IT Business Domains and Framework (599#2)

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CHAPTEREIGHT_Framework.docx

CHAPTER EIGHT Strategic Alignment

Tim Campos

IN TODAY’S BUSINESS, CIOs have tremendous opportunity to have a major strategic influence on their businesses. This opportunity arises from the rapid adoption of information technology over the past three decades across nearly every aspect of business. When a company wants to merge with another organization, the IT organization is one of the first corporate departments to be involved. When a new plant or facility is opened, the IT organization must be involved to help connect it to the rest of the company’s systems. Even when a company reaches into a new line of business, the IT organization is involved to help set up the information systems to support the new business.

This opportunity, however, can also be the CIO’s greatest liability if the organization’s focus is diluted. IT has been adopted in nearly every business process, even those that are not very strategic. Nearly all employees at companies have e-mail accounts, and every corporation has a web site, regardless of whether it delivers products or services through that web site. Because all of these technology operations must function in order for the business to operate, CIOs must divide their focus and resources across the entire company.

This breadth of demand creates tremendous challenges for IT organizations. It is not good enough simply to focus on those portions of the business that are strategic, to the detriment of everything else. Although this might work in the short run, over time the neglected business functions become a drain on the success of the business. (This is one of the reasons so many firms reimplement enterprise systems.) Moreover, what is “strategic” depends on whom one asks. A customer portal may not be that important to manufacturing, but it is critical to the strategy of the service organization. The resources allocated to the IT department are finite, yet the demands on the IT organization can at times appear infinite. It is this challenge that separates the mediocre from the exceptional IT organization. The secret to addressing this challenge is to strategically align your organization to the business.

FRAMEWORK

Strategic alignment results from structuring the IT organization around the needs of the business. To explain how this is done, let me break the operations of the IT organization down into four basic functions. Two are delivery functions: support delivery and project delivery. The other two are management activities: value attainment and strategic alignment. All activities of the IT organization can be categorized into one of these four functions, although, as we will see later, these functions are typically spread out across multiple teams, which is the source of much of the misalignment IT organizations face (see Figure 8.1 ).

FIGURE 8.1 IT Strategic Alignment Framework

These functions layer on top of each other such that failure at one level affects everything above it. Strategic alignment is achieved when all functions operate in harmony to achieve business results. However, how these functions are managed directly impacts how strategic an organization is. A tall skinny pyramid will generate far more value for a firm than a short fat one. For the rest of this chapter, we explore each function in more detail and highlight the management issues the CIO and the IT management staff must address to achieve strategic alignment.

Support Delivery

Support makes up all of the break-fix activity of the IT operations. It is the most fundamental and, in many respects, the most important activity the IT organization engages in. Support includes the help desk and monitoring organizations but also aspects of technical operations, such as system administration, database administration, development, and business process analysts. All aspects of the IT organization provide some level of support back to the business.

Support delivery is critical not because it is strategic but because it is the foundation from which everything else is built. Put in simpler terms, if you are in the CEO’s office and her personal computer is broken, what do you expect you will be discussing with her when you meet: supply chain strategy, or why her PC has been down for the past four hours? Support is the function that all IT organizations are engaged in regardless of size. In some IT organizations, support is all they are engaged in.

Support delivery involves several management decisions including scope, service levels, and overall investment. A widely circulated metric asserts that most IT organizations spend 70 to 80 percent of their budget sustaining existing systems. Whether this is the right level is the subject of some debate, but the metric highlights the fact that support delivery is not only the foundation of all other aspects of the IT organization, but it is also the dominant expense.

The key support delivery management challenge is to provide the right level of support cost effectively. This balance is subtle but important. Although a corporation might enjoy IT support levels so high that any time a PC failed, an IT representative was there in person instantaneously, the cost of providing such support far outweighs the benefit. Therefore, the CIO must find ways to provide the maximum amount of support for minimal cost. Benchmarking is an effective technique to determine where an IT organization falls on its support investments as support costs are fairly easy to compare across companies. Formal and informal customer surveys are an effective way to determine whether the right level of support has been achieved in the eyes of the IT organization’s customers.

In my experience, when support delivery is spread across multiple teams in an organization, it dilutes the effectiveness of those teams. Support activity is urgent and requires immediate attention, while most other IT activities require planning and coordination. Centralizing support activity enables an IT organization to separate out proactive from reactive activities, allowing it to specialize in both. In addition, most support delivery activity is commoditized, which has enabled outsourcing as one of the most common ways of achieving balance between capability and investment. The right outsourcing partner brings economy of scale, geo-economic process, or some other efficiency that cannot be achieved within the IT organization. Centralizing also facilitates outsourcing by concentrating all functions likely to be outsourced under one structure.

Project Delivery

Once a company has its support issues under control, the next function the IT operation is engaged in is project delivery. Although IT organizations typically have a broad-ranging definition of what constitutes a project, for the purposes of this framework, a project is defined as any structured IT deliverable that is not part of support delivery. (Note: I exclude from this definition management deliverables such as metrics or quarterly executive reviews.) Projects are the basis of how value is delivered from an IT organization. For example, if a company is looking to streamline its sales operations, it will employ a customer relationship management and/or enterprise resource planning solution to accomplish this. However, the decision is not simply a purchase decision, much as the company may wish this were the case. Implementing any enterprise software or even technologies based on software as a service requires an implementation project complete with a scope, timeline, and a set of resources (including financial resources). System implementation, merger activity, cost savings initiatives, and infrastructure upgrades are all examples of projects an IT organization might take on. The entire set of projects an IT organization is engaged in defines its project portfolio, while the set of projects the company plans to implement in the future represents the IT organization’s road map. The sum of all resources for its portfolio represents the IT investment decision for the company.

With project delivery, the operational challenge for the CIO is to get the greatest bang for the buck in the most predictable fashion. Whether the investment is spread across one project or 100, a company will want the most output possible from its IT organization relative to how much it invests in IT. As one of my staff members used to say, “It needs to cure cancer, taste like chocolate, and cost less than a buck.”

In addition to efficiency, to build trust with the business, it is also important that IT organizations be predictable in their project delivery. An IT organization’s credibility rests on doing what it said it would do. When an IT project delays or goes over budget, it not only takes resources away from the rest of the company, it also pollutes the decision-making process as executives will discount the forecasts of an IT manager who has been unreliable in the past. I have seen many CIOs fail not because they chose the wrong investments, or failed to deliver them, but because they consistently overcommitted and underdelivered.

The most important challenge with project delivery is determining what is in the portfolio itself. The portfolio of the strategically aligned IT organization directly links to the company’s strategic plan. Accomplishing this requires an effective demand management process. Over the years, I have experienced many different approaches to demand management. Some IT organizations employ IT steering committees, others make the decisions at the executive staff, and some leave the decision up to the CEO. Each approach has its own relative strengths and weaknesses that are highly dependent on the company’s culture and overall decision-making process. The CIO simply must ensure that sufficient input from the business on what IT should work on is gathered and that a process exists for determining what the IT organization will work on. Whatever the decision approach is, I have found that the most successful demand management process requires that the business bring its own money to the table for new IT investments. Business functions are well positioned to determine the trade-offs of an IT investment when they are financially committed to them. When a business function provides input on a portfolio that it does not fund, trade-offs are not internalized, and it leads to overallocation of IT resources.

Key to addressing all of these challenges is to have the right management team and processes in place. A project management office (PMO) is a key function in strategically aligned IT organizations for governing the project delivery process. A well-functioning PMO will identify projects that are at risk of missing commitments so the IT management team can address the right issues. A PMO can also lead the portfolio planning process to help identify project dependencies and resource conflicts that must be addressed before an IT governing body can decide on the portfolio.

Another key issue for project delivery is where IT resources are sourced from. IT projects are technical, and the technologies evolve very quickly. Therefore, a sourcing strategy is important to ensuring that an IT department has the right skills available to it when it needs them so as to minimize resource conflicts and maximize utilization. The strategically aligned CIO will specifically define which skill sets to develop and retain on staff and which skill sets to outsource or hire on a staff augmentation basis. The business itself is also a great source of talent for IT for both process analyst and management roles. Demand management in particular is a role where I have been very successful in bringing business resources into the IT organization to manage the process, as this puts resources with the right business context and relationships in control of the process.

Project delivery and support delivery are functions that nearly every IT organization has. The next two functions are less common and differentiate the strategically aligned IT organizations from the rest of the pack.

Value Attainment

Companies invest in IT to achieve a business result. Although many organizations implicitly include this activity as part of project implementation, I call it out separately here because it is a different activity. In fact, many IT organizations do not even attempt to ascertain whether the desired business result has been achieved. In these organizations, determining whether or not a system initiative achieves the expected results is either relegated to the business, or it is not done at all. Failing to assert the value of past IT investments almost certainly dooms a company to fail to achieve these results. Just as purchasing a system is insufficient to implementing it, completing a project does not guarantee that the business value expected is achieved. Only if a company monitors the value from its IT investments will it know if that value has been attained. More important, monitoring will help a firm determine what adjustments are necessary to achieve the expected value from an investment.

Failing to monitor value attainment also sets the stage for companies to improperly set the investment level for IT. If the perception is that IT investments have not yielded results, the company will underinvest in IT in the future. If the perception is that IT investments have achieved results when in fact they have not, the firm will continue wasteful spending. Neither is desirable for a CIO.

One of the best examples in my career of why value attainment is so important was an international travel and expense solution I implemented at a major Fortune 500 company. The desired business result of this solution was the reduction in overhead from processing paper expense reports. The solution was implemented exactly to the business requirements on time and on budget. At the end of the project, the project team and the business were ready to pat themselves on the back and move on. However, I required that the team assess whether the value proposition for the project had been achieved. They were shocked to learn that not only had no operational savings from the project been realized, but the additional overhead from using the new system had actually created additional cost! While the finance organization was spending less time processing paperwork, there had been no staffing reductions as a result of the system. Moreover, the employees using the system spent twice as much time filling out the online forms as they did the paper forms. What had seemed like success was in fact a total failure, which had resulted from an overemphasis on the requirements to the exclusion of the business results for which the project had been funded. However, by assessing whether the business results had been attained before ending the project, we were able to make adjustments to the system to reduce the overhead on employees and provide better reporting to the finance organization that enabled it to achieve its staffing targets. In short, by monitoring value attainment, we ensured that the value from the project was attained.

A successful process for value attainment is a subject worthy of its own book. However, in its most basic form, it requires three things:

1. An intimate understanding of the business

2. Proper oversight of projects

3. A commitment by both IT and the business to manage to results, not just requirements

As such, it is a crucial element in aligning the IT organization with the business. The IT organization that leads the value attainment process will find itself asking the question: “What can be accomplished with an additional 10 percent?” rather than “How can you cut an additional 10 percent?”

Strategic Alignment

IT organizations that have successfully led value attainment within their firms will almost automatically find themselves strategically aligned. Nevertheless, what got you here is not what keeps you here. With value attainment, the objective is achieving a specific desired result with a specific investment. Strategic alignment involves defining what those results and investments should be. In other words, everything discussed to this point will get you a seat at the table. However, once at that table, your responsibility is to define business strategy from the perspective of IT.

There are many exceptional examples of the accomplishments of CIOs and IT managers operating at the strategic alignment level. In each, the managers define the desired result and necessary investment rather than waiting for the business to define it for them. An example from my experience was a strategic change to the services organization of a major supplier to the semiconductor industry. I had been tasked with developing an upgrade strategy for the organization’s case management system. The service organization had been running on the same version of Clarify for over seven years, and the business knew it was time to upgrade the system. I was tasked with developing a plan for accomplishing this.

I chose to approach this problem purely from a business perspective. I began by asking several questions: Why did the business want the system upgraded? What result were they trying to achieve? Why couldn’t they be achieved with the existing system? What were the limitations of the existing system? How were these limitations tied to operational issues in the service organization? How might an investment in systems enable the long-term growth strategy of the services business? Working with the staff of the general manager (GM) of service, I developed answers to each of these questions in both business and technical terms. I developed a business case not only for a systems upgrade but for a complete overhaul of the organization’s business processes worldwide that would lead to improved efficiency, higher customer satisfaction, and ultimately greater profitability. I aligned the proposal with the strategic plan the rest of the GM’s staff had developed, and together the GM of service and I pitched the initiative to the chief financial officer. The resulting initiative, once implemented, transformed the capability of the service organization, helping it to exceed $500 million in sales, at record levels of profit. What started as a maintenance investment became a transformative initiative for one of the largest business units in the company. Operating at the strategic alignment level, I defined what needed to be done not just for IT but for the business as well.

BUILDING THE STRATEGICALLY ALIGNED ORGANIZATION

This framework can be applied to any IT organization in any company in any business. The key to success is applying it properly. To do so, I have found the following approaches to be quite useful:

· Understand the business firsthand. It is very difficult to align to something you do not understand. When I joined a company in the semiconductor industry, I found myself in a mature company largely run by insiders, where few outsiders have succeeded in learning the nuances of the business. To overcome this, I chose to embed myself in the business. I participated in training sessions for business functions I supported. I traveled with other business leaders to build relationships. I built a day-in-the-life presentation for my organization to teach others in IT how the business worked. All of these activities were investments necessary to understand how IT worked in the business and, more important, where specifically it did not work.

· Hire from the business. The implementation of IT continues to simplify as more of the technology stack is commoditized. Implementing Salesforce.com, for example, does not require programming experience, system administration, or many of the skills associated with IT. At the same time, the use of IT by the business continues to increase in both importance and complexity. I have found recently that it is easier to teach a nontechnical business resource how to use, manage, and implement IT than it is to teach an IT resource how the business operates. Hiring from the business brings other benefits as well. Managing business expectations requires effective relationship management skills, and resources from the business already have many of these relationships. This approach also enables you to create a rotation scheme with the business that elevates IT’s visibility within the company and provides the CIO with access to some of its up-and-coming talent.

· Develop relationships with key stakeholders. As stated earlier, IT supports nearly all functions within the company. Therefore, regardless of whom the CIO reports to, there will be key stakeholders outside of his management chain. By developing close relationships with these stakeholders, the CIO can gain important allies, which are particularly important when making trade-off decisions on the IT portfolio.

· Have measures for everything. The framework works as well as it is managed and you manage what you measure. Successfully implementing formal processes for each of these described functions necessitates having key performance measures for each. Some examples that I have used in the past are included in Table 8.1 .

TABLE 8.1 Key Performance Measures

Function

Key Performance Indicator

Description

Support delivery

Service-level attainment

How effective is IT in delivering to its defined service commitments?

Customer satisfaction

How satisfied are customers with the level of service from IT? Note: This is a subjective measure.

Cost per supported user

How cost efficient is IT support delivery? This is a benchmarkable metric and should be evaluated as a trend.

Project delivery

Value delivered

Aggregate sum of business value enabled through the completion of IT programs over a period.

Schedule performance

Is IT delivering its programs to its commitments?

Budget performance

Are IT programs aligning to their estimated financial costs?

Stakeholder satisfaction

Are initiative stakeholders satisfied with what was produced by IT?

Delivery efficiency

How efficient is the IT delivery engine? Again, the trend here is as important as the absolute value.

Value attainment

Value attained

Measure of business value that has been achieved from past initiatives. Typical maximum horizon for measurement is two years postcompletion or less.

Agility

How quickly can IT deliver solutions from initial business demand?

CONCLUSION

The role of IT and that of the CIO is changing rapidly. The days of the CIO as a “propeller head” are gone. Today both the CIO and the IT manager need to be effective business leaders who know how to apply technology. Understanding the framework of the strategically aligned organization and applying its concepts will help you to realize your full potential as a leader within your business.

Take control over your organization’s support delivery and ensure that you are providing the right level of support cost effectively. Utilize organization, process, automation, and outsourcing to adjust your investment in support to free up resources and dollars that can applied on more strategic activities.

Develop effective project delivery capabilities to ensure that you focus on the right initiatives for your company and do what you said you would do. Leverage a PMO to develop project oversight and portfolio management processes for your organization to help you achieve the most output from your company’s investment in IT.

Develop a capability in value attainment to ensure that the business results desired from your investments in IT are achieved. Leverage your value attainment process to help your firm make the right level of investment in IT so as to avoid lost opportunity and wasted spend.

Finally, once you have achieved your seat at the table as a strategic business leader, earn the right to stay there by leading business initiatives that leverage the opportunities of new information technologies to create sustained value for your firm.

I will leave you with one parting thought from an anonymous source: “It’s not where you’re from; it’s where you’re going. It’s not what you drive; it’s what drives you. It’s not what’s on you; it’s what’s in you. It’s not what you think; it’s what you know.”