|
|
 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
| |
APRIL 13, 2004
CEOs Learn the Technology Ropes Burned by pricey projects with scant returns in the '90s, chief execs are now savvier and watch CIOs and IT spending far closer Not long ago, many chief executives viewed information technology as a wand that could magically transform their businesses -- in part because they didn't really understand it. As recently as 1998, surveys showed that most CEOs didn't know how to open their own e-mail, much less make wise technology decisions. So when their chief information officers painted doomsday Y2K scenarios and their chief financial officers pushed for spending on enterprise resource-planning (ERP) software, many CEOs just signed the check. Their inexperience carried a high price. By 2000, corporate tech spending had risen to as much as 10% of some companies' sales -- vs. today's average of 2.3% or so. Preparing for Y2K did nothing to boost revenues. And worse, according to market consultancy Gartner, more than half of the multimillion-dollar ERP projects that businesses implemented to streamline their accounting and basic operations failed -- and 40% exceeded their original budgets by more than 50%. A recent survey of some 196 corporations by consultants Booz Allen Hamilton found that more than half were dissatisfied with their tech investments. FEWER FREE HANDS. So now, CEOs have "woken up to the fact that they have to be more involved and more comfortable asking the hard questions," says Dermot Shorten, a vice-president at Booz Allen. Consequently, computer trainers for CEOs have become hot commodities. Technology-related executive-education courses have thrived. And today, CEOs are more tech-savvy -- and more careful about IT spending. Allen Salikof, CEO of Management Recruiters International Worldwide (MRI), says in the mid-1990s, chief execs -- himself included -- made few key technology decisions. Today, many approve nearly all of them. "They've become less likely to give chief information officers a free hand," says the head of the world's largest managerial, technical, and executive recruitment firm. As a result, getting funding for tech projects is harder than ever. Wally Rhines, CEO of chip-design software maker Mentor Graphics (MENT ), now approves such investments only if they enhance the outfit's financial reporting or legal compliance. "Almost anything else [unless it's critical to the core business] I don't worry too much about," says Rhines. TECHNO-TIGHTWADS. Over the past four years, Mentor's tech budget has actually shrunk. And while analysts polled by Thomson One expect Mentor's revenues to grow 7% in 2004, to $722.6 million, its tech spending will increase only 3% to 4%, Rhines says. That's close to the 5% increase planned by 225 chief information officers of America's 1,000 largest companies whom Morgan Stanley surveyed recently. What's more, many CEOs prefer now to ease into tech decisions rather than jump in with both feet. Before making huge investments, they run pilot projects. They often opt for outsourced tech services on a pay-as-you-use basis instead of making big capital investments, says Jim Weinberg, a senior vice-president at Booz Allen. And rather than approving a three-year project, for example, CEOs now sign off on only the first year -- to be followed by a review. A project "has to be very black and white and pay back within 12 to 18 months," says George Abatjoglou, chief financial officer of ChartOne, a processor of medical records. MORE RESENTFULNESS. Though many CIOs hope this will change as the economy recovers, getting new tech projects past the corner office is becoming the equivalent of finding the Golden Fleece. At some corporations, the money even has to come out of "the president's fund," as Weinberg calls it -- money that's controlled by the boss. In most cases, the top exec's scrutiny makes sense. The Booz Allen survey revealed that in implementations of supply-chain management software where CEOs were personally involved, companies spent about half as much as otherwise. Partly, that's because in these concerns top execs have learned to see the big picture -- and apply technology across the silos into which companies tend to divide themselves, says Shorten. Plus, instigating a little change sometimes -- such as getting manufacturing and sales execs to talk more often -- can lead to better decisions. Still, CEOs have to walk a fine line between being helpful and interfering. Indeed, CIOs tend to be less happy when a tech-savvy CEO is riding herd on them, says Salikof, whose firm recruits both CIOs and CEOs. In a recent survey of 500 tech execs by consultancy CIO Insight, about 65% said they felt unappreciated. And 51% of CIOs at manufacturers said they're looking for new jobs -- a sign that all is not well in the CEO-CIO relationship. BALANCED PARTNERSHIP. CIOs have much to resent: Over the past few years, their roles and responsibilities have changed drastically. Instead of flying solo, they now have to run every expense by an executive committee or the CEO -- and in the process provide more and clearer explanations for their plans. Two years ago, Salikof says, he replaced his CIO because he needed someone who could explain IT projects in easy-to-understand terms. Still, many experts say this evolution of the CIO's role is for the better. For one, at many companies they're more frequently invited into business meetings to provide suggestions on how the best use of technology can increase profit margins or improve products. And though many tech projects have been a disappointment over the years, they can make a huge difference when done right. At package-delivery giant United Parcel Service (UPS ), which spends more than $1 billion on technology annually, CIO Ken Lacy not only sits in on most meetings among senior execs but he also visits customers. His efforts have made possible a new package-assembly service: UPS will group shipments of the parts needed to assemble a PC in its warehouse, so that when it delivers them, the PC maker will save on storage space and sorting time -- a convenience that earns UPS major brownie points. Smart CEOs see their CIOs as partners -- though, in the past few years, chief execs have learned to think for themselves as well. In the long run, that will be good for their companies -- and for their shareholders too.  By Olga Kharif in Portland, Ore.
BW MALL
SPONSORED LINKS
Buy a link now!Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version