CIOs need to show value

IT leaders can prove the value of IT investments to senior management by shifting away from being viewed as a cost centre and focusing on how they are helping companies achieve top-line growth, said CIOs at a Society for Information Management (SIM) conference held recently in New York.

One way to do that is to think out of the box, looking beyond some of the more obvious areas to identify value opportunities.

That’s what James H. Noble has done at Philip Morris Companies Inc. Dissatisfied with standard decentralized, centralized and shared services approaches to running an IT organization, the vice-president and CIO of the New York-based consumer products company convinced senior management and business unit leaders to create a federated shared services organization. That way, the IT department can look beyond “squeezing costs out of IT” and operate as a profit centre aimed at helping generate new business.

One reason the federated shared services model should appeal to IT leaders is that CIOs “are all tired of begging around with a tin cup to our internal customers” for project funding, Noble said.

He speaks from experience. Earlier in his career, Noble consulted with Shell Oil in Houston to help the company form a shared services group. Shell eventually decided to market its shared services to other companies, and “they’ve had a lot of trouble making that succeed,” Noble said.

What Philip Morris has done is create a Web-based “company store” where business unit leaders can shop for IT services from its shared services group and compare the costs of providing support with benchmarking results from Meta Group Inc. For example, Noble’s group charges US$70 per month, per managed end-user seat, versus the US$105 per-month average charge for Meta benchmarking participants.

Under this federated model, argued Noble, his organization is able to demonstrate a better, more flexible and scalable range of services and lower costs than third-party vendors saddled with cost-of-sales overhead. In addition, he claimed his group responds faster to customer requests while maintaining a “professional, benchmarked, arms-length” relationship with the business units.

The shared services model has helped Noble “raise the agenda of the CIO to the board level” by enabling him to debate investment prioritization with other business unit leaders. He also said it has enabled his organization to deliver in one year what it otherwise would have taken the IT department 5 years to complete.

Still, there are risks to adopting this approach. In shifting to a shared services model, for example, the number of people reporting to Noble plunged from more than 500 people to just 22.

“In most corporate cultures, your clout is often viewed by the number of people you have reporting to you,” said Jerry Luftman, director of the Wesley J. Howe School of Technology Management at Stevens Institute of Technology in Hoboken, N.J. But under the federated shared services model adopted by Philip Morris and other companies, such as IBM, Bristol-Myers Squibb and Prudential Insurance Company of America, the people who continue to report to the CIO “are very strategic people that have gained the recognition of senior management,” Luftman said.

To help prove the value of IT to its top executives, Shelley Leibowitz, Morgan Stanley Dean Witter’s managing director and company CIO, has leveraged co-sourcing and outsourcing engagements to save money and focus on core competencies while diversifying its IT support. Case in point: Morgan Stanley used to struggle with quality assurance and systems testing in-house, said Leibowitz. By outsourcing those functions to a set of vendors on a project-by-project basis, the New York-based financial services giant has seen the quality of its QA work and systems testing “greatly improve,” she said.

For her part, New York University CIO Marilyn McMillan set up an educational portal project beginning in June 2000 “where deliverables were set on a schedule like a vendor product.” That approach helped her “earn the credibility” from senior management and gain funding for each new release of the portal, which is now on Version 5.0.

It also helped McMillan gain approval recently for an additional “six-figure investment” to add workflow capabilities for end users to access administrative applications through the portal.