For those who know my Warehouse (TWL) IT story you’ll know that things were a bit bleak in the early days. I had joined TWL from Deloitte with the expectation that as a CIO my role would be to lead a team that would use IT to provide competitive advantage and create value. However, what I found when I arrived was a team in disarray and under attack.
Talent – but no time for strategy
I have numerous ways of illustrating this, however my favorite is that we had 62 P1 incidents in the first 60 days that I was the CIO. We had plenty of talented people but there was no time for strategy, no time for thinking about competitive advantage. The team and I were too busy with triage and fixing these significant issues so the business could simply keep operating. As I look back at these times the thing that astounds me most was that no one called to complain about the instability and level of service. This had become the norm.
It was with this as background and as a new CIO that I headed off to NRF the largest retail conference in North America. While there I pondered how to change the game and ensure that IT was adding value and seen as being strategically relevant. These thoughts were in the background when an Accenture partner came to the stage to present the findings of a study that they had done where they looked at the relationship between IT spend and performance within European manufacturing firms (why this was reported at a retail conference I’m still not sure)1. Given my obsession with value I was very interested in what he had to say.
A different way of spending
His opening gambit was very simple. There is no relationship between IT spend and organizational performance. Not a good start if you believe in the value of IT and unfortunately a very common finding in the research. He then went on to say BUT ……. when you dig below this high level data what you find is that while the total spend is broadly the same, high performing organizations spend their money on IT very differently than low performing organizations. High performing organizations are very operationally efficient, meaning that they spend substantially less on IT business as usual activities and free up more money to invest in new and enhanced technology capabilities. So while high performers don’t outspend their lower performing counterparts, they do substantially out invest them.
This relationship is illustrated in the diagram below where I have plotted IT spend against IT maturity as represented by the IT Hierarchy of Needs. 2
As the diagram shows, the very best spend roughly the same as the low performers but they invest substantially more. The low performers invest as little as 10 percent of their total spend with 90 percent going on BAU, whereas the high performers are investing nearly 50 percent of their total spend. This means that high performers are out investing their low performing colleagues by approximately 400 – 500 percent. If you compare the high performers to the average, high performers invest about double that of the industry average.
As the presentation continued, it occurred to me that really what he was saying was that high performing organizations had high performing IT teams. This simple insight gave me clarity in what was previously a fog of worry. My role as CIO was to underpin organizational performance by creating a high performing IT team and he had given me an observable insight into what a high performing IT team looked like. Specifically, they were very operationally efficient, meaning they freed up more money to invest in new and enhanced IT capabilities and by implication they consistently delivered those capabilities, delivering organizational value and encouraging more investment.
As I contemplated this the next action became clear. I needed to find out where we were relative to their model. As soon as I returned to work I began to construct a benchmark which showed me where TWL sat. We were right at the bottom, firmly in the low performer category. We were spending above average for our industry and about 95 percent of that was on business as usual. We were basically investing nothing. Not a great result, but it was clear what needed to be done.
We couldn’t justify asking for more money, we were already spending above our industry peers. Rather, what we needed to do was create a lean IT operational environment so we could free up funds to invest in improving IT capabilities. And that’s what we set out to do. From that point forward 100 percent of the team’s effort was directed towards improving IT team performance so we could be the high performing team our organization deserved.
There were a lot of lessons and missteps along the way, however over the years that followed we made a lot of progress. We became operationally efficient (total IT spend was 20 percent below industry average and we were investing 40 percent of that into new initiatives) and we built our investment in new and enhanced IT services.
If you would like to know more about how we did it you can download this white paper Delivering Value From IT which will provide you with a good start, or reach out to me and let’s talk.