Bob Cormier of Forrester Research thinks chief information officers (CIOs) are barking up the wrong tree when they try to pry money loose for technology investments.

Since a recent survey of 1,400 CIOs conducted by research and analysis firm Gartner Inc. showed they only last a little over four years on average in the job, perhaps they should be listening to Cormier's advice.

"Most people are doing it wrong because they're always looking at costs, and if they're looking at benefits they're really only looking at direct benefits. They're not looking at indirect benefits, or intangible benefits, or flexibility benefits," Cormier says in an interview.

New Hampshire-based Cormier sports the title of principal consultant at Forrester, and travels around presenting one-day "bootcamps" for CIOs and their colleagues on the total economic impact (TEI) methodology.

Bob Cormier

Robin Baran, co-ordinator of IT (information technology) administration at Edmonton's Grant MacEwan College, is impressed by TEI. He attended one of Cormier's bootcamps in Orlando, Fla., and liked both the techniques and the take-away materials such as Excel spreadsheets.

"It gives us a really good basis as to all the different things to consider, including return on investment, and how to evaluate it," he says.

Baran has arranged for Cormier to offer a semi-private bootcamp at the college, involving their own staff and people from other educational institutions and government departments. "There's quite a bit of interest - the class is full," says Baran. Cormier is also doing a bootcamp in Vancouver and speaking at a breakfast in Calgary this week.

TEI isn't the only method'-ology for evaluating IT investments, but Baran says Grant MacEwan evaluated the others and chose the Forrester approach. TEI's use is not limited to information-technology investments, notes Cormier. In fact, he says: "I've taught bootcamps for utility companies that want to use it to evaluate power-station investments."

The heart of the TEI methodology, according to Cormier's presentation materials, is to focus on creating new value for the business through technology.

He notes that 75 per cent of IT projects are really maintenance and operations, and only 25 per cent are new projects. Of those, he estimates, two-thirds are "potential failures," leaving only one-third of the new projects as candidates for adding new value to the business.

In other words, he says, "only 8.33 per cent of an organization's IT budget will create new value."

While he can be faulted for carrying out too many decimal places in what is really an inexact science, his point is well taken. Senior executives do indeed care a lot more about moving their business forward than about putting shiny new boxes into a server room.

IT managers who ignore this do so at their peril. Cormier urges them to "call yourself anything but a cost centre - the IT department should be an enabler of business value."

Not everyone would agree that information technology really delivers on that lofty promise. In a May 2003 article in the Harvard Business Review, Nicholas Carr trumpeted that "IT Doesn't Matter.”

He explained that technology has become a commodity any company can go out and buy and implement. Having a slicker website or a mobile wireless order entry system gives you, at best, a short-term advantage over your competitors, Carr added.

Cormier disagrees with this view. "I think that IT, done very effectively, puts an organization at a strategic competitive advantage," he says. "As each year goes by, IT has more of a total impact on the business than the year before, and that impact is across most, if not all, of the employees."

One of TEI's key tenets is that it's not always smart to buy the lowest-cost technology, even if it will do the job required. Cormier calls this a "tactical view" and urges companies to be more strategic. "TEI is unique among methodologies," he says, "because it looks at flexibility options."

As an example, he cites a company that was buying a CRM (customer relationship management) system. "They were a fast-growing organization," he recalls. "One vendor could satisfy all of their needs today with a less-expensive solution. The other vendor had lots of features that perhaps the organization didn't need today. Their solution was a little bit more expensive, but this fast-growing company wanted to make sure that it would be poised to support that level of growth.”

By factoring in the "flexibility factor" the company made a choice that allowed it to expand its sales force rapidly three years later.

Cormier also argues that while IT often does the grunt work of preparing the business case for technology investments, it should be done in close collaboration with the business units. Continuing with the CRM example, he says: "I believe that the business, in this case the sales organization, needs to be an intimate, collaborative partner in building that business case, because they're the one that's going to get the most benefit from it in terms of increased sales."

Another aspect of TEI that Cormier says is unique is an explicit acknowledgement that technology projects are a risky business. He cites a 2003 Morgan Stanley study that found U.S. companies had spent $130 billion on failed IT projects in the past two years.

There's every reason to believe that Canadian companies are in the same boat. Then there's what Cormier calls the "natural human tendency" to overestimate benefits and underestimate costs. Having a more objective metric such as that provided by TEI helps to temper our natural optimism.

He argues that doing a fairly simple "best case/worst case/most-likely case" risk analysis will go a long way to preventing unemployment in IT executives.

Robin Baran is optimistic that the TEI templates and spreadsheets will help guide Grant MacEwan College in making some major tech'-nology decisions.

"We're looking at purchasing new computer systems in vast quantities since the college is going into degree granting," he says. "We plan to use this methodology to evaluate new technology, how long we can use it for, and some of the risks involved. It's a whole smorgasbord of stuff that we're using it for."

In the perilous world of the CIO, which is sometimes jokingly referred to as standing for "career is over," any tool that can help slay the twin dragons of technology and cost has got to be a welcome sight.

Web Watch:
www.forrester.com/TEI
www.nicholasgcarr.com/articles/matter.html

(Tom Keenan is a professor at the University of Calgary and an expert on technology and its social implications. He can be reached at keenan@businessedge.ca)