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Information Technology is like the Stock Market

Success in IT is a lot like success in the stock market. People who don’t understand the stock market sometimes think that there’s a “right” price for a stock based on some elaborate and mystical formula. Similarly, people who don’t understand IT sometimes think there’s an objective way to measure an IT organization that will give the same result no matter who does the measuring. Both of these opinions are incorrect. Here is the truth about the stock market and IT:

1. Success depends more on perception than reality.
A stock’s price is the result of perception. Investors have an opinion on a stock based on expectations of what the stock will deliver over time. People who think that the stock is undervalued tend to buy the stock. People who think a stock is overvalued tend to sell the stock. It’s like a tug of war, with buyers and sellers pulling on opposite ends of a rope, and with the stock price fluctuating back and forth like the flag that marks the middle of the rope.

A company keeps its stock price under control by setting proper expectations. If performance matches expectations then the stock price stays steady (except for overall stock market influences – more on that later). If things go well, then the company raises its expectations based on increased performance, and the stock price rises to match these raised expectations. It’s very important for performance and expectations to match. Even if the company is successful, the stock will go down if the market expected better performance. So the rules are: Keep meeting expectations and the stock price will go up. Fail to meet an expectation, and the stock price will go down.

IT organizations are measured exactly the same way. An IT organization’s success is the result of perception, with overall success the result of various opinions on how IT is doing. Some opinions (like the CEO’s) matter more than others – just as the opinions of large investors have more of an effect on a stock price.

Like a CEO trying to keep the company’s stock price under control, a CIO keeps the IT reputation under control by setting proper expectations and then living up to those expectations. A good IT organization will raise the level of expectations as it increases its capabilities. The rules for CIOs are: Keep meeting expectations and the IT organization will be viewed as successful. Fail to meet an expectation, and your reputation will decline.

CIOs who don’t understand these rules are sometimes surprised when their organizations are perceived as failing. They disagree with the perception, pointing to “objective” measures of their success. But they miss the point: it’s not the objective measures that matter – it’s how IT performs against expectations.

2. Consistency is more important for trust than an occasional outstanding accomplishment.
When a company fails to meet expectations, stock investors begin to lose trust in the company. Each additional failure loses more trust and the stock price falls.

The same thing happens with an IT organization. Consistently meeting expectations is the only way to build the trust that is absolutely critical to success. It’s better to set lower expectations and consistently meet them than it is to set higher expectations and fail to deliver. When you have the trust of your IT customers then you can get the support you need for increased resources to do more. But without trust you won’t be able to get those resources because your customers won’t trust you to use the resources appropriately.

3. Your success is linked to the success of others.
Performance of a stock is impacted by the performance of the economy as a whole. If the economy is bad, then investors expect that sales will decline in certain businesses. This expectation of falling sales will impact stock prices.

The real test of a company’s strength is how it prepares for and deals with adversity. The stock price of a company that handles itself well in a bad economy can actually go up as investors shift their money into the good stock from other stocks that aren’t doing so well.

IT performance is linked to the success of the rest of the company. It’s easier for an IT organization to do well when everything goes right. As it is for stocks, the real test of an IT organization’s strength is how it prepares for and deals with adversity. How do you keep a project on schedule and roll out a system when you’re faced with labor cutbacks? How do you keep your company’s data secure when you have to live with severe budget constraints? You have to make sure everyone knows that the situation is a challenge but that you’re doing the best that can be done. Show your company that even in the face of adversity your organization is still a good investment for the company’s money. Prove your ability to handle adversity, and your organization will do well, even as less trusted organizations do poorly.

4. Success seems to be tied to a few charismatic individuals.
It’s usually the CEOs who get the glory in the stock market, the ones who “single-handedly” turn a company around. It’s the same thing for CIOs, although the glory is on a smaller scale. But we all know who does the real work – it’s the lowly employees who actually put in the hours to grind out the product or to deliver excellent service. So why do the CEOs and CIOs get the glory? It’s because they set the direction, they determine the focus, and they set the standard for attitude, philosophy, and ethical behavior. Senior leaders are the ones who determine what commitments should be made, and they are the focal point for setting expectations with investors and customers. Yes, the “real work” is done in the trenches, but without a focal point those workers wouldn’t be able to focus on the work that’s most important.

5. To be considered a superstar, you need to “buy low.”
In the stock market, the investor superstars are the ones who invest heavily in a promising company and then ride the stock price up to riches. The key is to recognize the potential in a company before everyone else does. The CEO superstars, on the other hand, are the ones who recognize the potential of a new market or idea, and then figure out how to turn that new market or idea into a money maker.

In IT, the CIO superstars are the ones who take an inadequate or failing IT organization and turn it around to make it a key contributor to business success. “Buying low” in this case means to take a CIO job that no one else wants. It means recognizing the potential in an organization and turning a failing IT organization into a successful one.

Although it may be satisfying to take over an IT organization that’s already successful, you can’t really be a superstar unless you make order of magnitude improvements in the organization. It’s possible to take a moderately successful IT organization and make it wildly successful, but it’s very difficult to be a new CIO taking responsibility for an IT organization that’s already wildly successful. That’s like buying a stock when it’s already at its peak price. Can it go even higher? Only time will tell.

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