These days, you can't pick up a computer trade publication without reading about how CIOs need to align the role of IT with the needs of the company's business units. But Robert Herbold says this isn't an appropriate strategy for IT to follow, and given his IT credentials, people are listening to his bold conclusion. For almost seven years, he ran IT, marketing, and other departments at Microsoft while Gates ran engineering and Ballmer ran sales.

Since 2001, Herbold has been a member of President Bush's Council of Advisors on Science and Technology. In 2004, Herbold authored The Fiefdom Syndrome: The Turf Battles that Undermine Careers and Companies -- And How to Overcome Them. His consulting firm, the Herbold Group, helps Fortune 1000 companies that have lost control of their profit margins return to profitability.

Enterpriseleadership.org recently sat down with Herbold to discuss his book; the alignment strategy CIOs should utilize; the role of IT in a company and how to measure its effectiveness; and his work on the Presidential council. Here's what he had to say.

EL: Your Harvard Business Review article talks about the plethora of incompatible systems and the lack of discipline in IT practices at Microsoft. How did you solve this problem?

RH: Everyone realized that things had to get better. It became embarrassing when Fortune 1000 customers would come to the Microsoft campus for a new product update and ask to see how we handled some of the problems they might be having, such as procurement. We'd have to change the subject very quickly.

Systems had grown out of control. We couldn't seem to get anything done. We put in a global ERP system based on SAP. We did it as fast, and as inexpensively as we could. When I was at Procter & Gamble, I put in a similar system the slowest, most expensive way. My article in Harvard Business Review talks about how well we disciplined ourselves to put in the system, and how easy it was to use because of the menus we created. We told all employees we were getting rid of tons of IT personnel, 70 percent of the existing IT systems, and were getting back to basics. Our goal was to make Microsoft a showcase for how large corporations should do finance, procurement, and other operational functions.

How you carry out systems, such as SAP or Oracle, is what counts. Some large corporations spend millions of dollars and years to put in an ERP system. The reasons why corporations find these systems expensive and time consuming to install reside with unrealistic expectations from customers. Some corporations spend too much time listening to their customers.

EL: Do "IT fiefdoms" differ from other key departments in a large company?

RH: Not really! People tend to become set in their ways because of being in a job too long. They often wind up defending the legacy systems and legacy practices, and they become legacy beings. Things become fragmented, and the necessary changes aren't made. More and more IT people begin building their own systems, and integrating these systems becomes impossible. Redundant systems emerge as IT becomes pervasive in areas where it's not needed, and this scenario continues to repeat itself.

EL: Is the shared services model for IT and other professional services, such as human resources, kind of a fiefdom?

RH: It can be. Any of these departments can become very independent and build a moat around itself. A shared-service group, unfortunately, can become the group with which it's hard to work. You want the shared services group to be disciplined in the way it carries out basic functions that serve those individual business units. The shared services group also needs to be flexible enough to spell out the ground rules for what business units can do on their own. To this end, the shared services group needs to monitor what business units do so they don't become too independent and not well integrated into the organization.

EL: Does a lot of IT governance help to keep fiefdoms from spreading?

RH: Most large corporations could use a good conscience. Take human resources: Companies should have one way to do performance appraisals, and the corporate officers should be the keepers of this. Each division should carry out the nuances for how their industry works and incorporate these things appropriately. Instead, departments go off and do what they want. You get HR people all over the place, and none of them want to work together. This dilemma can prove expensive for a company, as well as a paperwork nightmare.

EL: Trade publications talk a lot about aligning IT with goals of individual business units. Since some departments might own their systems, how do you keep power struggles from emerging?

RH: I don't like the word "alignment." It sounds like you need to make all of these business units happy. The objective is to make shareholders happy. The way to accomplish this is to know what things you do as a corporation, and what things you do as a business unit.

CIOs need to align themselves with top management exclusively, not with individual departments. They also need to know that their programs will be backed by their CEOs. And, both CIOs and CEOs need to come to a consensus about what they are going to do as one unit, and what they are going to do about individual business units.

The company also needs to have one chart of cost accounts for the way the global organization handles the finances. If particular divisions need other ways to make the business successful, CEOs have to drive these initiatives, too; divisions and business units need to have some flexibility. Strong people need to run functional areas such as IT. To this end, the executives in charge of these functional areas need to be evaluated first in how well they perform for the corporation, and then how well their organization performs for the business units they serve.

EL: Can you tell me exactly what the Council of Advisors on Science and Technology does?

RH: President Bush established the Council following September 11, 2001. Three times a year, 20 of us meet with the President to discuss technology issues pertinent to the country. He usually breaks the group into task forces. For one year, my group looked at what should the country be doing about broadband, how aggressively should the government be pursuing it, and what practices are needed from federal agencies, such as the Federal Communications Commission, around these issues.

Our work has enabled the President to become better educated on this subject. He followed our recommendation that the government needs to show good examples of broadband applications, but it's not the role of government to fund nationwide applications.

EL: In your book, you give the scenario of an $8 billion chemical company spending seven percent of revenue against IT, which was twice the industry average. Can you summarize how this company solved the problem?

RH: The organization asked a couple of senior IT staff members to define what the IT system should look like and how the organization would run if it were reorganized this way. Many corporations make the mistake of forming IT committees and task forces to ask business managers what they want. This is the last thing CIOs want to do; they need to select people who know what they're doing, then let them design the system.

The chemical company replaced hundreds of IT professionals with several teams of 10 or 12 professionals. And, the CIO and CEO explained what they were doing, and why they were doing it. This is leadership at work.

EL: Do many IT organizations have a lot of redundant systems?

RH: Yes! The people who develop the systems also wind up supporting them. Soon, these people become an appendage to their systems, become fearful about any changes to them, and the organization becomes paralyzed as everyone fights to hold on to their systems. CIOs need to break through this and say, "Here's the design we think is 98 percent correct. We don't need your input on this."

EL: Are some CIOs or CEOs afraid to confront the troops?

RH: Yes. Even aggressive CIOs will come up with a great idea and start to carry out projects without having their CEOs on the same page. Often cranky customers will push back about the change and complain to the CEO. Then, the CIOs get into trouble and are labeled as renegades. On the other hand, you have CIOs who listen to what all the fiefdom business units want. These CIOs don't have a prayer if their objective is to please all of these people. These CIOs, instead, should be improving the overall performance of the IT organization. They also need to have a contract with their CEOs that spells out how they're going to improve the place, and how the CEO is going to support major changes to improve the company's competitive edge.

IT doesn't exist to serve the business units. Its role is to serve the corporation. And through the corporation, IT serves the business units. Some parts of the IT organization should be achieving excellence for the corporation.

EL: Can you cite an example of a top executive who cleaned house?

RH: When Lou Gerstner arrived at IBM, he saw that it had 200 charts of accounts. It took forever to get a clear financial picture. He immediately cleaned house because the business units had become too independent. This is not the way to run the railroad.

EL: How should you measure the effectiveness of IT? Service level agreements? Driving down overhead costs?

RH: It varies by industry. First, you need to state what role IT plays in the success of the corporation. Does it have any strategic value, or should it have strategic value? Second, you need to look at how IT is doing in relation to the business's overall execution. You look at this from a cost and service level (you can use a variety of metrics).

The effectiveness of IT really has to be focused on the company's performance. You need to look at whether IT is affecting the services, the products, or the efficiency of how the place runs. In some industries, IT affects all of these areas. It might be important in other industries. However, each industry needs to ask the same questions.

EL: Any comments about Nicholas Carr's book, Does IT Matter?

RH: It's a provocative statement. I don't agree with him. Carr hasn't earned enough IT battle scars to come to his conclusions. He assumes that some things like product supply and logistics are some sort of a utility. The IT approach use by WalMart in the logistics area for product distribution made this store chain a national success story. Sam Walton, the store's founder, designed the logistics system. Certain companies have built their entire success around excellence in IT. Dell and FedEx are other examples. Dell has grown because of its supply-chain practices.

Companies in the consumer products area went through a period when IT was considered to be a utility, and you wanted to utilize it well. Sam Walton reminded large companies with huge inventories, such as Procter & Gamble, that they, too, could use logistics to gain a competitive advantage. Carr needs to get closer to some of these companies that excel because of using IT effectively.

--

Elizabeth Ferrarini is an IT consultant from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.