What happens when CEOs don’t understand the power and competitive value of information technology? In some cases, their companies go out of business or become marginalized.
People Express, one of the first low-cost airlines, PE’s founder and CEO had not understood the power of IT, so he had under invested in IT. American Airlines, with its advanced pricing systems, matched the PE fare, taking enough customers from PE that its flights became unprofitable.
By 2003 DHL entered the U.S. But DHL didn’t invest nearly enough in its computing systems. Consequently, it couldn’t manage its airline and truck operations effectively, price its services correctly, and, critically, provide customers with accurate information about their shipments. DHL got crushed.
DHL’s on-time delivery reliability was 10% to 15% lower than FedEx’s and UPS’s. When customers called to ask about a late delivery, DHL’s tracking systems were so inadequate that it often had no choice but to ship a replacement. It’s not surprising that customers returned to FedEx and UPS despite their higher prices. (By January 2009, DHL exited the U.S. domestic pickup and delivery market. In six years it had lost about $10 billion.)
Tracking and customer service systems should have been DHL’s highest priority, and the CIO should have pushed hard to get enough investment.
Kodak, which invented the digital camera in 1975, is being destroyed by the digital camera. How could this happen? Perhaps one factor is its lack of an impactful IT organization. As the digital camera era was just beginning, Kodak outsourced its one group that understood digital technology.
GROW not just MAINTAIN
Senior IT leaders at all companies must educate and press their senior management teams on the critical need to develop and commit to an IT strategy that grows the business, not just maintain a cost-efficient IT operation.
The visionary CEO to day-to-day CIO: “Saving money is great. But remember, that is not why we hired you.” He was making the point that I needed to stay focused on strategic applications of IT.
Having a very efficient IT organization is a good way to ruin a company. Why ? Because Senior business executives should know that a decision not to invest in IT is itself a strategic business decision. IT is transforming more industries than ever before, and businesses that fail to make those necessary investments and transformations risk everything.
Apple and Amazon’s inventiveness lay not in their technology but in how they exploited it to create uniqueness in the marketplace.
If IT isn’t part of the company growth agenda, part of improving customer experience, and part of developing innovative new products or services, it’s worse than a cost center; it’s a strategic liability. And it’s not a liability you can just close down or outsource to someone else and consider the job done. The decision to make IT a more efficient cost center is a decision to cede innovation to competitors, many of them newcomers, that can build their IT into a strategic asset.