Chief executives have to understand IT implications

25 June 2002 17:37  [Source: ICIS news]

Some chemical companies have chief information officers (CIOs) and IT (information technology) representation on the board; others do not. Some companies recognise the impact IT is having on day-to-day operations and, ultimately, its strategic importance.

Brought down to its simplest and most important level, the clever use of IT helps cut costs and sets the company up for the future. The unfortunate reality for most firms, however, is that IT is a significant cost. It is easy to talk about IT-driven cost reductions but difficult to admit to big IT mistakes.

A lack of real understanding of the role of IT in the company, and how IT will have an impact on the way the company operates in future, is largely to blame for the big IT failures. A lot of this has to do with the fact that chief executives are not of the IT generation. That will change over time, and certainly within the decade, and a deeper understanding at board level of what IT can do and the ability to make the right choices will serve companies well.

Shell Chemicals chief information officer Graham van’t Hoff suggested at a recent London conference that IT has the potential to be the "single most important factor in driving profitability and productivity in the coming years". That is a big claim but he is probably right. Van’t Hoff also believes that the potential may be growing. The unfortunate fact is that so much value is likely to be lost along the way.

Industry on the one hand will see IT driving profitability and productivity but on the other see unnecessary wastage. The IT research and advisory firm Gartner estimates, for instance, that as much as 20% of IT investment is lost because companies stampede into the wrong technology. Analysts at financial services company Morgan Stanley estimate that US companies have spent $130m (Euro134m) over the past two years on unneeded IT.

Justifying IT spending

Van’t Hoff spoke of the backlash against IT and the fact that IT professionals now have to work harder to justify IT spending. This is not an unwelcome situation for the company as a whole, of course. It simply means that IT expenditure has to be justified and a strong business case made for it. Companies, and other organisations, have too often in the past chased ideals that are either unachievable or unnecessary.

"Delivering the value," van’t Hoff said, "that’s the only thing that counts." As far as Shell is concerned - group-wide and not just in chemicals - the focus is on making the right business or value decisions. That means identifying the business models; getting the right architecture; and getting the right people to make the right choices and decisions.

Shell has proved to itself that a misjudgement in any one these aspects of an IT project can be extremely costly. In downstream oil the company invested heavily in enterprise systems which the business model suggested should be rolled out as a single architecture in more than 140 countries. Unfortunately, different decision making in individual countries produced 100 different systems. The business result was hardly the best for Shell and an expensive IT project passed into history.

Shell appears to have got it right with the introduction of a single global desktop (GI-D) which is being applied to 80 000 personal computers worldwide. Van’t Hoff says that GI-D is a "common, locked-down system" which gives common e-mail systems, common access and common security standards. Because users can’t load or adjust software on their machines, Shell can focus on a limited number of common standards.

Having improved functionality, the aim now is to raise levels of service. New software can be launched globally in 72 hours and Shell says that a recent upgrade saved $5m and 6000 working days.

Shell Chemicals moves to single SAP system

People are realising that their business models can work with this architecture, van’t Hoff says. In chemicals, Shell is moving to a single SAP system worldwide, for instance. This halves enterprise resource planning systems running costs, means that comparable data can be shared globally and makes e-business that much easier. Chemicals doesn’t need fancy CRM (customer relationship management) software systems (although other Shell businesses probably do) but it is expected to gain from ERP software compatibility and the ability to handle e-business effectively with its petrochemical industry customers.

Shell has been cautious about the application of e-business in chemicals and, to a great, extent, about the global application of IT but steadily it appears to be putting in place robust operating systems that have the ability to deliver cost savings and value over the longer term. Van’t Hoff clearly believes that it is the decision making process that matters and the lead given to IT projects (and the understanding brought to them) by senior managers, including chief executives.

Perhaps when more chief executives understand IT better and can see the full business implications of IT developments they will be in a position to sanction more effective IT investment and deliver a more effective IT strategy.

By: Nigel Davis
+44 20 8652 3214

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