Academic journal article The McKinsey Quarterly

Escaping the IT Abyss

Academic journal article The McKinsey Quarterly

Escaping the IT Abyss

Article excerpt

Like it or not, you should know the truth about your investment in information technology

It's also time to face facts about how your organization made these expensive decisions.

Then put the business side on the hook to deliver results

There's a sense of despair these days in the boardrooms of companies struggling with IT. They are all too aware that information technology is vital to strategic success. Yet their application portfolios are inflexible and difficult to maintain. Their technology infrastructures are complex and hard to reconcile. And their IT organizations are overburdened, overstretched, and overwhelmed.

While these companies continue to grapple with IT, others have avoided or managed to climb out of the "IT abyss" that has swallowed up so many of their peers. In recent research,(*) we looked at companies that have prospered by applying principles that drive simplicity and flexibility throughout the technology environment, while allowing rapid development efforts and sane investment decisions.(**) These principles can help senior executives work out how to improve their company's IT performance - but first, they must determine what that performance is today. The factors underlying IT success are so closely interwoven that to pull just one lever without a holistic understanding of overall performance may simply make matters worse.

Performing a proper diagnosis is no easy task, however. Even quantitative measurements can be difficult to determine, particularly as companies move from the old certainties of automation-oriented cost reduction into the mistier realms of IT-enabled business redesign. The lack of hard numbers also undermines companies' confidence in qualitative measures. They must try to understand the many "soft" indicators that together give a complete picture of IT performance.

A sense of place

We believe it is possible for executives to get a handle on their company's IT performance, and to chart a course for improvement once that diagnosis has been made. The best way to start is by pinpointing where the company stands in the IT landscape. Exhibit 1 illustrates the most common situations companies find themselves in.

Frozen in the past

Companies in this situation have typically avoided the cost and complexity challenges of distributed computing. As a result, they tend to have highly centralized IT departments that are slow to respond to the rapid business changes of the 1990s. Their plight is largely the result of tightly integrated mainframe-based application portfolios, long development times, inflexibility, and a history of low or erratic IT spending.

One diversified financial institution is currently suffering from just these woes. In an industry where product life cycles are closer to months, development projects always take more than two years to complete, and the results often fall far short of promised functionality. Spending on IT is well below the average for the industry. And the company's continuing reliance on a mainframe-based application portfolio makes it much harder to add new functionality when necessary.

As with wood that's been eaten by termites, the troubles facing companies frozen in the past aren't obvious from the outside. Spending is under control, and systems function well. But when stresses are applied, the problems become only too apparent.

The financial institution's experience bears this out. It is under enormous pressure to manage cost more effectively, to introduce new products, to improve customer service, and to integrate acquisitions. But aging legacy systems are impairing its ability to respond. Tension is building between the demands of the business and the desire to maintain control over IT spending. Tempting though it is simply to shore up systems, this only defers the pain. Sooner or later, the day of reckoning will come.

In the abyss

Some companies are spending more and more on IT, but reaping diminishing returns. …

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