Improved governance of technology investment is the single largest opportunity to recover lost shareholder value in our economy today, but it will take gutsy leadership.

American business and government institutions spend staggering amounts of money on technology investment. In fact, information technology (IT) represents the single largest source of capital investment in our economy. Look at the capital budget of any mid- to large-sized company today and you’ll see the bulk of its investment capital directed at IT.  American business is betting its future on technology. Technology holds the key to future productivity growth and rising shareholder value. It is nearly impossible to launch a new product or service today or support a customer without involving information technology. But every CEO should be asking, “are we getting our moneys worth?" Here the answer is NO. More than half of all IT investments fail or under-perform in terms of schedule, budget and final value delivery.  Many crash altogether and have to be written-off. Breathtaking amounts of money are being wasted everyday and much of that waste is avoidable.

There was a time when this dysfunction was considered both inscrutable and immutable. In short, the source of the problem was not understood and the solution thought to be beyond our reach. There was a passive, pernicious assumption that this level of waste was endemic to technology investment and simply couldn’t be altered—like some immutable law of physics. Today, we know both these assumptions are dead wrong. We know what causes most of the waste in technology investment and we know how to fix it or at least to improve it.

What is perhaps counterintuitive in all this is that technology is not the chief cause of the mischief. Technology is a bit player when it comes to creating risk in IT investments. The real culprits are weak governance, (e.g., too few risk management protocols, insufficient metrics, no end-to-end tracking, poor portfolio management, and inadequate line involvement and accountability) especially for investments requiring strong horizontal linkages across the enterprise.   Also a problem are weak or flawed value propositions, inadequate attention to the customer experience, inadequately skilled and experienced resources and poor vendor management.  These are the true investment killers. Note how little they have to do with technology and how much they have to do with leadership and management.

THE LAB COAT SYNDROME

The good news is we know how to mitigate these problems today—the tools and knowledge exist.  Tools exist today that identify early in the lifecycle weaknesses in governance, stakeholder involvement, metrics and vendor management, requirements planning and the adequacy and levels of assigned resources.  The problem is not the tools but the willingness to use them. 

What’s astonishing is that shareholders have put up with this for so long. Perhaps it’s the “lab coat syndrome” at work whereby we assume because there are so many smart people involved everything must surely be under control.  But looks can be deceiving, even lethal. Take the ultimate high tech/high touch business of health care. Until recently, most of us assumed hospitals had everything under control. But when we start measuring outcomes—always a good place to start—the results are pretty frightening. One hundred thousand people a year die from medical errors in hospitals(1).  In fact, going into a hospital is the largest single cause of accidental death in America—twice as deadly as auto accidents.  This does not include the 700,000 patients who are injured or sickened by their stay in hospital but manage to survive the experience. One study concluded that 30,000 people a year die in Intensive Care Units because the top 1000 ICUs have not adopted the best practices of the top 100 ICUs.(2)   Surely, there is a protocol that forces ICUs to study and adopt best practices? The scary answer is no, it’s all voluntary. The same is true when it comes to the use of best in class IT risk management disciplines in corporations today—it’s mostly voluntary and because it involves changes in work patterns and greater accountability, few volunteer.  And even where best practices are mandated there are few consequences for skipping the protocols or ignoring the outputs.

THE ULTRA SECRET

The bottom line is not about technology but about leadership. Getting people to use tools and practices that are better but different from what they are comfortable with is never easy—not yesterday, not today and not tomorrow. Consider the case of ULTRA, the breaking of the Axis codes during World War II. This has been called the greatest achievement in cryptography in all history. It was also a technological masterpiece. To break the code the Allies built the first mainframe computer that was so large that it took up an entire city block long basement of a London department store. The importance of ULTRA cannot be overstated—advance knowledge of enemy plans helped win the war.

Yet, ULTRA outputs were at first largely ignored.  Why was the data ignored?  Let me give you a hint; it had nothing to do with technology and everything to do with how human beings react to unfamiliar things.

To begin with, the very idea of accurate intelligence was something of a novelty back then. Generals and Admirals of the time had been brought up to be suspicious of intelligence because it was so often wildly inaccurate. Thus it was risky to make decisions based upon unreliable intelligence. Suddenly, they found themselves with a flood of reliable intelligence and they just didn’t know how to handle it. They had been trained for one reality and had difficulty adapting to a new one. They also had a structural problem—the armed forces of the time were not yet aligned organizationally or procedurally to absorb ULTRA intelligence. Getting ULTRA information properly sanitized, disguised and into the hands of the right commanders proved difficult. And then there was simple inertia. Historian Stephan Budiansky cited the “yawning indifference of commanders who simply didn’t know what to do with something so new and different.” (3)  So the system just ignored the data. And so it would have stayed had Winston Churchill not taken an interest in ULTRA. He began peppering his commanders with questions and suggestions based on ULTRA.  No one likes being asked tough questions by their boss, and it’s especially uncomfortable when he or she has better information than you do.  Suddenly, everyone who was authorized to read ULTRA intercepts and their derivatives started paying attention to them—if for no other reason than to protect themselves from the Prime Minister’s prickly questions. It may not have been an elegant process but it worked. What began as an awkward, bureaucratic, defensive response evolved into a habit that then entered the mainstream of allied decision making.  This helped change the course of the war.

So what’s the lesson? You can induce positive and permanent changes in behavior by asking the right questions.   For today’s leaders, that means implementing first class risk management procedures—there are lots of good models out there—then have the results reported directly to you.  Don’t delegate and don’t assume your subordinates will act on this data without inducement because they won’t. Armed with this data the cracks in critical investments will soon become frighteningly clear. Consider this your very own ULTRA intercepts pointing to risks in critical investments that, if not mitigated, will sink you. Start asking tough questions, and insist on good answers, then watch how fast behaviors begin to change.

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1.LT. Kohn, J.M. Corrigan and M.S. Donaldson, eds., To Err is Human: a Safer Health System, Washington: National Academic Press, 1999.
 2.Julie Appleby, USA Today Health, “Study: ICU standards could save lives, money," February 5, 2001, www.usatoday.com/news/health/2001-02-05-icu.htm. (14 Aug 2007) 
 3.Stephan Budiansky, Battle of Wits, The Free Press, NY, 2000, p 142