I’m amazed and disappointed that it’s still acceptable for people who run major companies to show wilful ignorance of technology. And I don’t mean what firewalls do or how to get wifi working on your laptop. I mean what it means to the companies they run, how it impacts their people and their customers, and how to make sure it’s an asset rather than a liability. And there was an exemplary demonstration of this on last week’s edition of The Bottom Line on Radio 4.
The programme is a straight discussion of business issues with Evan Davis and a number of business leaders. It’s not dumbed down (any more than it has to be edited down) and is a consistently excellent listen. Last week the guests were Luke Johnson, chairman of Risk Capital Partners, Vincent de Rivaz, chief executive of EDF Energy, and Jacqueline de Rojas, UK and Ireland vice president of McAfee. And they dealt with two major topics: organic growth versus acquisitions, and problems with IT. Luke Johnson in particular seemed to really have problems with technology, and to me there was overwhelming evidence that some of the causes might be rather closer to home than he might like to think.
Coming up is some criticism of what Luke Johnson and (to a much lesser extent) Vincent de Rivaz say, but don’t mistake it for a criticism of them as individuals. The point of what follows is that their attitude is representative of so many board leaders. Even though there are many board leaders who have a very confident grasp of technology issues it’s still remarkable there are so many others who handle technology as if they were wearing boxing gloves.
Problems with technology
As the resident IT expert it was Jacqueline de Rojas who was asked first about her own experience of IT problems, and in particular the bad software update that her company issued in April which disabled many of its customers’ computers. Notably, she responded to a technology-related question with a positive and human answer: “The key in a crisis like that is how you respond; that’s how you’re judged”. Then Vincent de Rivaz was asked if he had ever had any IT disasters, and before he could finish his response (along the lines of “no actual disasters, but we have had problems”) Luke Johnson cut in:
LJ: “Every business I’ve ever come across has always been having problems with [its IT].”
VdR: “We have to invest in our IT and we have to develop our IT systems which we are doing at the moment [with a new online system to help our customers with their bills.]
ED: “What sort of problems have you had with your IT?”
VdR: “The problem is to control the costs. That is the permanent challenge for me, to be sure that we are spending the right amount of money on the IT systems.”
LJ: “All my experience of IT systems is they are always overdue and over budget, and I think it’s a built-in part of the IT industry that they deliberately under-quote and then they may get up on the extras.”
Now there are many problems board leaders could have with IT: We aren’t getting the best out of our technology investments. Our technology portfolio isn’t broad enough to help us in a constantly-shifting market. We don’t have the people who really understand how to manage and change our technology infrastructure.
These are all problems that require board-level investment and oversight. And they are also all questions that, if you substitute “financial” for “technology” all boards do deal with. But sadly it’s okay to ignore those matters if they’re technological, and so the top-of-mind IT issues for our token CEO and chairman are (1) cost control, and (2) IT people are sharks.
Indeed, Luke Johnson seems to have something of a chip on his shoulder about technologists. Jacqueline de Rojas goes on to explain a bit about the difficulty of turning “woolly and aspirational” IT demands into concrete deliverables, but that doesn’t stop him:
LJ: “I think the IT experts blind clients with science, and I think very often they themselves overestimate the benefits, and overcharge for what they do. And the fact is there isn’t another industry, except perhaps pharmaceuticals, that makes the returns on capital and margins that software does. Huge margins.”
JdR: “The level of investment we have to make to stay ahead technologically is also huge. So where do you think that money goes? It goes right back into making sure we stay one step ahead of — in our case — the hackers and cyberterrorists and the competition”
ED: “Let me challenge you, Luke. Is there something different about IT from other areas of company purchasing? Is IT unique in being difficult and awkward for a company?”
LJ: “No, I don’t think it’s unique, but I think it is mission critical, and unquestionably we are all more dependent on IT than ever. I accept all that, and it can deliver huge values, and the very nature of it is it’s constantly evolving. But the truth of the matter is, what other sort of project or product, rather, do you buy that requires these perpetual upgrades and offers such super returns? I was involved with a retailer once, Whittard of Chelsea. We spent, many years ago, the best part of half a year’s profits on building a fully-integrated website. This was in the early days of the web. Within two years we had to throw it away. Because it just didn’t work. We used the wrong suppliers and we made a lot of mistakes.”
To him IT is a homogenous blob, and he transfers his anxieties freely between commodity software sales (“returns on capital and margins… perpetual upgrades”) and individual business change projects (“a fully-integrated website”). Maybe he’s just exploiting the opportunity to have a go directly at a software vendor, because when Jacqueline de Rojas highlights how technology change really does improve our lives he’s having none of it:
LJ: “What are the cost of goods in software? What are the cost of goods? How much does each new program cost Microsoft? Zero.”
Which is silly, because he knows perfectly well that software (like pharmaceuticals) costs a lot of money to create, and Jacqueline de Rojas has already explained the cycle of investment, return, and re-investment that her market demands.
Where the problems lie
I’m not for a second denying that Luke Johnson’s frustration is unfounded. It’s clearly borne from many hard experiences: this is a man who’s job is to cast his net widely across many, many companies, to look into them seriously, and having done this he finds that “every business [he’s] ever come across has always been having problems with [its IT]” and he’s witnessed one of his companies building one costly system only to have to replace it unexpectedly early.
But from where I sit a lot of his problems are of his own making. If you treat IT primarily as a cost then the best you’ll achieve with it is cost control, whereas the best you should get out of it is business transformation. If you think IT contractors under-quote on the basics and expect to make up for it on the extras, then you probably want to structure the next deal differently and be prepared to make it more of a partnership — if you can be confident of being able to act as a partner. If you think IT experts blind you with science then you’re talking to the wrong people — and if you don’t know who the right people are then you need to start filling that gap in your personal network. If you think IT experts overcharge then you’ve created a relationship with conflict at its core and the best you’ll get out of them is the minimum they’re contractually obliged to deliver, whereas you should be getting them to apply their creativity and rigour to help propel your business forward.
The thing that’s really shocking to me is that there are many company leaders like this, who are unashamed of their blunt handling of technology — which is undeniably mission critical — and yet the same people wouldn’t stay a week in their jobs if they demonstrated the same disregard for, say, legal matters or finance.
Which is rather ironic, because earlier in the programme it was Luke Johnson who was called on to be the resident expert on organic growth versus acquisitions, and one insight he provided was this:
LJ: “Many studies suggest that even perhaps a majority of all acquisitions fail to deliver shareholder value. So it’s important to put it into perspective and say if we can achieve returns through organic growth, but perhaps a little more slowly, then maybe that is the more sensible way to proceed.”
Let’s take a second to understand what we’ve just heard: possibly more than half of acquisitions fail to deliver value to the owners of the business — which sounds very similar to his problems with IT. And acquisitions are a significant part of his company’s business — mission critical, even. Just like IT. But in that conversation he wasn’t remotely upset or bitter about this, he just treated it as something to deal with. He could do that because he was comfortable with working in that sphere and, I suspect, because while he might have had his share of acquisition failures they will have been outweighed by his successes.
It seems to me that if board leaders were obliged to grasp technology to the same degree as they are obliged to deal with financial or legal matters then their companies — and their companies’ technology — would be in a much better place.
Two final things
A couple of parting thoughts.
First, some not-at-all-serious observations about Risk Capital Partners. While confirming that indeed they don’t invest in any IT or software companies, I found they do have an interest in InterQuest, “a fast growing IT recruitment business”. So if Luke Johnson is concerned about the high cost of IT professionals then he might want to have a word with them. Also, I couldn’t help but think if software really is the fantastic high-margin business he thinks it is then RCP really should start making some investments there. I don’t know if they really will make a lot of money, but I do know they’ll learn a huge amount.
Second, a much more serious note. Earlier I said that if these sorts of leaders had IT problems then some of the causes were close to home. But it’s also true that some of the causes lie with us technology professionals. If technology really is seen above all else as a cost to be controlled, and if we are finding ourselves in unbalanced, conflict-driven relationships, then we really do need to do a much, much better job at explaining what we do. And then we have to carry that through into our actions. Technology in business is about making the business more effective and people’s working lives better. We ought to be able to find routes to even the most sceptical business leaders to explain that, and get a positive reception.