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By Katherine Chalmers
March 2006
Managing IT as a Business
Interview with Author Mark Lutchen
Mark Lutchen
Mark Lutchen has been with PricewaterhouseCoopers for 32 years. Starting in basic IT consulting, he later specialized in addressing the IT management issues of large multi-national companies. In the early 90s he served as acting CIO at a number of large organizations.
In 1994 he became the CIO of Price-Waterhouse where, during the merger with Coopers & Lybrand in 1998, he was responsible for integrating all of the firm’s technology across 150,000 people in 150 countries to ensure a smooth ‘Day One’ transition
When IBM acquired PwC’s technology consulting business, Lutchen opted to remain with PwC and focused his practice on resolving IT effectiveness issues and managing IT as a business. His book of that name grew out of his experiences as a CIO and as a consultant who has helped many companies struggle with similar issues.
IT Effectiveness at PricewaterhouseCoopers
PwC Advisory’s IT Effectiveness consulting service provides practical advice to senior executives on how to improve IT performance by managing IT as soundly and rigorously as a business. The firm’s experienced professionals help organizations implement solutions to optimize IT environments, drive out unnecessary complexity, improve sourcing abilities, manage IT risk and compliance, and to cultivate governance and leadership. Through ensuring that IT spending and initiatives are aligned with business goals, we’ve helped the world’s largest organizations achieve a compliant, value-based, high performing IT organization.
Mark Lutchen’s groundbreaking book, Managing IT as a Business
As more CIOs and CEOs grapple with the challenge of applying effective management processes to their increasingly critical technology organizations, this engaging book offers very practical advice for doing it successfully. Drawing on his experience both as an actual CIO managing a large, global IT organizations and as a management consultant working with many large organizations, Lutchen delivers a clear, integrated vision for enlightened IT management.
We spoke with him recently to learn more about his book, his approach to managing IT as a business, and his view of the recent evolution of IT management.
Q: What gave you the idea to write ”Managing IT as a Business?”
Mark Lutchen: When I dealt with CEOs, CFOs, COOs and CIOs, the same issue came up frequently: IT was not subject to the same basic business disciplines as the rest of the business and that was causing problems for many companies. So what prompted me to write the book was the need to consolidate the messages I was sharing with clients about the importance of executive management in IT and the techniques for managing effectively.
Q: Could you elaborate on what you mean by managing IT
as a business?
Mark Lutchen: Technology is one of the top expenditures in a company. If you think of IT as the equivalent of a manufacturing plant, you’d never run a manufacturing plant – in my case as a CIO with a budget of $1.4 billion – without a cost accounting system, human resources, marketing communications, or other key business functions, would you? It wouldn’t be logical to do that. So why would anyone expect to run an IT organization without these in place.
The role of CIO is actually looking more and more like a CEO role. They’ve got to be able to deal with the people side, the marketing and communications aspect, the finance part. The new role that is emerging – that needs to emerge – is very different. It is a business executive’s role, not simply a technologist’s role.
So managing IT as a business is simply saying that in order to run any large IT organization, you have to apply accepted business principles – financial, budgetary, organizational, marketing, performance measurement, and other key disciplines – within the IT environment.
Q: How can organizations make sure that their IT executives and managers gain the right skills?
Mark Lutchen: In the short term, companies have to first recognize that business management and leadership skills are critical in the IT organization, then ask, ”How do we embed these today.” You deal with this by finding enlightened CIOs who understand business and surround themselves with a team of people who have the right skills: a CFO for IT, an HR person with an understanding of how to deal with IT issues, the right marketing communications people. CIOs don’t have to have the skills themselves, but they do have to understand them and support themselves with these capabilities.
In the long term, the goal becomes developing CIOs who do have broad business skills. There has to be a greater engagement by the business to look at the CIO role as equivalent to the CEO of a division. You would never name a CEO in a big company unless you rotated them through a whole series of other roles. They may have started out in finance and gone to marketing or gone to production or wherever it may be. By the end of the rotations, they have learned the requisite skills they need to manage and lead. Companies have to figure out ways to apprentice people to learn those skills and reward them.
I’d back the training up even more. Universities have got to start embedding these kinds of skills into their programs. If all they are teaching is programming, they are not teaching anyone how to be a CIO. If top universities are trying to prepare the people who could take executive roles, they have to start teaching how to manage IT as a business.
Q: In the book a repeated theme is the importance of IT budgeting and spending control. What are the business benefits for moving away from managing IT purely as a cost and adopting a more strategic way of thinking about IT spending?
Mark Lutchen: First consider why people started trying to manage IT simply on the cost side: because they started to realize it was a big number. What do you do with a cost? There’s only one thing to do with a cost. You try to reduce it; you squeeze it. Plus, many of the CIOs reported up through the CFO channel, and CFOs have a specific focus of how to cut costs.
Another reason is that historically users have had limited input into technology decisions. They’d say what they wanted and throw it over the wall, but primarily IT people made most decisions for their own purposes. What that bred obviously was nobody linking technology spending to the business and the business not really having a voice to say, “Wait a minute, this is only one lever we use to make money at this company.”
But, when you’re managing IT as a business, you do have enough information to understand the cause and effect of your spending decisions. You don’t simply look at an item cost for a single point in time, but have the transparency to accurately assess the total return on investment of a spending decision over time. For example, you could analyze the immediate cost of upgrading laptops in relation to the total costs the organization bears in maintaining aging equipment. Cost and organizational transparency helps you make better, more strategic technology decisions for the business.
Q: What kinds of metrics do most companies need to have that transparency?
Mark Lutchen: First, they need a good way of collecting credible information in a regular flow: payables data, procurement data, human resource data, metering data from your enterprise management tools. One off spreadsheets aren’t credible.
Once you have good data, you can start to look at three layers of performance measurement. The first level is what I call the shop floor metrics for IT – utilization, up time, etc. Only IT really needs this information.
The second layer – the CIO’s dashboard – allows you to manage and control activities within IT. For example, suppose one of your objectives is to drive skills and you have a major program in place that to accomplish that. Then at least for the initial period, a good CIO will want to see metrics relating to that initiative. Once it is moving in the right direction, it doesn’t necessarily need to stay on the CIO’s dashboard, but the IT HR person should always have it on their dashboard. These are the metrics that help you manage the division effectively.
Third is the business value layer. This is the most difficult level to reach and I don’t think anybody is totally there yet. It measures the business value of IT and that requirement is going to be different for different businesses. How you measure is going to involve a great deal of engagement with the business itself, because it is likely to be measured in business terms, not in IT terms.
Q: Do you see many companies already catching on to this? Do you feel like it’s something that’s spreading or do executives need to be hit over the head with it?
Mark Lutchen: I think it’s happening in both ways. There is growing information about these concepts. After the book came out, there was a cover article in CIO magazine called “Running IT as a Business.” You see a lot of analysts raising attention to this issue because there isn’t a bottomless pit of money to spend anymore and people are getting wiser.
There are many enlightened CIOs who are looking at IT this way. At other companies, business executives driving the expectation that IT will begin to operate with these kinds of disciplines.
Other CIOs are sitting there and saying, “This too shall pass and I’m going to hunker down.” Eventually they’ll be gone. That whole group is not going to last for long. If you are sitting on top of a huge IT spend, you’re responsible for it. Shame on you if you don’t start managing it effectively.
Q: So does this mean CIOs will finally have a seat in the boardroom?
Mark Lutchen: CIOs were always lamenting they didn’t have a seat at the table. In the late 90s when many of them got a seat at the boardroom table, they didn’t come in. They didn’t really do the things they should have. They came in with IT measurements, not business value measurements. So they lost their seat at the table and the trust was broken between IT and the business.
That’s only now starting to come back. And the way it’s coming back is that CIOs are functioning as business people with the business tools that CEOs of other divisions would have. That’s what’s giving them the ability now to be part of the dialogue.
Q: Is this trend creating a situation where to be competitive, you’re going to have to adopt this IT management approach?
Mark Lutchen: Yes. The connection between IT failures and shareholder value is very clear now – much clearer than it used to be. In today’s world, IT is actually core for many companies. Technology is so embedded and so critical for many businesses and industries that if you don’t manage it strategically, you will unfortunately feel the impact very quickly. And the shareholders are not going to be happy.
Q: How important do you feel business service management technologies are to supporting the management of IT as a business?
Mark Lutchen: When I took over as the CIO, the first thing I started asking is, “Where’s the data? Give me the information. Where’s my dashboard where I can see things? Where’s the budget?” And nobody had it.
First, I had to ask for everything. Second, it was an unnatural act to get it pulled together, so I set up a little group. Unfortunately, at the time I had to manually collect this data to give me the dashboards I needed to see and manage the trends. Then we had to cascade that measurement process throughout the whole IT organization.
Fast forward to today. You’re starting to see a whole new class of integrated tools that provide much more of a dashboard. Those kinds of tools are very critical to managing what’s happening in IT.
Q: Any final comments?
Mark Lutchen: When the book came out two years ago, it staked out some new ground in this whole IT management space which didn’t exist. It created a very integrated vision or goal for enlightened or enterprising businesses and IT leaders to shoot for. I think it had the intended effect, because a lot of people are shooting for that goal now.
Peter Goldin is a BSM Digest contributing writer specializing in the technology and electronics markets. During 17 years of marketing and PR writing, Goldin has covered performance monitoring and management, storage, networking, security, e-commerce, and a range of other technologies for respected corporations and innovative startups, as well as a variety of publications.
Katherine Chalmers is editor-in-chief of BSM Digest.
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