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CCT225H5 Study Guide - Quiz Guide: Fast-Moving Consumer Goods, De Beers, Good Governance

Communication, Culture and Technology
Course Code
Gordon Lucas
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Avoiding the Alignment Trap in IT
Information technology remains a terrible bottleneck to growth in most
companies, mainly because executives focus on the wrong remedy for their IT
Charles Schwab & Co.
oIT allowed them to offer customers lower prices on trades than traditional
oAs discount brokerage became more of a commodity business, Schwab
transformed itself into a full-service, online broker
oBy 1998 a significant share of its profits in the online trade
oIn the next few years, competitors caught up and surpassed it
oSeveral brokerage houses (discount and full service) were able to beat
Schwab on price
Schwab's IT staffers responses to business requests had become slow and
IT engineers had to spend more time fixing bugs in the system
Ambitious programs became overdue
oOne important one was the tax-lot accounting system that Schwab
envisioned to serve its most profitable customers
oSlow progress of these projects prevented the company from responding
effectively to competition
Company kept throwing money at projects because they did not see an
Red flag went up when Schwab found itself spending 18% of revenue on IT while
three of its leading competitors were spending 13% or less (cost disadvantage
equaling hundreds of millions of dollars)
This situation is instructive
oUnderscores a growing realization we have found among the companies
we work with that the usual diagnosis of IT's troubles and the usual
prescriptions for fixing those troubles are often misguided
Companies seeking to deliver higher business performance by harnessing IT
have focused on alignment
oAlignment refers to the degree to which the IT group understands the
priorities of the business and expands its resources, pursues projects
and provides information consistent with them
oIt and business priorities must be tightly linked
oIT spending must be matched to the company’s growth strategies
oA lack of alignment can doom IT either to irrelevance or failure
Even at companies that were focused on alignment, business performance dependent on
IT sometimes went sideways or even declines
Why wouldn’t a high degree of alignment alone bring about improvement?
oA narrow focus on alignment reflects a misconception about the nature of IT
oUnder performing are not just rooted in misalignment but in the complexity of
systems, applications and other infrastructure
oThe case at Schwab:
the enormous complexity of the company’s IT system wasn't the result of
IT engineers, but the company’s divisions were driving independent
initiatives, each one designed to address its own competitive needs
IT’s efforts to satisfy various business constituencies created a set of
overlapping systems that might satisfy individual units for a while but did
not advance the company's business as a whole
Complexity doesn't disappear just because an IT organization learns to focus on aligned
projects rather than less aligned ones
It can get worse
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oIT organizations provide dedicated resources (application developers, data
centers assigned to each business unit) in order to improve alignment
oThey develop best of breed solutions designed to serve each business’ unique
oIgnore the need for standardization and upgrading legacy systems
oCreate a new complexity on top of the old, making system enhancements and
infrastructure improvements more difficult to implement leaving potential scale
benefits untapped
oCosts rise, delays mount and fragmentation makes it difficult for managers to
coordinate across the business
oIn these situations the intent focus on alignment can hurt units instead of helping
oAligning a poorly performing IT organization to the right business objectives still
won’t get the objectives accomplished (The alignment trap in a nutshell)
Uncovering the “Alignment Trap”
Conducted surveys with 30 CIO’s
Schwab is far from alone in its belief that it is struggling to harness IT to its growth
Only 18% believed their company’s IT spending was highly aligned with business
priorities that supported their business strategy
Only 15% believed that their IT capability was highly effective and reliable without
complexity and nearly always delivered projects on time
¾ believed that their IT capability was neither highly aligned nor highly effective
These companies occupy the “maintenance zone:
oIT at these companies is generally underperforming, undervalued and kept
largely separate from a company's core business functions
oCorporate gives them amount necessary to keep running, but doesn't offer
enough added value to the business (isn’t really expected to)
oMaintenance Zone companies report slower rate of growth (2% below the 3 year
average, while spending the same as the average every year on IT)
The Path to IT-Enabled Growth
2 clear tones to IT disappointment and failure:
oGeneral ineffectiveness at bringing projects in on time and on budget
oIneffectiveness with the added complication of alignment to an important
business objective
Projects dragged down more than their own weight
11% of respondents were snared in the alignment trap
oThese companies spent 13% more than the average IT company yet had 14%
lower revenue growth on average over 3 years
oIT isn’t given the attention it deserves
Remaining IT companies were much better
ohalf focused on execution and their effectiveness at getting IT projects up and
running on budget, costs came in 15% below the average for the entire sample
oCompanies highly effective at making IT projects happen and aligning them to
business objectives came out on top
their 3 year average sales growth exceeded by 35% and costs were 6%
The Path to IT-powered growth lies first in building high effectiveness and
only then ensuring that IT projects are highly aligned to the business
Only 1 in 5 senior execs reported in the survey that their company was highly
11% of companies in which IT was highly aligned but was not highly effective,
however, we found those companies were considerably worse off than their
counterparts in the maintenance zone
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