Need Help with attached

IT Investment at National Financial Services (NFS)

Carol Johnson checked her makeup and then glanced at her watch for the tenth time. Almost 10:45. Showtime. As National

Financial Services' (NFS) first female CIO, she knew she had to be better than good when she met with the company's senior

executives for the first time to justify her IT budget. They had shown their faith in her three months ago by giving her this position, when

NFS's longest serving senior vice president of IT had had to retire early due to ill health. But women were just beginning to crack the

"glass ceiling" at the bank, and she knew there was a lot more riding on this presentation than just this budget.

That said, the budget situation wasn't great. As she well knew from her earlier experience in more subordinate roles, the CIO had the

unenviable task of justifying the company's $500M budget to a group of executives who only saw the expense of IT, not its value. This was

especially frustrating because NFS's IT management was excellent, when looked at by any standard. NFS's IT group consisted of almost

7,000 professionals who followed all the recommended standards, such as CMM, CMMI, ISO9001, and ITIL, to ensure that its IT processes

were efficient, cost effective, and on par with, if not higher than, industry standards. It had been certified at a minimum Level 3 CMMI and

was an industry leader in delivering projects on time, on budget, and in scope. But in the past few years, NFS executives had implemented

rigorous cost containment measures for IT, leaving the CIO to struggle to be all things to all people.

They want innovation, they need reliability and stability, and we are required by law to meet ever more stringent government

regulations, but they're still nickel-and-diming us, Carol thought indignantly. She envied the bank's business units that could clearly

show profit-and-loss statements, and their ability to make strategic decisions about what to do with the excess capital they often had. In

her world, business strategies changed regularly and thus IT’s goals had to as well. But strategies were not linked to budgets, which

were typically set six to nine months in advance. As a result, IT was always struggling to keep up and find the resources to be flexible.

She squared her shoulders, took a deep breath, pasted a smile on her face, and pushed open the door to the executive conference

room to face her colleagues and her future. The room was full of "suits"- a few females here and there, but mostly tough, middle-age

males who expected answers and action. Following a few pleasantries about how she was adjusting to her new role, they got down to

business. "The thing we're most concerned about, Carol," said Bob Harper, NFS's CEO, "is we simply don't see where we're getting

value from our IT investments. There's no proof in the bottom line." Nick Harris, NFS's CFO added, "Every year we approve hundreds

of millions of dollars for IT projects, which are supposedly based on sound cost-benefit analyses, but the benefits never materialize."

Heads around the room began nodding.

Carol's mind was whirling. What did they really want from her? Pulling her thoughts together quickly, she responded. " If you're looking

for IT to tell you which projects will deliver the most business value, or if you want me to monitor the business units after the projects they

asked for are implemented to see if they are delivering value, you're asking me to do something that's well beyond IT' s scope of

expertise. We are not the experts in your business case, and it shouldn’t be up to us to monitor how you use the technology we give you.

I'll take full responsibility for the quality of our work, its timely delivery, and its cost, but we really have to work together to ensure we're

investing in the right projects and delivering benefits."

“What do you recommend then?" asked Harry Patterson, head of Retail Banking. "I think we need an IT Investment Committee that I

would co-lead jointly with you, Nick," Carol said while looking pointedly at the CFO. "We need a strong partnership to explore what can be

done and who should be responsible for doing it. Finance is the only place where all the money comes together in this organization. Although

I have to pull together an IT budget every year, it is contingent on what each business unit wants to spend. We don't really have an enterprise

IT budgeting process that looks across our business silos to see if what we're spending is good for NFS as a whole." Nick looked thoughtful.

"You could be on to something here, Carol. Let's see if we can figure this out together."

The rest of the meeting passed in a blur, and before Carol knew it, she and Nick were trying to identify whom they should assign to help

them look at their IT investment challenges. These were significant. First, there was inconsistent alignment of the total IT development budget

with enterprise strategies. "We have enterprise strategies but no way of linking them to enterprise spending,” Carol pointed out. IT budgets

were allocated according to the size of the business unit. Smaller lines of business had smaller IT budgets than larger ones. “For some

small business units like ours, government mandated projects eat up our entire IT budget," complained Cathy Benson, senior vice president

of Business Banking Product Management. This made it extremely difficult to allocate IT resources strategically- say, for example, to grow a

smaller business unit into a larger one.

Second, business units made project approvals without addressing cross-unit synergies. Looking at the projects IT had underway

revealed that the company had eighteen separate projects in different parts of the business to comply with anti-money laundering

regulations. "We've got to be reinventing the wheel with some of these," complained Ian Ha, senior director of NFS's Risk and

Compliance department.

Third, although business cases were required for all major projects, their formats were inconsistent, and the data provided to justify

the costs lacked rigor. "There seems to be a lot of gaming going on here," obse1ved Michael Cranston, director of Financial Strategy. “A

lot of these numbers don't make sense. How come we've never asked the business sponsors of these projects to take ownership for

the business benefits they claim when they ask for the money in the first place?"

Fourth, once a project was approved, everyone focused on on-time, on-budget delivery. No one ever asked whether a project was

still necessary or was still on track to deliver the benefits anticipated. Do we ever stop projects once they have started or review the

business case ' in-flight'? mused Nick. Finally, no one appeared to be accountable for delivering these benefits once an IT project was

developed and implemented; rather, everyone just heaved a great sigh of relief and moved on to the next project.

Because the total IT budget for new development work was allocated by business unit, the result was a prioritization process that

worked reasonably well at the business unit level but not for NFS as a whole. Enterprise executives created enterprise strategies, but

they didn't get involved in implementing them in the business units, which left the business unit heads to prioritize initiatives within their

own silo. In prioritization meetings, leaders would argue passionately for their own particular cause, focusing on their own needs, not on

NFS's overall strategies. "We really need to align this process with our enterprise priorities," said Carol. Nick agreed. “There’s got to be

a process to bring all our investment decisions for new projects together so we can compare them across business units and adjust

our resourcing accordingly."

IT Investment at National Financial Services (NFS)

Looking deeper into these matters revealed that there was more to IT spending than simply prioritizing projects, however. Almost 60

percent of the bank's IT budget was spent not on strategic new development projects but on maintaining existing systems, interfaces,

and data. Another 20 percent was work that had to be done to meet the demands of government legislation or the bank's regulators.

"How is this possible?” asked Sam. "No wonder we're not getting much ' bang for our buck," Carol exclaimed. “Every time we develop

or acquire a new system without getting rid of something else, we add to our ' application clutter.' When we continually add new systems

while holding IT budgets and head counts relatively flat, more and more of our resources have to be devoted to supporting these

systems." New systems meant new interfaces between and among existing systems, additional data and dependencies and increasing

risk that something could go wrong. “We’ve tried to get the business units interested in sponsoring an initiative to reduce duplication

and simplify our applications portfolio, but they're not interested in what they call 'IT housekeeping.' They don't see how dealing with this

will help them in the long run. I guess we haven't explained it to them very well."

Brenda Liu, senior director of IT Infrastructure, added, "We also have to keep our IT environment up to date. Vendors are continually

making upgrades to software, and there are also license fees to consider. And, as you know, we have to build in extra reliability and

redundancy for our critical systems and data, as well as privacy protection for our banking customers. It's an expensive process." "I get

all this," said Cathy, “ but why can't you explain it to us properly? How can you just expect us to accept that 80 percent of your budget is

a 'black box' that doesn't need justification? Although every dime you spend may be critical to this company, the fact remains that IT's

lack of transparency is damaging its internal credibility with the business."

Round and round the issues they went. Over the next two months, Carol, Nick, and their team hammered away trying to solve them. Eventually,

they came up with a set of five principles on which their new IT investment process would be based:

1. Alignment of the IT development portfolio with enterprise strategies;

2. Rigor and common standards around IT planning and business casing;

3. Accountability in both business and IT for delivering value;

4. Transparency at all levels and stages of development;

5. Collaboration and cross-group synergies in all IT work.

In their team update to the bank's executive committee, Carol and Nick wrote, "Our vision is for a holistic view of our IT spending that will

allow us to direct our resources where they will have the greatest impact. We propose to increase rigor and discipline in business casing

and benefits tracking so NFS can invest with confidence in IT. The result will be strategic partnerships between IT and business units based

on trust, leading us to surprise and delight our customers and employees and amaze our competitors."

With the executive committee's blessing, the IT Investment Office was created to design and implement a detailed investment

optimization process that could be implemented throughout the bank in time for the next budget cycle. Cathy Benson was named its

new director, reporting to Nick. Speaking to her staff after the announcement, Carol stated, "I really believe that getting this work out

of IT and into the business will be critical for this process. We need to make the decision-making process clearer and more collaborative.

This will help us learn how to jointly make better decisions for the enterprise."

With the hand-off from IT officially in place, Cathy and Nick knew they had to move quickly. “We’ve got three months before the next

budget cycle begins," said Nick. “You’ve got to make it real by then. I'll back you all the way, but you’re going to have to find some way to

deal with the business unit heads. They're not going to like having their autonomy for decision-making taken away from them. And you

have to remember they need some flexibility to do work that's important to them." Cathy nodded. She had already heard some of the

negative rumors about the process and knew she was going to have to be tough if it was going to be successful and not torpedoed

during its implementation.

Calling her project team together for its first meeting, she summarized their challenge. "We have to design and implement three

interrelated practices: a thorough and rigorous method of project categorization and prioritization, comprehensive and holistic governance

of IT spending and benefits delivery at all levels, and an annual IT planning process that provides transparency and accountability for all

types of IT spending and which creates an integrated and strategically aligned development portfolio. Then we have to roll it out across

the organization. The change management is going to be massive. Now, who has any ideas about what to do next?"