IT as they once did.
That's especially true as powerful CIOs in companies as large as Citicorp, FedEx and Wal-Mart demonstrate their worth by reining in rogue spending and delivering increased IT value with fewer dollars. The former, of course, has been a trend on the rise since the onset of the economic downturn. Previously, business units as diverse as marketing, finance and even human resources began buying IT goods and services independent of IT departments. But the recession reined that in as the role and influence of the CIO increased. Now, however, there appears to be another shift taking place in the enterprise. It's subtle and in no way suggests that the role of the CIO has diminished, but the shift is there just the same. This article examines where it is and why it has come about.
Who Has the Juice?
In Hollywood, "juice" is what it takes to get a picture made. It's the power to secure the participation of a top star, a big-name director and the proper financing.
When it comes to purchasing decisions and strategic priorities, CIOs have held the juice since the dot-com bust. In the old days, CIOs often reported to a CFO, who essentially approved purchasing decisions. Nowadays, many big-name CIOs report to COOs or CEOs, who weigh in on major spending initiatives as well. At Hilton Hotels, for example, senior vice president and CIO James T. (Tim) Harvey reports directly to president and CEO Stephen Bollenbach. Likewise, FedEx CIO Rob Carter reports directly to FedEx CEO Fred Smith. Given their clout, these and other CIOs have been the targets of most VAR and solution-provider marketing efforts and sales approaches. But now that IT purse strings have loosened, a shift is taking place in the IT-enterprise spending world. CIOs still wield tremendous power, but they are handing off more purchasing and investment decisions to their lieutenants.
Consider the following: A year ago, 43 percent of all enterprise CIOs had a hand in either directly or indirectly deciding what and how much their organizations bought from members of the solution-provider community, according to the 2003 VARBusiness State of Enterprise Spending study. This year, that number has dropped to 36 percent. In fact, the percentages for other influencers within enterprise organizations, including IT staffers, line-of-business managers, CTOs and CFOs dropped as well. Only 10 percent of CFOs, for example, weigh in on IT purchasing decisions with VARs; a year ago, 17 percent did. In contrast to the declining involvement in IT purchasing decisions within other parts of a company, the one department that saw an increase in influence was IT managers. The percent of those involved in IT purchasing decisions involving solution providers increased to 61 percent from 54 percent, making these individuals the most important types of individuals for VARs to target inside enterprise customers today.
CIOs and other executive managers, obviously, hold significant influence to this day, especially when it comes to making high-level, enterprisewide decisions. But those assigned to day-in, day-out purchasing and service procurement have more influence than ever before.
Take UPS, the global shipping giant. At UPS, CIO Ken Lacey has the key say in IT decisions, says Gary Kallenbach, the company's vice president of information services. "He decides how the money will be sliced and diced," Kallenbach says of his boss.
At a high level, Lacey conducts two separate meetings each month, one for major strategic initiatives with a project prioritization committee comprised of UPS' management committee, and the other for the rest of the projects with the company's IT governance committee. The management committee includes CEO Michael Eskew, five business portfolio managers and Lacey, Kallenbach says.
"Any of the business cases that the business would want to get done would be presented there," Kallenbach says. Managers are expected to present cost implications, prioritization and impact on the overall infrastructure. "Then we decide yes or no," he says.
While CEO Eskew sets the direction from a business point of view with members of the management committee, it is Lacey who sets the IT agenda and decides how funds will be distributed to the portfolio managers based on their business needs and company priorities.
"Ken is the worker bee who goes and has all the groups bring him the business cases," Kallenbach says. Managers go through the IT governance committee and determine which IT investments are needed.
That said, it is Kallenbach who directs finance and accounting, procurement, facility, security and campus support for UPS' overall IT organization. He also oversees hardware standards and system support. Like many top executives at UPS, he started out at the company as a driver, so he has firsthand knowledge of the IT requirements of a variety of workers inside the company.
Today, UPS has 100,000 desktops used by internal workers, plus an additional 85,000 PCs deployed at key customer locations around the world. The company also has a fleet of 10,000 notebooks that Kallenbach and his team support. Fortunately for Kallenbach, overseeing the day-to-day operations within the company's vast empire for CIO Lacey will be a little easier, as UPS' $1 billion IT budget will be increased this year by 3 percent to 5 percent, Kallenbach says. That comes after several years of budget cutbacks.
Making the Connection
Working around those cutbacks and connecting with the right individuals who hold sway within IT organizations often define which members of the solution-provider community are successful. LAN Associates, a Microsoft and Novell VAR based in Central Islip, N.Y., continues to expand its operations and reach, thanks, in part, to its basic approach to connecting with customers.
"We connect best with the IS staffers," says Michael Goldstein, vice president at LAN Associates. "We try to run fun educational events for them to come and see new technology. This helps open up the relationship."
Such events, he concedes, aren't likely to always draw the attention of a CIO, but they are well-attended by IT staff and managers. And that's where a lot of VARs should be putting more of their resources, experts say.
One of those is Jim Dixon, president of Executive Consultants, a market consultancy based in Malvern, Pa. The former president, CEO and chairman of CompuCom, a publicly traded Dallas-based solution provider, now consults with VAR organizations on how they can best improve their productivity, profitability and penetration of key customer segments. After studying the finances of nearly 500 solution-provider organizations, Dixon notes that those with a deep sales culture perform better than most. And those with IT engineers who interface on a regular basis with IT staffers and managers and can sell are most successful.
"They're the ones who identify painpoints before RFPs are ever written," Dixon says. "They're the ones who know what customers need most and what ideal solutions for business and technical problems to propose."
Like others, Dixon advocates getting to know line-of-business managers whenever possible. Even though they may not have the discretionary budget for IT outlays they once had, they are still integral in helping to influence what ultimately gets bought. Even Forrester still believes that. In fact, it identified "ongoing pressure for IT/business alignment" as one of the top IT trends for 2004 back in January.
And for good reason, IT consultants say. Julian Sparkes, a managing partner for Accenture, manages relationships with customers in the airline and hospitality industries. While establishing relationships with CEOs and CFOs is invaluable, he believes CIOs are still the most influential decision makers.
"The chief technology officer and the chief information officer are still big players for us," Sparkes says. But given the nature and type of business consulting Accenture does--think lots of business process re-engineering and large-scale outsourcing--the heads of key business functions, such as marketing and customer service, are vitally important contacts for his company, too.
"We've managed to up the number of relationships at the CEO and the CFO levels," Sparkes says.
Combine that with a concentrated effort to get to know decision makers deeper into the organization, and Accenture may very well be on to something this year. Not bad, considering the optimism that is finally returning to IT shops far and wide in 2004.
Additional reporting by Jeffrey Schwartz.