German Mechanical Engineering

The best companies at creating value-in-use embed their IT governance within the broader governance practices.

October 2010 | by David Sergienko

German mechanical engineering has always been the backbone of the German economy. Even internationally, it stands for progress, performance, and reliability. In the past twenty years, it has been able to grow at 2.2 percent1 p.a. and to generate an average EBIT margin of 3.9 percent. Hardly any other industry is so diverse, and developing with so much rigor. Reason enough, then, for German mechanical engineers to confidently look toward the future.

At the same time, there are signs of change. There is pressure from foreign competitors with improving quality and lower-priced services even in industries traditionally dominated by German companies. The international integration of markets is increasing, which in turn increases volatility. The upcoming fourth industrial revolution (“Industrie 4.0”), the impact of digital technology on the value chain, and disruptive technologies such as 3D printing have the potential to change the very structure of business models.

Building Better Governance

The businesses that are the best at creating value-in-use, we found, embed their IT governance within the broader governance practices. In practical terms, this requires IT representatives to participate in company forums that traditionally have been the exclusive domain of business unit leaders. At successful companies, certain core business processes, such as managing the business project portfolio or determining the allocation of resources, dovetail with IT processes. This notion of an integrated business–IT governance model can also apply the other way around: we have witnessed examples of companies where strategic planning for IT actually serves as a platform for broader strategic planning by establishing mixed business–IT forums.

CIOs need to understand what the business units expect from the IT organization and to articulate IT goals in terms that business leaders can grasp. That means eschewing technology jargon, making innovative proposals, and taking firm positions on cross-functional projects. To be secure in these new roles, CIOs must develop a range of skills that transcend their IT core competencies; to give the emerging collaborative effort better grounding, they should create forums where leaders can set common priorities.

For CEOs and business unit leaders, the main issue is mind-sets: they need to stop thinking of IT as a service provider and consider ways to build alliances with IT executives. IT priorities should be set in clear business terms. Leaders of businesses should proactively draw their IT counterparts into strategic and operational planning sessions.

When this approach works, it produces a range of benefits. Fresh synergies between IT and the business units create a wider palette of skills for both as they take ownership of shared projects and increase the intensity of their interactions. With leaders from the two groups finally reading from the same script, communications become more efficient, since less translation time elapses between the formulation of business plans and their execution by IT. Of course, the real bottom line is that these benefits combine to raise IT’s value-in-use across the enterprise.

The value-in-use of information technology emerges when the IT department, building on a foundation of core performance, attacks problems and seeks solutions in areas that interest the business units and IT alike. Alliances with business leaders create new roles for CIOs and increase their scope of action. Governance practices that bring IT and business leaders together institutionalize this new way of operating.

 

Executive Editor

Ms Anna Sullivan

Ms Anna Sullivan