IT modernisation: An exercise in alignment

IT modernisation: An exercise in alignmentA report from the Economist Intelligence UnitSponsored by Oracle and HP

IT Modernisation: An exercise in alignment

© Economist Intelligence Unit Limited 20091

Preface

IT Modernisation: An exercise in alignment is an Economist Intelligence Unit briefi ng paper, sponsored by Oracle and HP. The Economist Intelligence Unit’s editorial team wrote the report, and the fi ndings and views expressed do not necessarily refl ect those of the sponsors. Dan Briody was the author of the report and Katherine Dorr Abreu was the editor. Mike Kenny was responsible for layout and design.

Our research drew on two main initiatives. We conducted a global online survey in February 2009 of 170 executives from various industries. To supplement the results, we also conducted in-depth interviews with executives from around the world about the challenges and opportunities they face relating to IT modernisation. Our thanks are due to all who contributed to the report for their time and insight.

June 2009



2

Executive summary

A ll organisations, regardless of size, industry or location, face the constant challenge of maximising the contribution of their information technology (IT) infrastructure and applications to achieving

their business goals. To do so, organisations must often fi gure out how to use existing systems more effectively, or modernise them to better perform the tasks at hand. At times, this requires replacing legacy systems that no longer meet the needs of evolving business practices and expanding markets.

IT is an important part of any organisation and a well-planned and executed modernisation strategy is often crucial to the rapid evolution of the IT systems and skills that support strategic business functions. In order for companies to stay competitive and better serve their customers, their IT systems must also be competitive, leading to simpler and more streamlined business operations, saving money and time.

A survey conducted in February 2009 by the Economist Intelligence Unit, sponsored by Oracle and HP, shows that in most companies both the business functions and the IT function understand the potential benefi ts of modernisation. But that does not mean that most companies know how to do it right. The process itself can be complex, and requires adequate analysis of business needs and an understanding of existing systems and applications. Some of the same mistakes that have dogged IT departments for decades still undermine effective IT modernisation strategies. And perhaps the most debilitating mistake is improper alignment of IT modernisation efforts with strategic business goals.

What is IT modernisation?

IT modernisation refers to major changes in a company’s technology infrastructure, applications and overall operations to replace legacy systems. It requires new technologies, skills, operational practices

and capabilities that are intended to improve how a company does business. While it may occur in an iterative form, it is different from isolated upgrades of applications and hardware. Legacy systems are those that still function but no longer support and deliver optimally against the organisation’s operational and strategic goals.



The global economic downturn is putting pressure on organisations and their investment strategies. Survey results show that many companies are cutting back or delaying IT modernisation projects, and demanding faster and higher returns on their investments. Yet now is the time for companies to position themselves competitively for the longer term, and an effective IT strategy may contribute to that goal.

The companies that are most successful with IT modernisation projects are those that let market forces drive the project, focusing on gaining new and keeping existing customers. And they let the business own and direct the project, to ensure there is alignment between IT and business strategy.

Who took the survey?

One hundred and seventy senior executives from around the world took part in the online survey. Thirty-three percent of respondents are located in Europe, 29% in North America, 28% in the Asia-Pacifi c region and 9% from the rest of the world. Fifty-one

percent of respondents are C-level executives. They have a broad range of roles, with 41% responsible for general management, 39% for strategy and business development, 28% for IT and 23% for fi nance.

Respondents represent a broad range of industries and company size, and 46% work for organisations with annual revenue of more than US$500m.

For further information, see the appendix at the end of this report.

29

28

33

10

North America

Asia-Pacific

Europe

Rest of World

Where respondents are located (%)

Source: Economist Intelligence Unit survey, February 2009.



4

The computer systems and applications that constitute today’s information technology (IT) pervade every part of every business in every industry. IT’s rapid evolution challenges businesses to extract the

most benefi t from their systems and applications, and to update them as the organisation’s needs evolve. When they embark on a modernisation project, companies must have business needs clearly in sight, and carefully align their IT strategies with the broader corporate business strategy.

Survey results show that global business executives recognise the strategic value and importance of IT modernisation. Across the board, companies are actively engaged in modernisation efforts. Some have recently completed and others are in the midst of such projects; still others are planning to modernise their systems. In fact, just 17% consider it suffi cient to upgrade their systems and only 5% of companies say they have no plans to modernise.

The vast majority of companies currently engaged in IT modernisation are satisfi ed with the results, according to the survey. Of the respondents whose companies have recently completed an IT modernisation project, 90% are satisfi ed or better. Outward-facing factors such as improvements in

Introduction

Our company is in the midst of an IT modernisation project

Our company recently completed an IT modernisation project

Our company is in the planning stages of an IT modernisation project

Our company is selectively modernising our applications and infrastructure

Our company is considering an IT modernisation project

Our company is constantly upgrading our systems and does not believe that IT modernisation is necessary

Our company has no plans to modernise IT

What best describes your company’s status with regard to IT modernisation?(% respondents)


18

12

15

28

4

17

5



quality of service (chosen by 67% of respondents) and revenue-generating capabilities (50%) top the list of benefi ts. Inward-facing factors, such as simplifi cation of the infrastructure and applications environment (22%), are also important but rank lower. The bottom line is that IT modernisation is well understood, widely in use, and can bring concrete results if executed properly.

Why modernise? Carol Rizzo, a technology consultant and former chief technology offi cer (CTO) of Kaiser Permanente, AIG and Citibank, equates the IT unit that does not modernise to a family living in a 200-year-old house: “The next new appliance you plug in is likely to short circuit the whole house.”

Although the value is apparent, IT modernisation is not without its challenges. For one thing, these projects can be costly and complex. They require a great deal of planning and co-ordination, and can take many months to bring to fruition. In addition, the return on the often sizeable investment sometimes takes time to kick in, and in these tough economic times that can put a strain on resources.

To some, IT departments should constantly upgrade their systems, incrementally improving and adapting them as the business needs change. But the reality is quite different. There are dozens of ways that IT systems can become suddenly and irrevocably out of date: software vendors go out of business or are acquired; global market trends shift, as with outsourcing or globalisation; and businesses are bought and sold. Iterative upgrades simply cannot keep up with the rapid pace of business change. “What ends up happening is you modify your existing applications to meet new user demands,” says James Riley, director of indirect client services at Wilmington Trust Corporation, a Delaware-based bank with US$36bn under management. “You bolt something on here, you patch something up there, but everyone knows that you can’t keep that up forever.”

When reality fi nally does catch up, a thoughtful and thorough IT modernisation effort is the only solution. But our research shows that the single most important criterion that must be met for an IT modernisation project to be a success—alignment between IT and the strategy business direction of a company—is elusive. The need for alignment is not new—it has been a challenge since IT entered the business world. For the most part, however, it remains unresolved. Both the survey and interviews with business executives show that if an IT modernisation effort is not properly aligned with strategic business imperatives, it is likely to fall short. We believe this alignment to be the single most important prerequisite for IT modernisation success.

On budget, on time

Met or exceeded cost saving objectives

Infrastructure and applications environment simplified

Minimal service disruptions throughout the process

Improved revenue-generating capabilities

Quality of service improved

For companies that have implemented IT modernisation projects, improved quality of service and revenue-generating capabilities are top reasons for satisfaction.(% respondents)


6

17

22

22

50

67



6

When done right, IT modernisation is valuable. And it is more likely to be done right if it is driven by market forces. By and large, the survey shows that these projects are not being initiated for cost-

reduction or productivity-increasing purposes, although they often yield those improvements as well. They are instead focused on outward-facing, strategic business imperatives.

“Either you make these investments in IT modernisation and beat the competition, or you’re going to lag behind and have to invest even more to catch up,” says Robert Keefe, senior vice-president and chief information offi cer (CIO) of Mueller Water Products, a US$1.8bn manufacturer of water infrastructure and fl ow control products based in Atlanta, Georgia. “Internal drivers are opportunity costs…if I’m saving within the IT budget, that’s always nice. But if my company can come out of this in better shape than the competition, that’s a much more compelling argument.”

The data support this sentiment. More than one-half of the survey respondents say that remaining competitive is one of the top external drivers of IT modernisation efforts in their company. Forty-three percent say responding to customer requests is an important driver as well. When asked what internal factors drive IT modernisation efforts, respondents also point to the factors most closely tied to the

Heavy lifting

Key points

l IT modernisation is most likely to succeed when driven by market forces

l Outward-facing departments are most likely to benefi t from IT modernisation

l Costs and productivity are the biggest concerns for companies considering IT modernisation

“Either you make these investments in IT modernisation and beat the competition, or you’re going to lag behind and have to invest even more to catch up.” Robert Keefe, senior vice-president and CIO, Mueller Water Products.

Regular upgrades and maintenance

Internal cost cutting

New strategic corporate direction

Need to improve agility

Business process changes and improvements

Business process changes and improvements drives IT modernisationWhat internal factors are most likely to drive your organisation towards an IT modernisation project?(% respondents)


20

21

22

27

54



Follow the leaders

When it comes to strategically important projects like IT modernisation, it pays to learn from the companies that do it well. In the survey, respondents were asked to evaluate the quality of their IT department. Eleven percent identify their fi rm’s IT department as being world class; 33% say it is high quality; 41% identify the IT department as delivering acceptable results with adequate technology and skills; and 14% say their fi rm’s IT department is undervalued. We then cross-referenced the responses to get a clearer picture of how the companies stack up.

First of all, world-class and high-quality IT departments support IT modernisation and are actively engaged in its execution. Of the respondents who evaluate their IT departments as world class and high quality, more than one-half say their organisations are either planning, are in the midst of or have recently completed an IT modernisation project. Of those who consider their IT departments to be undervalued, 35% either do not believe IT modernisation is necessary or have no plans to do it. Unsurprisingly, undervalued IT departments also struggle more to get an audience with senior management and suffer greater budget limitations, two closely related phenomena.

But perhaps the most telling difference between companies whose IT departments are considered world class and high quality and those that struggle is what drives their IT modernisation efforts. When asked what they thought were the biggest risks for not modernising, world-class and high-quality IT departments are focused on external,

market-facing drivers, like falling behind the competition and poor customer service. Undervalued IT departments are more concerned about rising maintenance costs and expensive catch-up processes.

And of course, IT departments identifi ed as world class or high quality have a much easier time engaging key, high-level stakeholders in the IT modernisation process. The difference here is stark. When asked which is the most challenging part of aligning IT modernisation with business goals, 27% of world-class or high-quality departments say engaging key stakeholders, while more than one-half of undervalued IT departments complain of the same thing.

All of this leads to one of the most dramatic differences between the best and rest: budgeting. An IT modernisation project is not something to skimp on. Done right, it is as strategic as any other project. Furthermore, when an IT department is valued, and engaged with the business side, it is more likely to have suffi cient resources. Only 26% of worldclass IT organisations are having their IT modernisation budgets reduced, even in the midst of such a challenging economy. But 68% of undervalued IT departments are seeing reductions in their IT modernisation budgets.

“Undervalued” IT departments

“World-class” or “high-quality” IT departments

“Undervalued” IT departments struggle for attention of key business unit stakeholders(% respondents who consider engaging key business unit stakeholders the biggest challenge when aligning IT modernisation with business goals)


52

27

What best describes your company’s status with regard to IT modernisation? (% respondenst)

“World class” and “high-quality”

“Undervalued”


19

20

15

27

1

17

0

1

0

13

17

26

9

17

17

0








Don’t know/Not applicable



8

market, including business process changes (54%), improved agility (27%) and new strategic corporate direction (22%).

In fact, when we asked respondents which departments were most likely to benefi t from IT modernisation efforts, sales (chosen by 41% of respondents), fi nance (38%), and customer service (36%) top the list. Administrative (18%), research and development (18%), human resources (10%) and legal (2%), all traditionally inward-facing departments, rank at the bottom.

But there is a large disconnect between what drives IT modernisation, and the benefi ts derived from it, and the concerns that organisations have about it. Despite all of the optimism about the capacity of IT modernisation to generate revenue and help gain market share, companies have reservations about these projects. In fact, 53% of respondents claim cost of implementation as their biggest concern. The next closest response in terms of number of respondents is productivity disruptions, chosen by 35%, followed by preserving functionality (32%).

It is easy to understand why costs and productivity top the list of concerns. These are fearful economic times, and big capital expenditure projects carry an extra burden. “It’s diffi cult to talk sensibly about long-term strategic issues right now,” says Peter Whatnell, CIO of Sunoco, a petroleum and petrochemical products manufacturer and marketer based in Philadelphia, and president of the Society for Information Management. “Every dollar of capital expenditure is being scrutinised now, so it’s not unreasonable that IT projects must also stand up and be counted.”

For some companies, however, a global economic slowdown can be seen as a reason to modernise. “This is a once-in-a-lifetime opportunity to use a real crisis to think about our business and how IT supports it,” notes Jeff Neville, CIO of Eastern Mountain Sports (EMS), a retailer of outdoor gear based in New Hampshire.

But what about all those expected benefi ts from IT modernisation, such as increased revenue? And what about the fact that survey respondents rank poor customer service and falling behind the competition as the top two risks of not modernising? This disconnect between the benefi ts of IT modernisation and the costs of implementing it refl ects a much deeper, more fundamental disconnect between the IT function and those who decide the strategic direction of an organisation. The alignment gap occurs when IT is not considered an integrated, strategic part of the business, and is not managed as such.

Preserving business content

Integration with other systems

Preserving functionality of applications

Productivity disruptions

Cost of implementation

What are organisations’ biggest concerns about IT modernisation?(% respondents)


25

27

32

35

53



Nearly all of the obstacles that stand in the way of effective IT modernisation projects can be traced back to a single, fundamental fl aw: the misalignment of business and IT. Without doubt, these

projects are comprehensive, costly and time consuming. Any project with that many moving parts has a lot of potential points of failure, and requires thorough project management. But when IT departments run into budget limitations and unrealistic time expectations, or struggle to choose the right technology, it is often because the costs, scope, goals and, most importantly, benefi ts of IT modernisation have not been properly communicated to and from the business. And much of the onus for effective communication rests with the CIO.

“In today’s challenging business environment, a CIO must understand business and the language of the leadership team,” says Ajay Kumar Dhir, Group CIO of Jindal Steel Limited, in India. “Mere technical and professional competence, and just being part of the ‘C’ suite is not enough. The contemporary CIO is expected to understand the business—its purpose, goals, vision and mission—very well, and align the IT strategy of the organisation with it.”

Consider these simple, telling statistics: 78% of survey respondents say that the participation of the chief executive offi cer (CEO) in IT modernisation projects is either extremely important or somewhat important; 83% say the same of the chief fi nancial offi cer (CFO) and 77% of the chief operating offi cer (COO). Contrast these fi gures against who respondents say is likely to be involved in an IT modernisation project, and the alignment gap becomes readily apparent: CEO—38%; CFO—34%; COO—19%.

“There is a huge difference between what management thinks of IT modernisation, and what IT thinks of IT modernisation,” says Ms Rizzo. Often each believes the other should be leading the project. “IT’s role is to help guide [business], presenting options, benefi ts and challenges, then execute on the senior business management decisions. Otherwise there is a risk of misalignment between expectations and what is implemented,” says Ms Rizzo.

Sarbanes-Oxley (SOX) compliance in the US has forced many companies into unplanned modernisation

Mind the gap

Key points

l Lack of alignment between IT and business is the biggest barrier to successful IT modernisation

l Engaged executives help ensure success if business strategies shift during project implementation

l IT modernisation projects should keep end users in mind

“In today’s challenging business environment, a CIO must understand business and the language of the leadership team.” Ajay Dhir, Group CIO, Jindal Steel Limited.



10

efforts that have often suffered from lack of leadership. Ms Rizzo was one of the leaders on the IT side of SOX reform efforts in three major companies. But in all three companies, business operations management had little involvement in the process. As a result, business management and users sometimes ended up with onerous workfl ows that had an impact on productivity, affected customer satisfaction, and increased operations and IT costs. According to Ms Rizzo, compliance is a business issue. “The people who understand compliance are not in the IT organisation. Business operations should always be presented with the possible solution approaches and implications. IT should execute in accordance with their wishes and neither compliance nor IT should take on the responsibility for deciding how the business should comply.”

In addition, because IT modernisation projects are often long-term, the strategic direction of the business may shift before they are completed. That means that the executives closest to those strategic shifts must be intimately involved with the underlying IT environment being set up to support that strategy. For them to be deeply engaged in the process, those executives must understand how integral IT is to the business.

Take Volkswagen AG, for example. The company has publicly stated its strategic goal of overtaking Toyota as the world’s largest carmaker by 2018. To do this, it is planning a series of improvements to its global processes over a ten-year period. IT is playing a central role, including the implementation of a global dashboard to monitor and measure the company’s progress towards its goals. To keep IT constantly aligned with the business strategy over that period, the company holds regional CIO conferences (Europe, Americas, Asia) every three months, and garners constant feedback from the central organisation.

“It’s a near constant loop of feedback,” says Kay Lieberman, who heads the company’s application

Board CEO CFO COO CIO Other C-level IT project Business line Consultants Programmers IT helpdeskmember executive manager managers

There is a gap between who should and who does take part in IT modernisation projects (% respondents)


15 44 38 78 34 83 19 77 46 80 4 45 51 87 27 76 14 47 6 57 4 48

Likely to be involved Involvement is “extremely” or “somewhat” important

Difference



management services department in the Americas region. “We’re staying fl exible on the management and technology side of the project.”

At Volkswagen, IT is considered a central part executing the company’s goals. But for some companies, communicating the strategic nature of IT modernisation is more of a challenge. “If you can get senior management to start thinking about IT infrastructure like they do their manufacturing equipment, then you can have a cogent discussion,” says Mr Keefe of Mueller Water Products. “And that discussion is all about benchmarking against your competitors, getting real-time information on inventory, shipping schedules, customer service. Now you’re speaking a language they can understand.”

Mr Keefe recommends engaging the C-level executives early and often, but he is even more keen on recruiting their staff as advocates of an IT modernisation project. He calls this process “socialising” the plan. “The head of operations, head of supply chain, head of manufacturing—they need to be involved in the development of the plan, all the way from shaping the assessments to bringing the plan to top management, to actual implementation,” he says. “Those are the people who keep the message going throughout the course of a multi-year project.”

When Mr Keefe began his modernisation efforts, he socialised the plan even as he was executing it. “This is not a single-threaded process,” he says. As he audited his technology and skills portfolio, a process that took about nine months, he was already addressing the so-called low-hanging fruit, or

CASE STUDY: Ryder System Inc.

Ryder is a US$6bn transport and logistics company based in Miami. It provides commercial fl eet leasing, rental, maintenance and supply chain solution services for some of the most well-known companies in the US.

From an IT perspective, 75-year-old Ryder is typical of many companies its age: it has a mix of old and new systems that support its business. Kevin Bott, senior vice-president and CIO, says that Ryder is constantly upgrading on an as-needed basis, “always driven by the business need”. And the company does not often take on sweeping modernisation projects without a signifi cant return on investment.

Three years ago, the company decided to make some signifi cant changes to the way its Dedicated Contract Carriage division in its

supply chain business operates. Essentially, the fi rm wanted to move from a distributed operation model to a more centrally controlled one, with the ability to extract and leverage real-time information from the IT systems that supported the business. “These are all strategic business values,” says Mr Bott.

Mr Bott’s team collected information for a year to defi ne the scope of the project. As they audited the IT portfolio that would be affected, they kept the business side involved, which led to additional requests for changes. What was a one-year preparatory period dragged on into a second year. And then, after getting board approval for this multi-year project, the president of the supply chain business, who had championed the effort, resigned.

“We had already spent some money to do a detailed design, and we were one-third of the way through the pilot, when they hired the replacement,” says Mr Bott. “We

encountered some scepticism, and had to revalidate the savings, especially in light of the current economic situation.”

As a result of the disruption in leadership, Ryder’s IT modernisation project was delayed yet again. But ultimately, the company decided to move forward with it as planned, but on a somewhat reduced scale. “These projects are owned and driven by the business, and they really understand this stuff. So there is still a business case there for this project. That’s why we’re going ahead with it,” Mr Bott says.

Without such close alignment between Ryder’s strategic business objectives and its IT modernisation project, the efforts to change the company’s supply chain operation would probably not have survived the challenges of time and changes in leadership. The time invested in fi ne-tuning the project and getting buy-in from the business side was crucial to its implementation.



12

fi nding small, easy fi xes that would save money or improve effi ciency. By doing this, Mr Keefe helped to establish the IT function’s credibility with key business partners, and paved the way for more dramatic changes down the road.

Managing up is an undeniably important part of the IT modernisation process. But because these projects can affect virtually every part of a company, experts warn IT leaders not to forget the end users. “The best thing I can recommend is to remember that an IT upgrade like this has a direct impact on organisational culture and values,” says Terry Chulavachana, an IT adviser in Thailand. “You must involve employees at all levels of the company, especially the end users. That helps the project stay focused on the ‘customers’ of the technology.”

Part of the problem is that IT and non-IT employees disagree about the level of interaction that is needed between the two groups. For example, when asked to identify the most challenging aspect of aligning IT modernisation with business goals, 40% of IT function respondents say limited interaction between IT and high-level, strategic decision-makers. Only 29% of non-IT function respondents agree.

“An IT upgrade has a direct impact on organisational culture and values. You must involve employees at all levels of the company, especially the end users. That helps the project stay focused on the ‘customers’ of the technology.” Terry Chulavachana, IT adviser.


Budget limitations

Limited interaction between IT and high-level, strategic decision-makers

Lack of business case/ROI study

IT and non-IT out of synch as to what impedes aligning IT modernisation with business goalsWhat is the most challenging aspect of aligning IT modernisation with business goals? (% respondents)

5345

4029

617

IT respondentsNon-IT respondents

Difference



The global recession is adding to these challenges. Budgetary constraints make it more diffi cult for senior management to focus on the role IT modernisation can play in strengthening a company’s

competitive stance as it emerges from the current downturn. Survey data show that of companies planning or considering an IT modernisation initiative, nearly one-

half are either scaling those plans back (31%) or indefi nitely delaying them (18%). Conversely, 41% say that the economic environment is having no or very little impact on their decisions, and 10% are actually accelerating their efforts.

There is no doubt, however, that during such uncertain times, many companies are rethinking their IT modernisation strategies. A full 62% of respondents say that the economic environment has made it more diffi cult to get approval for IT modernisation projects in the past 12 months. Other companies are trimming budgets for those plans: 44% of respondents say that funding for IT modernisation projects has been signifi cantly reduced.

At the same time, companies are expecting faster implementations (61%) and quicker ROI (57%) from those IT modernisation projects. To reconcile these two seemingly contradictory courses of action, IT departments are changing their strategies.

“I can’t go into a room with other IT leaders without at least one person talking about a move to online

Economic woes bring changes in strategies and goals

Key points

l Challenging economic times often force companies to rethink IT strategies

l A sharper focus on costs makes on-demand services an attractive alternative for many companies

l Proving return on investment (ROI) helps keep momentum in IT modernisation projects

Funding for IT modernisation projects at my company has been significantly reduced

Our company is more focused on determining return on investment for IT modernisation initiatives than a year ago

Executives expect a faster implementation cycle on IT modernisation projects than a year ago

Getting approval for IT modernisation initiatives has become more difficult in the past 12 months

Economic slowdown affects IT modernisation plans(% respondents who agree with the following statements)


44

57

61

62



14

services,” says Mr Whatnell of Sunoco. “And not just as an experiment. They are really doing it, with a large number of seats, and doing it quickly.”

Mr Whatnell is referring to the shift to on-demand applications, where the software is hosted by the application provider and offered as a service over the Internet. The appeal of this model is that IT departments do not need to buy and maintain expensive enterprise application licences. Nor do they need to buy and maintain the hardware those applications run on. “It’s gone from a gleam in someone’s eye to a real thing in a heartbeat, driven entirely by economic circumstances,” he says.

Other companies are being more selective about what they modernise. For example, Mr Keefe of Mueller Water Products is focusing his company’s efforts on a cost-saving transport management system. “But instead of making it all one large project, we built language into the contract that allows us to expand the project later on at the same discounted rate,” says Mr Keefe. “And all along the way we’re proving the return on investment, so we continue to show management the benefi ts, and keep the momentum going.”

Times like these require creative approaches to IT modernisation. But most experts agree that shelving plans entirely can be a disastrous route. Many point to 2001, when the last recession—the Tech Bubble—resulted in a dramatic reduction in IT spending. Many of the companies that ignored IT during that time either folded or lost their competitive edge when the economy rebounded a year later.

The online service model “has gone from a gleam in someone’s eye to a real thing in a heartbeat, driven entirely by economic circumstances.” Peter Whatnell, CIO of Sunoco Inc. and president of the Society for Information Management.

Size matters

When it comes to IT modernisation, there are some signifi cant differences between the approaches of large and small companies. To highlight these differences, we compared the responses of those with annual revenue of less than US$500m with those with revenue of more than US$500m per year. The results are highlighted below.

l Smaller companies are less likely to scale back their IT modernisation efforts. Just over 41% of big businesses are scaling back their IT modernisation efforts because of the weak economy, compared with only 23% of small businesses. In fact, 50% of small businesses say the economy will have very little or no impact on their IT modernisation plans, while 29% of large companies agree. This may be because smaller companies are spending less on such projects, or have smaller projects to begin with.

l Big businesses are more likely to be

driven by cost-cutting. Thirty percent of large companies say internal cost-cutting is likely to drive modernisation efforts. Only 13% of small businesses say the same. In contrast, smaller fi rms are more likely to be driven by business process change or a need for increased agility.

l Large companies are more likely to be stifl ed by a lack of interaction between IT and strategy leaders. Perhaps unsurprisingly, larger companies have trouble cutting through the bureaucratic ranks to get access to the high-level, strategic business leaders who are so critical to making IT modernisation a success. Thirty-six percent of large companies cite this as the most challenging aspect of aligning modernisation with business goals, while only 24% of smaller companies struggle with the same problem.

l Both large and small companies are concerned about cost. The cost of implementation ranks highest on the list of concerns for both large and small companies.

But smaller companies are far more concerned about preserving functionality than large companies.

l Small businesses are more focused on customers. When asked about the biggest risks in not modernising, large and small companies have very different things to say. Large companies are far more concerned about escalating maintenance costs. Small businesses fear deteriorating customer service and falling behind the competition the most, perhaps because every customer counts for a small business.

Based on our fi ndings of what makes an IT modernisation project a success, it would appear that small businesses have a greater chance of effectively modernising for two reasons. First, there is greater interaction between IT and strategic business leaders in small companies; and second they are focused on the external-facing, market-driven forces. It is possible the larger companies can learn some useful lessons here.



The challenges facing IT modernisation are not unlike the challenges facing the IT function as a whole. IT has often had to fi ght to be seen as an integrated, strategic part of a company. In the best of times,

IT has a seat at the strategic table. In the worst, it is seen as a cost centre. IT modernisation is intrinsically expensive, complex and time consuming. It is exactly the kind of

endeavour that gets close scrutiny in challenging economic times. But when carefully planned, IT modernisation can be an opportunity, not a burden. “This is a chance for us to ask questions about what we do and why we do it,” says Mr Neville of EMS. “This is an opportunity to shape our future, to identify or reaffi rm our reason for being, and decide what this IT department and this company really want to be great at.”

To get the most from their systems and applications, companies should:

l Under diffi cult economic conditions, keep an eye on the longer term and structure IT modernisation plans to provide a competitive advantage when the upturn begins.

l Let the business lead modernisation to ensure a proper strategic alignment. If an IT modernisation project originates from the IT department, it has a greater chance of failure. All IT modernisation should directly support a business need, and be owned by the business, not the IT function.

l Keep communications between IT and business functions constant. These projects are lengthy, and in a dynamic economy business strategy can change over the course of the job. Building fl exibility into the plans from the start, and constantly checking back with the business will help to mitigate instant obsolescence.

l Address market-facing needs like revenue generation and customer service, rather than internal concerns like maintenance costs. Those companies that let external forces shape and drive their IT modernisation efforts are more likely to succeed.

Conclusion: Doing IT right

16 Economist Intelligence Unit 2009

AppendixSurvey results


Appendix: Survey resultsPlease note that totals may not equal 100% due to rounding.

We are world class and invest aggressively in IT

We have a high-quality IT department that supports the business, and watches our costs

Our IT department delivers acceptable results with adequate technology and skills

Our IT department is undervalued by the business and struggles to keep up


Which of the following best describes the IT philosophy of your company? (% respondents)

11

33

41

14

1

13

38

25

14

10

Less than 1%

Between 1% and 5%

Between 5% and 10%

More than 10%

Don’t know

As a percentage of revenues, how much does your company spend on IT? (% respondents)









What best describes your company’s status with regard to IT modernisation?(% respondents)

12

18

15

28

4

17

5

1

No impact

Very little impact

We are scaling back our original plans

We are indefinitely delaying modernisation plans

We are abandoning our modernisation plans

We are accelerating our modernisation plans

What impact will the current economic environment have on your company’s decision regarding IT modernisation?(% respondents)

15

26

31

18

0

10

Extremely satisfied

Very satisfied

Satisfied

Not satisfied

Extremely dissatisfied

How satisfied are you with the progress of your IT modernisation project?(% respondents)

6

30

54

10

0




Quality of service improved

Improved revenue-generating capabilities

Infrastructure and applications environment simplified

Minimal service disruptions throughout the process

Met or exceeded cost saving objectives

On budget, on time

Other

Please select the reasons for your satisfaction. Select up to two.(% respondents)

67

50

22

22

17

6

0

Missed deadlines

Service disruptions

Added complexity

Cost overruns

Lost data

Lack of benefits

Other

Please select the reasons for your dissatisfaction. Select up to two.(% respondents)

40

40

40

0

0

0

40

Competition and cost reduction

Response to customer requests to improve service

New market demands

Regulatory requirements

Merger or acquisition

New outsourcing initiatives

Disaster planning

Other


What external factors are most likely to drive your organisation towards an IT modernisation project? Select up to two.(% respondents)

51

43

32

14

12

9

6

3

2

Business process changes and improvements

Need to improve agility

New strategic corporate direction

Internal cost cutting

Regular upgrades and maintenance

Implementation of new technologies

Outdated legacy applications

A reduction in skills base regarding legacy applications and systems

Other


What internal factors are most likely to drive your organisation towards an IT modernisation project? Select up to two.(% respondents)

54

27

22

21

20

17

12

5

3

2

None, we are not considering moving to open systems

1%-20%

21%-40%

41%-60%

61%-80%

81%-100%

Don’t know

Approximately what percentage of applications are you moving, or considering moving, from the mainframe (closed system) to distributed, open systems, such as Unix?(% respondents)

30

14

15

5

7

13

16




None, our IT assets are state-of-the-art 1%-20% 21%-40% 41%-60% 61%-80% 81%-100% Don’t know/Not applicable

Applications

Infrastructure

IT skills

Approximately what percentage of your organisation’s IT applications, infrastructure and IT skills would you characterise as outdated? (% respondents)

11 36 23 14 11 1 5

12 37 25 12 9 1 5

10 35 26 15 7 2 5

Budget limitations

Limited interaction between IT and high-level, strategic decision-makers

Constantly shifting technology trends

Constantly shifting business strategy

Lack of business expertise in IT

Lack of IT expertise in the business units

Lack of business case/ROI study

Other


What is the most challenging aspect of aligning IT modernisation with business goals? Select up to two.(% respondents)

46

30

27

19

18

18

16

2

4

1 Most important 2 3 4 5 Least important

Performing IT audit

Aligning scope of project with business needs

Reviewing the strategic direction of the company

Identifying key stakeholders and assembling project management team

Researching new technologies

Proof of concept or pilot projects

Determining return on investment

How important are each of the following elements of the IT modernisation planning process? Rate on a scale of 1 to 5, where 1=Most important and 5=Least important.(% respondents)

18 34 27 12 9

51 32 12 5 1

34 35 22 4 4

19 34 29 13 5

19 29 28 19 5

18 32 30 15 5

32 34 18 10 6

Cost of implementation

Productivity disruptions

Preserving functionality of applications

Integration with other systems

Preserving business content

Determining ROI

Quality and performance of the new environment

Disappointing performance improvement

The uncertain economic environment

Mid-project budget reduction

Other


What are your organisation’s biggest concerns about IT modernisation? Select up to three.(% respondents)

53

35

32

27

25

23

22

15

13

7

3

3




Poor customer service

Falling behind the competition

Steadily increasing maintenance costs

Expensive catch up process later on

Widespread system failure

Other

There is no risk


What do you consider the biggest risks for your organisation of not engaging in IT modernisation? Select up to two.(% respondents)

42

41

36

29

24

2

1

2

1 Extremely important 2 Somewhat important 3 Neither important nor unimportant 4 Somewhat unimportant 5 Not at all important

Board member

CEO

CFO

COO

CIO

Other C-level executive

IT project manager

Business line managers

Consultants

Programmers

IT helpdesk

IT vendors

Customers

Shareholders

In your view, how important is the participation of the following stakeholders to the success of an IT modernisation project atyour organisation? Rate on a scale of 1 to 5, where 1=Extremely important and 5=Not at all important.(% respondents)

17 27 27 16 12

42 36 16 4 2

38 45 15 1 1

39 38 18 3 2

56 24 16 3 2

15 29 35 10 10

62 25 10 2 1

31 45 17 4 3

19 27 30 14 9

22 35 26 13 4

14 34 26 23 3

19 35 28 14 4

15 39 26 13 7

6 21 28 18 27

Selecting technology that supports business strategy

Planning for unexpected changes in strategic business direction

Budget restrictions

Engaging key business unit stakeholders

Communicating business requirements

Shifting macro-economic trends

Other


Which of the following are the most challenging when aligning IT modernisation with business goals? Select up to two.(% respondents)

51

37

36

30

26

7

1

2




We could modernise all of our systems using only in-house skills

We could modernise most of our systems using only in-house skills

We would require significant outside help modernising our systems

We would not be able to modernise without outside help

We outsource the majority of our operations as part of our modernisation strategy


Which best describes your IT organisation’s capabilities?(% respondents)

12

33

32

17

4

2

57

43

Yes

No

Does or will your company consider non-traditional means of software delivery as part of your organisation’s IT modernisation strategy (eg, cloud computing, software as a service, open source)? (% respondents)

IT project manager

CIO

CEO

CFO

Business line managers

COO

Board member

Consultants

Programmers

IT helpdesk

Other C-level executive, please specify

Customers


Shareholders

Which of the following stakeholders are most likely to be involved in an IT modernisation project in your organisation? Select up to three.(% respondents)

51

46

38

34

27

19

15

14

6

4

4

3

3

2




0 50 100 150 200

Cloud computing Software as a service Open source Shared services Custom built

Research and development Back office Core applications Front office

Which types of software delivery would you consider for the following applications? Select all that apply. (% respondents)

35

21

27

2326

3835

43

33

23

31

2326

31

24

45

31

3535

45

Agree Disagree Don’t know/Not applicable

Getting approval for IT modernisation initiatives has become more difficult in the past 12 months

Executives expect a faster implementation cycle on IT modernisation projects than a year ago

Funding for IT modernisation projects at my company has been significantly reduced

Our IT department lacks the manpower and tools to implement IT modernisation initiatives

Our company is more focused on determining return on investment for IT modernisation initiatives than a year ago

Do you agree or disagree with the following statements?(% respondents)

62 30 8

61 27 12

44 42 14

40 49 11

57 27 16

1%-5%

6%-10%

11%-15%

16%-20%

21%-30%

Other


What is the approximate annual rate of return on investment your organisation considers necessary from an IT modernisation project?(% respondents)

5

19

25

14

10

2

25

More functionality

Improving agility

Greater business insight

Speeding time to market

Less complexity

Reducing maintenance costs

Easing integration

Risk mitigation

Other


What do you consider to be the biggest benefits from IT modernisation for your organisation? Select up to two.(% respondents)

39

34

27

25

21

16

14

7

2

2




Sales

Finance

Customer service

Logistics and operations

Production

Marketing

Research & development

Administrative

Human resources

Legal

Other


Which business functions do you expect to benefit most from IT modernisation? Select up to three.(% respondents)

41

38

36

30

28

24

18

18

10

2

1

3

1 Most important 2 3 4 5 Least important Don’t know/Not applicable

Reduction in maintenance costs

Improved productivity through application performance

Increased agility in adapting IT to business changes

Speedier time to market

Increasing the budget for applications to support business innovation

How important are the following benefits to achieving a satisfactory return on investment of an IT modernisation project? Rate on a scale of 1 to 5, where 1=Most important and 5=Least important.(% respondents)

28 31 25 8 4 4

49 35 10 2 1 2

44 28 18 4 3 3

32 32 20 8 4 4

16 20 37 15 7 5

North America

Asia-Pacific

Western Europe

Eastern Europe

Africa

Latin America

Middle-East

In which region are you personally located?(% respondents)

29

28

28

5

5

2

2

North America

Western Europe

Asia-Pacific

Latin America

Africa

Eastern Europe

Middle-East

In which region is your company headquartered?(% respondents)

35

28

25

4

4

3

2




Financial services

IT and technology

Professional services

Energy and natural resources

Education

Healthcare, pharmaceuticals and biotechnology

Consumer goods

Manufacturing

Entertainment, media and publishing

Government/Public sector

Telecoms

Automotive

Retailing

Agriculture and agribusiness

Construction and real estate

Transportation, travel and tourism

Chemicals

Logistics and distribution

What is your primary industry?(% respondents)

16

16

11

8

6

6

6

6

5

4

4

2

2

2

2

2

1

1

54

13

9

7

17

$500m or less

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

$10bn or more

What are your organisation’s global annual revenues in US dollars? (% respondents)

Board member

CEO/President/Managing director

CFO/Treasurer/Comptroller

CIO/Technology director

Other C-level executive

SVP/VP/Director

Head of Business Unit

Head of Department

Manager

Other

Which of the following best describes your title? (% respondents)

5

23

9

5

10

11

7

6

15

10

General management

Strategy and business development

IT

Finance

Marketing and sales

Operations and production

Customer service

Risk

Information and research

Legal

R&D

Supply-chain management

Human resources

Procurement

Other

What are your main functional roles? Please choose no more than three functions. (% respondents)

41

39

28

23

20

17

14

9

9

6

6

4

4

2

5

Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsors of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in the white paper.De

sign

: Mik

eKen

ny@

mac

.com

C

over

imag

es: i

Stoc

kpho

to.c

om

LONDON26 Red Lion SquareLondon WC1R 4HQUnited KingdomTel: (44.20) 7576 8000Fax: (44.20) 7576 8476E-mail: [email protected]

NEW YORK111 West 57th StreetNew York NY 10019United StatesTel: (1.212) 554 0600Fax: (1.212) 586 1181/2E-mail: [email protected]

HONG KONG6001, Central Plaza18 Harbour RoadWanchai Hong KongTel: (852) 2585 3888Fax: (852) 2802 7638E-mail: [email protected]