Who's accountable for IT failure? (part one)

This two-part series presents a structure for understanding why IT projects fail, in a way that goes far beyond project management alone. Part one elaborates the problem while part two discusses the need for greater accountability on the part of senior management.

BE SURE TO READ PART TWO OF THIS SERIES.

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It's a sobering statistic: nearly 70 percent of IT projects fail in some important way, putting the economic impact worldwide at three billion dollars, which corresponds to 4.7 percent of global GDP. And it's a universal problem: setbacks span the public and private sectors, occur in all industries, and often result in substantial economic and productivity losses.

Read Also: Annual cost of IT failure: $6.2 trillion Worldwide cost of IT failure: $6.2 trillion Critique: $6.2 trillion global IT failure stats Worldwide cost of IT failure (revisited): $3 trillion

Just look at these CRM failure statisticsfor the years 2001-2009 - the numbers tell a story of significant problems related to IT project delivery:

• 2001 Gartner Group: 50%
• 2002 Butler Group: 70%
• 2002 Selling Power, CSO Forum: 69.3%
• 2005 AMR Research: 18%
• 2006 AMR Research: 31%
• 2007 AMR Research: 29%
• 2007 Economist Intelligence Unit: 56%
• 2009 Forrester Research: 47%

In virtually every case of failure, management fails to anticipate serious problems. Even in cases where challenges are likely, IT failure is too often considered business-as-usual, with executives throwing their figurative hands in the air, in surrender to chance or bad luck.

IT failures happen when managers exercise insufficient judgment, possess too little experience, hire the wrong people, ignore warning signs and, crucially, fail to involve affected employees in a way that eases the path to success.

WHY IT PROJECTS FAIL

Although tempting to blame project managers for failure, we must point attention to senior executives for allowing the conditions for failure to exist in the first place. The underlying reasons fall into three categories:

1. Unrealistic and mismatched expectations
2. Conflicts of interest among customers, vendors and integrators
3. Corporate organization structure that conspires toward failure

Unrealistic and mismatched expectations.Too many executives expect technology magically to solve business problems, an almost delusional misconception that leads to unhealthy risk. Dr. Paul Kedrosky, a well-known investor and economics writer, explains why: "Software is super malleable and appears to create infinite productivity," he says, "which creates a nearly perfect trap for senior executives."

Health-care business services provider, MedSynergies, fell into this trap when it purchased software from Lawson Software. The ill-fated relationship ended in a lawsuit when MedSynergies sued Lawson and hosting provider, Velocity Technologies, claiming the companies:

[C]onspired to lure plaintiffs into onerous, long-term software, hosting and services contracts and then simply failed to perform," the complaint said. "When their software did not work, defendants piled up the services, charging hundreds of thousands of dollars in 'consulting fees' to fix the problems they themselves created."

Although there are two sides to every story, it's clear the parties had sharp differences of opinion regarding software capabilities and implementation process.

In another case of mismatched expectations, farming organization Woolf Enterprises sued ERP supplier Ross Systems over a failed implementation. Woolf's lawsuit states that Ross made:

[P]re-sale promises...that its software would fit Woolf's needs without major tweaks, save for a "grower accounting module..." Moreover, while Ross promised it would develop the grower accounting module at no charge to Woolf, it never had any intention of doing so, according to the complaint.

Forensic financial analyst and blogger Francine McKennaadds, "We let business off the hook because IT is complicated." In both the previous examples, the lawsuits are rooted in business, rather than technology, disputes. However, when technology is involved, many executives relinquish accountability they might otherwise retain.

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A recent failure involving ERP vendor, Epicor, demonstrates this critical point. In a lawsuit filed earlier this month, Group Manufacturing Services claims that Epicor misrepresented the functionality and ease of implementation of its software. Epicor's response states that the customer chose to implement the software itself to save money, and "adopted a go it alone mentality, despite Group's lack of experience." To an outside observer, it appears that Group over-estimated its own ability to manage the implementation and tried to pass blame to Epicor.

Of course we cannot ignore technology as a complicating factor on business-oriented IT projects. Beverage distributor, Major Brands, describes this situation in another lawsuit against Epicor. After years of cost overruns and delay, Major Brands scrapped its ERP project, for which it paid about $1.2 million (including software and related implementation services). The big culprit, according to the lawsuit: the software was so slow as to be "absolutely useless."

Although technology itself plays a role in some IT failures, far more often the problem is connected with the customer's inability to cope with organizational change, conflicts with vendors, lack of training and other management issues.

Conflicts of interest among customers, vendors and integrators. Implementing enterprise software typically involves multiple groups, each with its own set of interests, goals, and measures of success. For example, when IBM faced lawsuitsin the Philippines over a failed government project involving the company's DB2 database product, tensions rose among the customer, IBM, and the system integrator. All three parties pointed fingers at each other in a series of public accusations.

Similarly, when California's Marin County sued Deloitte Consulting and SAP for fraud, it became clear how conflicting goals and agendas among customer, software vendor, and system integrator could drive failure rather than success on business transformation projects. The Marin County case is a glaring example of a concept we can call the IT Devil's Triangle.

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I wrote the following about the Devil's Triangle principle:

Three parties participate in virtually every major software deployment: the customer, system integrator or consultant, and the software vendor. Since each of these groups has its own definition of success, conflicts of interest rather than efficient and coordinated effort afflict many projects.

The Devil's Triangle explains how economic pressures can drive software vendors and system integrators to act in ways that do not serve customer interests. It also offers insight into the ways some enterprise software customers damage their own projects.

Many IT projects succeed or fail based on how the three groups manage built-in tensions among themselves. The likelihood of success increases when each group aligns goals and expectations in a spirit of cooperation and mutual benefit. Conversely, implementations fail when greed, inexperience, or arrogance emerge as prominent motivations among participants or stakeholders.

Corporate organization structure that conspires toward failure. Since most CIOs don't have the board-level status of other business leaders, they lack the ability to marshal crucial resources that could dramatically improve the likelihood of IT project success. Executive Director of the Center for CIO Leadership, Harvey Koeppel, believes that many companies treat IT as a second-class citizen: "Instead of integrating IT into broader business activities, many organizations position IT as a technology black box."

In my experience talking with a variety of organizations, it is clear that executive attitudes toward the CIO vary substantially. While some organizations treat the CIO as a strategic senior executive, many companies relegate IT to substandard status and prestige.

The extent to which the CIO participates as a peer with other executives in decision-making and external communications is a clear differentiating factor in companies reporting success with IT projects. SAP's Oliver Bussmann, is an example of a CIO who is fully integrated at a strategic management level in the company. In addition to running a global IT shop, Bussmann serves as one of the company's top external voices.

I asked him to explain why this is important:

Today, IT is much more than just a cost center. As CIO, you must remain ahead of new trends, know what is coming, and work out how you can implement without disruption.

The consumerization of IT is the driver for many business decisions today, so the CIO must be a business front-runner and leader, rather than a follower. SAP Global IT is one of SAP's best customers and I share those experiences on our blog. In addition, I have built up many customer relationships via social media channels, which have become an essential business communications tool.

To the extent that IT is disconnected from lines of business, the conditions for failure become intensified. For many organizations, the challenge lies in putting ideals of communication and collaboration into practice. As with all culture change efforts, bringing together IT and the business requires a shared commitment extending over a lengthy period - there is no quick fix.

Also Read: Recognizing the top 25 'social' CIOs Why CIOs fail - A short primer on success CIO view: Ten principles for effective collaboration CIO view: Business requirements and the elegant art of 'no'

When discussing this issue with the former federal CIO of the United States, Vivek Kundra, who is now Executive Vice President of Emerging Markets at salesforce.com, he responded:

Even if every IT project in the public and private sectors were successful, end users would still be unhappy with the result. In general, these projects are not designed for today's social era and do not deliver direct value to end-users. There is a huge disconnect between what technology builders create and the value that end-users demand.

It is no coincidence that both these leaders raised the issue of communication when discussing how to overcome structural impediments to IT success. The innovative CIO of Seton Hill University, Phil Komarny, agrees:

To reduce failures, we must break down the walls between IT and business constituencies, to make everyone a stakeholder and align interests around the table. By engaging in a more social and collaborative dialog with line of business peers, the CIO can bring greater transparency to the entire IT process.

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Part two of this essay discusses the critical topics of risk and accountability. It also describes the impact of these failures on shareholder value and company reputation, and offers advice to management.