Cathleen Benko and Warren McFarlan, authors of "Connecting the Dots: Aligning Projects with Objectives in Unpredictable Times" discuss the dangers of ignoring your IT portfolio.

UBIQUITY: Let's start by talking about two pieces of advice from your book: "Prepare, rather than predict," and "Play the hand you've been dealt."

MCFARLAN: When we talk about the hand that you're dealt, it has to do with legacy systems -- your existing processes and environment. My friends at the Aetna Insurance Company, for example, have the reality of 100 million lines of old legacy code that was developed 30 years ago. They wish that they could do something different but that is the reality of their world. To prepare, rather than predict means you should get alignment between the strategy of where you're going and the reality of your current situation.

UBIQUITY: How does alignment work as a concept? What is being aligned here?

BENKO: The whole notion is to align what you're doing, which we argue rests in the project portfolio, with what it is you intend to do. In fact, if you want to know what your future will look like, go to your project portfolio because that's where you're making the investment in the future, right? That's where you're allocating your resources. That's where management time is being spent.

UBIQUITY: Is "project portfolio" a commonly used term?

MCFARLAN: It goes back at least to a paper that I had in Harvard Business Review in 1981 called "A Portfolio Approach To Information Systems." At that time, it looked at the portfolio of work that a company had and focused on its implementation risk profile and then teased out how different kinds of projects required quite different kinds of management strategies to be successful. We started it at that level a couple of decades ago and now we've come back and are looking at the strategic alignment. This book is not about "Are we doing things right and do we understand the risk?" It's about "Are we doing the right things?"

UBIQUITY: Ubiquity's readership is mainly CIOs and technology people rather than general mangers. What is most important for information technology executives to know, as opposed to other sorts of executives?

BENKO: When you look inside organizations, CIO's and their counterparts alike have three agenda items: Find shareholder value, restore investor confidence, and adapt for uncertainty. That's what organizations and therefore the CIO are struggling with. We argue that there are two things that everybody should consider. One, given the uncertainty in the world today, you're better off adapting to, rather than trying to predict the future, which is the whole notion around adapt for uncertainty. Two, your project portfolio is an under serving vehicle to A),find shareholder value and B)help build options to hedge against this uncertainty. Generally, the project portfolio falls within the realm of the CIO so he/she is a key influencer in mining the portfolio to help deliver on finding latent shareholder value and restoring investor confidence. We all know the numbers: 50 percent of projects fail to deliver their expected return, 20 percent is sheer waste, etc. With IT expenditures now 50 percent of cap-x, the opportunity is significant. Also, Professor McFarlan and I argue that to the extent management can demonstrate how well aligned its project investments are with its stated intentions, that will go a long way to restoring confidence.

MCFARLAN: I'm going to say it in a slightly different way but it winds up to the same thing. It's a matter of corporate job survival to make sure that what they're doing is articulately understood and talked about and is aligned with the corporate strategy. In the misaligned portfolio, you can have success after success but miss the point. To use that hackneyed phrase, "The operation was a success but the patient died." You can have a series of individually executed projects go off message so that people at the top will say, "What the hell is going on here? Why are we spending money on this?" A second dimension is making sure we have a pragmatic and focused way of implementing. The book focuses on, for example, the need when possible to do it in bite-sized and chunked pieces. In some businesses the external environment changes so quickly that with a two- or three-year-long project, you may have to write off a project a third of the way through because priorities have changed. We're trying to get better results for the money we're spending, understanding that some environments are more volatile than others and within those volatile environments you simply can't execute things with as long a time horizon.

UBIQUITY: Consider this hypothetical question. Suppose you go to a new organization that you know nothing about, and you suspect from what you've heard that there are problems in the organization. You aren't sure what the problems are and you want to find out. Just the way that a medical doctor looks at certain things to assess the health of a patient, what would you be looking for? What would you expect to find when you looked at a new organization?

MCFARLAN: When we start in an organization I spend a lot of time trying to understand what it is that the company thinks it needs to do to be successful -- the competitive environment. I'll take one of the cases I just finished developing, a grocery chain. They're in a world where Wal-Mart now competes with them in 97 percent of their locations. Their competitive strategy is that they must take three points off gross margin in the next two years. You tease out understanding what the competitive positioning is the company, what the profit drivers are. Then you go back and look at what is being spent on the applications development to build a portfolio. The way to think about the question is this: When you understand project-by-project why you're doing and what you're doing and you roll it up and look at the percentage of where dollars are being spent, is that money being spent in a way that is consistent with the first analysis? If it is, you feel pretty good. It's more likely that you will find that there's not adequate alignment. That's the beginning of the dialogue.

UBIQUITY: Kathy, some examples?

BENKO: We have seven tools that we have outlined to help people with this particular issue. One simple tool is to tag the projects in your portfolio: Is this a sell-side project? An inside project? A buy-side project? Is it a customer touch-point project or is something that benefits the inside the organization, like finance or HR? After you tag each project, you re-sort the portfolio. One of the things you will see immediately and pretty consistently is that something like 70 percent of the investments in the portfolio are going toward inside projects. But if you look at the objectives of the organization, they tend to be more externally focused, like product innovation and geographic growth. You see immediately that your investment and your goals may not coincide.

UBIQUITY: Is this something that needs to be negotiated seriously between the CIO and other executives, such as the CEO?

BENKO: My initial thought is that it's not about negotiation, it's more about communication. One of the first steps is to get everybody on the same page on what you're trying to achieve. I remember reading one study that in any given organization fewer than 15 percent of the employee base can articulate the goals and objectives of the organization. That is in many respects an entry point for greater alignment. It's getting everybody to understand and articulate just what it is the enterprise is trying to do.

MCFARLAN: I was going to say that the other thing about it is that it forces a dialog and a discussion. What I mean by that is that a lot of assumptions seem clear to the IT people as to why they want to do something. It's got to do with redundancy, stability at a low maintenance, et cetera. The division presidents and general management may have a quite different set of expectations and so we've got two basic language systems going on here. We're looking at finding a way to have a discussion to ensure that general management understands more clearly what's going on is going on and what the real problems driving the company are. There is a lot of give-and-take on the margins as to which projects you want to go forward on and which ones you maybe have to sit in for a while.

UBIQUITY: So how do you decide?

BENKO: When you're trying to align what you're doing with what it is you intend to do, it's important that you have up-to-date information on both of the activities. Step zero in the process sometimes is simply putting together the inventory of all the projects you've got going on. Don't discount how often there is a step zero. I've seen it happen myself in several cases with portfolios well over a half a billion dollars. Step zero is, "I'm embarrassed to tell you that I'm not exactly sure what we're doing so we've got an effort going on just to figure that out." But it is also true on the other side -- what you intend to do. We have a little exercise where you map, visually, the projects to the objectives of the organization. It's really a scatter diagram. We call it the chicken pox chart. You find a bunch of projects that actually don't fit into the goals and objectives of the organization. The knee-jerk reaction is "Those are the ones we're going to kill right off the bat because they are not consistent with anything we're trying to achieve." Our experience tells us something counter-intuitive. Sometimes those projects that don't map back to any set of objectives are more in tune with the market and it's the objectives that are outdated.

UBIQUITY: Does that mean that it's impossible to chart a direction if you think that a rogue manager may know better what to do?

BENKO: You bring up a good point. I'm certainly not smart enough to devise the silver bullet that allows an organization to be continually aligned with its project suite, with its objectives, with its constituents and with the business climate. But, we argue that there's a hell of a lot that you can do to better align your project portfolio with the objectives of the organization and the business context in which you live. It's not an all or nothing proposition. Aligning projects and objectives against the changing business landscape is all found money because you're already spending it. You're already making the investments. Anything you can do to get a greater return on those shows itself in shareholder value, in investor confidence and adapting for uncertainty. It's all gain.

MCFARLAN: The way I talk about this is that a portfolio of 20 individually justified projects may in fact make a lousy portfolio. This is a right-brain thing. If each of the seven projects in their own way turn a particular function or set of activities inside out, the combination of the seven may additively bring the whole thing to a clean halt. It forces you to stop and say, "Wait a minute, the total impact of what we're doing simply won't work because of these interactions." Another piece we talk about is a common thread analysis, where you find that the front end of seven systems all involve a special log-in and a password. You can then decide, "Why don't I just tease that as a common front end, do that once and then have password authorization embedded in the layer underneath it?" So, you can squeeze money out in multiple practical ways.

UBIQUITY: How bad is the problem? On the average, how much does a company diverge from its true path?

BENKO: I've seen a statistic as high as 85 percent in terms of slippage between what an organization has on record that they intend to do relative to where they're making their investment. So, you take a number like that and then you take other statistics such as 80 percent of all IT projects are conceived of and funded in a fragmented manner. Together the result is an estimated $1 trillion in underperforming project investment in the US alone -- ouch!

MCFARLAN: It's also important here because of the very large part of capital investment in that is being done on IT processes, equipment and things of that nature. It's a startling story that isn't as well taught. I still have colleagues who teach with enthusiasm how you think about the investment on five different milling machines, which was an extremely interesting topic back in 1961 when I got my MBA and is an extremely uninteresting topic in 2003 for most people.

UBIQUITY: That suggests the general issue of our changing environment. Are there any un-obvious ways in which the world has changed?

MCFARLAN: That's an interesting question. There are a lot of unrecognized ways. I got caught in a funny set of teaching assignments for the last 15 years, where I was teaching in our advanced management and senior executive programs. The issue, as near as we can see, is that the processes that drove people to these VP and senior vice president jobs were inadequately exposing them to the kinds of systems processes investments that organizations were having to make to simply survive. They were assuming that this stuff was somehow being handled in the background; and that they didn't have to worry about it. We voted two new big courses into the required curriculum at the Harvard Business School. One is on ethics, leadership and social responsibility. The second one was a significant piece on information technology, because it's clear to us that our students are going out into an information-mediated world and they haven't thought through that paradigm clearly enough in their minds.

MCFARLAN: That whole group of people came up to the top, thinking that the world was like punch cards and batch-oriented computing and low-level infrastructure stuff and simply missed how it turned things inside out.

BENKO: Some day when I get some time -- I'm not in fact sure what day that's going to be -- there's an article to be written about how CEOs and CFOs in addition to the CIO need to be conversant in technology and IT in the same way CEOs needed to become conversant in finance 10 years ago. Because 10 years ago it wasn't the CEO that was hosting the analysts; it was the CFO. Over time the CEO picked up those skills. I believe the same is true with technology.

UBIQUITY: Do your graduates come back to you and say you should have done this, you shouldn't have done that?

MCFARLAN: Yes. It's an interesting thing because when people think of what I've written over the years, it often comes back to a pair of pieces I did in '83/'84 on the use of information technology as a competitive weapon. It was like drilling in a nerve when we started teaching it. And it's the theme that over the years my former students keep coming back and talking about how they found that in different ways their companies made money on this. One of the big changes is when we took the MIS faculty and combined with general management, because we saw information technology being the heart of the organization. That is the idea behind "Connecting of the Dots".

UBIQUITY: Mentioning the title of the book reminds me that we never specifically talked about the dots and what they are and why they should be connected. So, why don't we briefly do that?

BENKO: The dots represent projects. The notion is to connect the dots between individual projects, project investments as a whole, and the intentions of the organization.

UBIQUITY: Expand on the notion of "alignment."

BENKO: We wanted the efficacy of the book to be high in terms of all the research. The way to do that is not to just sit in an office or closet or whatever and create this stuff but actually to battle-test it. We've been working through relationships with lots of different organizations to bring it to where it ultimately stands at this time. I can honestly say I've never once gotten the deer-in-the-headlights look, which is, "What the hell you talking about?" -- that look when you're talking to somebody and they're looking at you saying, "What the heck is this?" It seems to be a topic that's fairly universal. It's an interesting word, "alignment". It's actually quite a remarkable word because you don't need to define it for anybody. Everybody has a definition. It might be a little bit different depending on where you sit in the organization, but it's generally self-described.

UBIQUITY: Cathy, your title at Braxton (which until recently has been known as Deloitte Consulting) is Global e-Business Leader. How do you think of e-business? Do you think of it as e-commerce?

BENKO: This may sound a little cliquey, but we believe that e-business is part of -- not separate from -- the business. It's a lens that you use to view all that you do. It's not just something you do. Are there applications within e-commerce and m-commerce and B-to-B and that type of thing? Absolutely. But e-business as we talk about in the book is the shift in the business landscape that was precipitated and instigated by Internet technologies among other things. The velocity and transparency and reduced friction that exist today, we believe, have their roots in what was labeled "e-business."

UBIQUITY: With the sounds of the dot-com boom and bust still in everyone's memory, what do you think of the future of e-business?

MCFARLAN: The way I look at the dot-coms is this; it was a wake-up call for the large and medium sized businesses, that if you keep on doing business the way you're currently doing business you won't be around. We have just had this massive embracement of the intranet inside the organization and then the extranet outside. Today, you take orders, you provide service, you communicate and operate in an extraordinarily different way. There were a few dot-coms -- Travelocity, the eBays, Expedia -- that carved out new viable businesses. For most of the rest it was just an extraordinary "we aren't going to do business as usual proposition" but no enduring value. When the dot-com startup reached its peak in the spring of 2000, 250 of our students went to work for venture-backed operations of their own. There was almost zero interest in our students going to work for major organizations such as IBM, Citibank and Eaton or Rohm and Haas. Snap forward to March 2003. The I-banks are shrinking down. The consulting firms for the most part are still over-staffed. The dot-coms have disappeared and our current graduates are going into much more traditional organizations. Their jobs, however, have a very strong mandate to help reinvent how business is being done in the new world.

UBIQUITY: What is the largest point you'd like to make readers understand?

MCFARLAN: I think the largest point is that the organizations that don't take the time and energy to understand their portfolio and to test it out against their strategy may be in real trouble and may not make it. That's the dominant thing. We talk a lot in terms of the first-mover, fast-follower phenomenon. Some people like a Schwab can jump on top of this early. Others like a Merrill Lynch can move on it in a really intense way and catch up. But if you simply ignore it, your services and everything begin to run downhill in a really intense way, and you wind up looking a lot like a K-Mart. You ignore aligning your IT portfolio at peril, because you may be out-maneuvered. On top of that, because technology performance is changing about 35 percent per year, you can get it right today but there will a whole new set of possible services tomorrow. If you pretend that you're not in that game, you will quickly begin to look obsolete.


Ubiquity, Volume 4, Issue 5, March 25 - April 1, 2003


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