Speaking the CEO’s Language

Why is it that CIOs and chief executives often struggle to understand one another?

According to conventional wisdom, the classic scenario is that eyes in the boardroom glaze over as soon as the IT folks start to talk bits, bytes, and bandwidth. While it’s true that a tendency among some CIOs to stay in the technology box and disregard business issues is a factor, the problem is more complex. For one thing, CEOs, CFOs, and CIOs each have fundamentally different temporal perspectives.

Consider: the CEO tends to be preoccupied with the future – growth strategies, deals, and long-term earnings expectations, which drive the movement of stock price. CFOs focus on the present – cash flows and banking relationships. CIOs, meanwhile, are often preoccupied with the past – optimizing systems purchased last year and demonstrating that investments have generated a positive ROI. These different perspectives have a powerful influence on shaping priorities.

CIOs seeking a future-oriented perspective can benefit from forward-looking baselining (FLB), an emerging management tool. FLB is in many respects an extension of traditional performance improvement analyses, which are based on snapshot-in-time, static comparisons. The basic model is straightforward: gauge the performance of your business, analyze the measures against some sort of benchmark of industry peers or top performers, figure out what accounts for the delta, and then take steps to close the delta and reduce costs, improve service quality, or increase productivity.

FLB is different because it applies industry trending information and forecasting models to project resource levels required to address changes over time in business volumes, complex environments, and technological trends and capabilities. As such, FLB provides a comprehensive view of the operational environment needed to support a given business strategy in, say, 2007. By using FLB to outline the financial and operational implications of different growth scenarios, CIOs can help the boardroom make informed strategic decisions, break down longstanding barriers to effective communication between IT and the business, and speak the CEOs language.

For example, if an FLB analysis demonstrates that a consolidation strategy will, in three years, result in a 20 percent cost savings rather than 50 percent, then the CIO can help the chief executive avoid some very unpleasant future surprises. The precision of FLB analyses is also a boon to CFOs confronting the increasingly stringent reporting requirements of regulatory initiatives such as Sarbanes-Oxley. And, by linking business strategy to operational requirements, FLB can clarify discussions over IT budgeting.

Let’s examine another scenario: a global operation has disparate sites throughout Europe, Asia, and North America, and some sort of consolidation strategy seems obvious. But what approach is most viable? Should three centers be established on three continents? Two centers – one in Asia and one in North America? Should all of IT be consolidated into one country’s operations?

FLB offers important insights into these questions by projecting the probable costs and benefits of the different scenarios, based on detailed understanding of existing costs, the potential impact of performance improvement initiatives, the risks and benefits of each alternative, the effect of business and technology trends on cost and performance, and exploration of business requirements and strategies.

To take another example, a company acquires a competitor, and requires additional IT resources to support the increased numbers of employees. Let’s assume that the planned acquisition will be complete by the end of 2005, at which time the company’s 2003 employee base will increase by 30 percent. So, what kind of budget will be needed to provide desktop computers for these additional employees?

One approach would be to simply add 30 percent to the 2003 figure. However, an analysis of IT performance in 2003 could reveal an opportunity to reduce costs by, say, 20 percent (not an unrealistic number) through standardization and consolidation of support.

Coupled with trending data that shows that, on a unit cost basis, desktop costs will likely continue to decline, it becomes possible to project that desktop computers can be provided for the additional 30 percent of employees in 2005 at the 2003 budget level – at no additional total cost, in other words.

In this instance FLB provides a future target state unit cost, based on unit costs per Desktop system, together with performance forecasts based on trend information, and the impact of performance improvements over time.

The combination of Forward-Looking Baselining and Performance Improvement provides the capabilities to chart a course of positive and long-lasting change to the business. FLB illustrates various options and scenarios in the change planning process, and documents the risks, benefits, and impacts of different change strategies. By combining granular analyses of cost and productivity performance, together with sophisticated scenario modelling capabilities and projections of cost and productivity trends, FLB helps executives make fact-based, objective decisions regarding change, consolidation, and sourcing. More specifically, FLB provides CIOs with a powerful tool to communicate effectively within the boardroom and to address the strategic business implications of IT investment.

John Kopeck is president of Compass North America. He is based in Oak Brook, IL.