April 2002 FAQ

Question: What is the biggest problem in organizational change that involves a big Information Technology System? 

Answer:

The problem is called Unrealized Business Value (UNBV)… In short, billions invested and but only millions realized to date…that’s a huge shortfall. And nobody wants to talk about it; it’s almost like the crazy aunt living in the basement…everybody knows she’s there, but nobody wants to talk.

Companies have made massive investments in information technology with the expectation that those investments would pay off on their bottom lines. But many of those investments have not vested, that is, paid off. Many have not been fully implemented and integrated into the day-to-day operations of the company. Those frequently unused, and in some case, unusable IT systems have not yet delivered the business value that companies were counting on. 

While the UNBV problem is wide spread, the most notorious and virulent strains seem to be associated with the big, comprehensive business systems like ERPs (Enterprise Resource Planning systems), CRM (Customer Relationship Management systems), and supply chain solutions (CSM). Reports of problems go on and on. For example: 

• Ernst & Young research and experience indicates that many utility companies achieve less than 50% of potential value from their initial ERP implementations and that closing this value gap could be worth more than $100 million annually to these firms. [1]

• According to industry research published in InfoWorld, CRM software has a 70%-80% failure rate and the cost of implementation can be staggering.

•  According to a report from Meta Group, a staggering 55%-75% of CRM projects fail to meet their objectives, often as a result of sales force automation problems and un-addressed cultural issues – sales staffs are often resistant to, or even fearful of, using CRM systems.

As a way of putting things into perspective, consider the success rate of many big projects involving IT systems: 

• If the airlines had the same success (or failure) rate, absolutely nobody would fly, especially the pilots!

• If we had the same failure rate in drilling oil wells to target depths on designated locations, no one could afford to drill one…or to build a new plant or lay a new pipeline.

Why the shortfall? Why have these systems not yet been vested? The short but unpleasant answer is “Oversold and Underestimated.”  

• Oversold on what the technology could potentially do for a company from a business point of view and  

• Underestimated on the degree of difficulty of getting that technology implemented and integrated into day-to-day operations of the company. 

We were oversold and we underestimated because all parties were rookies in implementing information systems of this size and complexity into the middle of a company’s day-to-day operations.  

There are several other pointed reasons for the failure rate in addition to everybody’s inexperience:  

• Incomplete Operations Integration: many companies have not as yet aligned their business operations with the new IT systems…and that’s more than just getting folks to use the new systems…it means modifying the way the company works to take advantage of the IT system. 

• No knowledge transfer: Some of the systems integration jobs done to configure the software were completed by consultants who did their work without a knowledge transfer to the company employees who now have to live with the system. 

• Unproven Technology: Some of the technology just doesn’t work as advertised or still have lingering technical issues. 

What’s the silver lining?

• Many companies have new technology that is paid for that can still be used to make money. The money hasn’t been wasted, yet…we just haven’t completed the technical and organization work that needs to be done to fully vest the system.

• There may still be enormous potential to wring cost, productivity and service improvements from implemented technology that can sustain profitable growth for years to come.

• Our experience gained so far – combined with the technology infrastructure itself – provides a robust platform for realization of significant benefits in the future.    

The five steps in the solution are far easier to see and talk about than to put into operation. But companies with unrealized business value have no choice: 

1. Give up the anger and the bad feelings…get over it and start talking about solutions. Continuing the blame game is not going to more organizations forward.

2. Get the Business Side of the organization into the lead…it’s a problem now for the business leadership of the company, working arm-in- arm with IT, to wring out the value.

3. Triage the situation from both business and technical points of view and line up the things that must be done. The goal of this triage step is not to list every single thing that needs doing but to identify a few things that can get the ball rolling toward increased business value.

4. Work the issues until the systems are fully vested. We must use intense, disciplined Program and Project Management to ensure the issues are really resolved.

5. Capture Knowledge and build tools as you go…because business improvement opportunities through technology will be the rule for the future…we’re just getting on the treadmill!

The bottom line is simple. Industry must have billions returned for billions invested, not today’s shortfall. It will be up to each individual company that has unrealized business value to keep going until they have vested all newly-implemented systems.  

Failure to get full business value from IT investments can no longer be lamented or denied; companies must act aggressively to complete the economic investment they have started, and they can’t quit until there are dollars in the bank.

Dutch Holland, CEO of HDI, has worked as a management consultant for 30 years, helping organizations and leaders manage and implement change successfully. And if you enjoyed this short article, you'll love his new book, Red Zone Management: Changing the Rules for Pivotal Times (Dearborn Trade, Chicago, Fall 2001). Check your local bookstores or read a review at amazon.com or barnesandnoble.com! Contact Dutch at 713.877.8130.

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