“To understand a crime, follow the money” is a familiar principle of detective work. Over the years, I’ve found that principle to be extremely useful in the world of IT management. In fact, my spin on it is, “If you want to understand dysfunctional IT behavior, follow the money!”
Of course, this principle helps detectives to not only catch criminals, it helps to get the criminals punished. Similarly, in the IT world, I’ve used the principle to both understand what is leading to dysfunctional IT behavior, and to help correct that behavior by fixing the money-related drivers. Let me provide an example and the application of this principle. The example is, of course, fictitious, though based on real life situations I have worked over many years of management consulting and research.
First, a caveat. Clearly, not all human or organizational behavior is motivated by money. However, I have found that collective organizational behavior is significantly shaped by money – by the sources of funds, valuation of returns, and measurement inherent in financial reporting.
Higgins-Smithbottom is a global fashion designer and retailer. The company culture values the creative geniuses who come up with the hallmark designs, and places great freedom and authority on the heads of business units. In common with the industry, success is seen to be all about great design, brilliant merchandising and effective management of the brand – three disciplines that seem to have little to do with IT. As such, IT is an “expense to be minimized,” a “necessary evil,” and something that the IT organization is expected to “take care of with minimal disruption to the business” so that business leaders are “free to design, merchandise and manage the fickle fashion business unencumbered by IT.”
The executives at Higgins-Smithbottom are vaguely aware of contemporary success stories such as Zara and Li & Fung, but don’t recognize the role that information and IT have in these companies success stories.
Financial Forensic Clues
- All IT capital and expense is managed out of an IT budget – the IT resource is essentially “free” to the business unit leaders.
- There is no enterprise-wide IT prioritization and allocation process. Resources are essentially allocated on a first-come, first-served basis, with the regulator on business demand being total supply – when all available supply is tied up, no other demand is accepted.
- Because IT is “free” there are no attempts to measure and track the return on IT investments.
The perspective on IT is that it costs too much and delivers too little. Even though business heads do not “pay” for IT, they know that the bottom line is impacted by it – IT saps profits and eats into the executive bonuses. As a result, business leaders try to minimize their involvement in IT, invest no time or energy trying to understand it, or figure out how it can improve the business. Consequently, IT contributes relatively little to the business. It responds as an “order taker” acting on low value requests from business silos, without an overall IT strategy or architecture. Each response to a business order adds more complexity to the patchwork of IT systems. More time and money is spent on inter-system interfaces than on business enablement.
When a meaningful business request surfaces for management information or business analytics, IT finds it virtually impossible to respond, due to the complex patchwork of systems and lack of data standardization. Lack of adequate IT resourcing and responsiveness leads business units to hire their own IT resources – sometimes as consultants and contractors, other times as permanent staff. These “shadow IT” groups exacerbate the complexity of the systems environment, and mask true IT spending levels.
IT eventually finds itself in a vicious cycle – low business demand maturity begets low IT supply maturity. When IT does get engaged by the business for a new system, it fails to “push back” on the business demand to “automate the manual process as is – don’t make us change the process!” IT does what it’s told, even if that means customizing the heck out of an off-the-shelf package. The customization triples the implementation costs, and sends subsequent maintenance costs through the roof.
- When IT is “free,” it is not valued. When someone else is footing the bill, there’s no sense of accountability from those who should be turning the investment into a valued return.
- Without enterprise-wide prioritization and allocation, IT optimization takes place at the business unit level, leading to sub-optimization at the enterprise level.
- Lack of enterprise-wide prioritization and allocation is typically accompanied by a lack of an overall IT strategy and road map. This leads to islands of automation, and over time, the number of interfaces (and costs associated with building and maintaining those interfaces) increase exponentially. After a few years, the vast majority of IT spend is related to interfaces – i.e., it’s all cost-added, without any value-added.
- When IT is sub-optimized for the enterprise, IT “vacuums” get created throughout the business, and nature’s abhorrence of vacuums leads them to be filled by “shadow IT” groups. This adds to actual IT spend, even though the shadow spend is not visible in the IT budget – i.e., IT is costing you more than you think it is.
- Being “cheap” with IT usually ends up being very expensive!