How CIOs can sense if their companies are getting ready to fall?

21 Oct How CIOs can sense if their companies are getting ready to fall?

Jim Collins has researched and written extensively about the characteristics of successful companies. Recently he has published a short book, “How the Mighty Fall,” describing the characteristics of companies that fail.
Collins defines five stages of decline prior to the company’s failure. Thinking about these characteristics it should be possible to provide insight into changes in the enterprises attitude and use of IT that would be indicative of these stages. This is more of a thought experiment than a detailed analysis and it builds on the materials published in the book. So with thanks to Jim Collins and apologies if I get it wrong here goes.
Stage 1: Hubris born of success – A stage where company success and momentum insulates companies from poor decisions or the loss of management discipline.
Hubris in IT can manifest itself in a breakdown of investment and technology management disciplines. Executives approve IT investments based on belief or without rigorous business cases would be an indicator of operating in this stage. This is particularly the case for investments that do not support the company’s core business.
Stage 2: Undisciplined Pursuit of More – Follows the first stage with the company overreaching in order to drive growth and expansion. In this stage, the company expands too fast, outstripping their operational and management capabilities.
IT’s pursuit of more is seen in multiple and competing business unit initiatives pursuing growth. Without discipline rising investment levels do not take into account increasing complexity and cost which executives assume will be covered by increasing revenues. They are a symptom of the second stage.
Stage 3: Denial of Risk and Peril – a rise as there is a disconnect between early warning signs conflict with external signs of continued success. This is the characterization of stage three as the realities of expansion catch up with the rising cost, complexity and exposure to market forces.
From an IT perspective, this stage represents a widening gap between lagging financial indicators and leading operational and market metrics. CIOs entering this stage will see their IT budgets shift away toward increased focus on current operations as support requirements consume resources. Executives will begin to doubt the ‘value of IT’ as they challenge the need for costs that seem to be rising faster than revenues. Cost cutting efforts in general and outsourcing in particular may be common as companies look to change the cost of maintenance and support without reducing requirements for this type of work.
Stage 4: Grasping for Salvation – occurs when the reality of the company’s situation can no longer be attributed to other factors. At this stage, many organizations reach for a vision or radical transformation to reverse their circumstances.
For IT, this stage is the realm of transformational change wrapping radical operational improvements in new systems and processes. The hope is that change will erase systemic weaknesses using a single integrated application system and infrastructure. Such sliver bullet solutions mobilize IT resources, giving IT an apparent new relevance coming from the prior stage.
A company may go through multiple attempts at transformation initiated either by waves of new executive leadership, or changing attitudes and strategic visions. According to Collin’s findings, transformations that bring the enterprise back to their core business model and disciplined management have the greatest chance of success.
Stage 5: Capitulation to Irrelevance or Death – occurs based on the number of years spent in stage 4 as each transformation and false start erodes both financial performance and associate moral. You can think of Stage 5 as being a period when the company is that last to know that it has lost its relevance.
For the CIO and IT, this stage can seem similar to stage 3 as management takes whatever actions it can think of to improve performance – often in the form of cutting IT costs, outsourcing, and the like. Talent is the big difference in this stage as good talent knows when its time to move on. CIOs in stage five report challenges attracting and retaining market leading talent – leading to reduced expectations for IT.
The progression through these five stages is not inevitable. As the CIO or IT leader you are perhaps the first to see the operational breakdowns associated with moving from stage to stage.
Recognizing these changes and highlighting the situation is part of your contribution to the executive team. Do this by making the general characteristics and descriptions operational clear and explicit.