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Chapter 2

New technologies co-evolve with new business strategies and changes to the business environment. IT and business strategies must be complimentary.

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Historical View – IT strategy should support the business strategy.

IT’s contribution was inhibited by a limited understanding of the business strategy.

IT’s contribution was inhibited by a limited understanding of IT’s potential by the business managers.

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Current View – IT strategy should be integrated with the business strategy.

IT must be positioned for flexibility, speed and innovation to support rapidly changing business environment.

Technology investments should compliment business strategy.

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Future View – IT strategy must become more dynamic and focus on developing strategic capabilities that support a variety of changing business objectives.

IT and business alignment will not be point-in-time planning; it will support evolutionary change.

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1. Revisit your business model.

2. Have strategic themes.

3. Get the right people involved.

4. Work in partnership with the business.

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A business model explains how the different pieces of the business fit together. The business model should be clear and describe the unique value that the organization can deliver.

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IT strategy is about carefully crafted programs that focus on developing specific business capabilities.

IT and business programs that are grouped in strategic themes are easier to track and support interdependencies.

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Senior management should take an active role in IT decision making.

Key stakeholders should be involved in determining technology opportunities.

Some companies have accomplished this through account manager positions.

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Business and IT must both have input into the strategy.

IT projects should be synchronized with business objectives.

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Business Improvement – stress relatively low-risk investments with short- to medium-term payback. Focus is on streamlining business processes.

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Business Enabling – transforms or extends how a company does business.

--Typically focused on revenue growth.

-- Cost-benefit is usually not as clearly established.

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Business Opportunities – small-scale experimental initiatives designed to test the viability of new concepts or technologies. High risk projects that typically do not have well-defined, expected returns. These typically have a much lower success rate so funding is sometimes difficult to obtain.

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Opportunity Leverage – leverages successful experiments or prototypes. Technology is easy to imitate; some initiatives may leverage the results of other companies.

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Infrastructure – Operating level hardware and software must be maintained. Typically not well understood by business managers.

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Rolling Planning and Budget Cycles – plans and budgets should be updated more than once per year.

An Enterprise Architecture – consisting of an integrated business and IT blueprint. It should assist in identifying duplicate solutions.

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Different Funding B uck ets – allocate funding for all five types of IT projects.

Account or Relationship Managers – IT account managers to identify synergies and interdependencies among lines of business and opportunities for technology to improve the business.

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A Prioritization Rubric – Adopt multiple approaches to justify project funding decisions to account for the differences in return on IT investment.

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A governance structure for enterpisewide projects

Enterprisewide funding models

Parallel and linked resources for developing IT and business strategies

Traditional budget cycles

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Balancing strategic and tactical initiatives

Skills in strategizing

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IT strategy is gaining attention by businesses. Most organizations are still at the early stages of integrating IT strategy with business strategy. Balancing IT solutions with business strategy will position organizations to respond to rapidly changing business environments.

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Chapter 3

The Goal of IT Metrics are to demonstrate that what a company spends on IT has a DIRECT IMPACT on the performance of the firm.

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“Peel the Onion” – attempt to show how IT adds value on a project-by-project basis. “Put the Onion Back Together” – employees who truly understand what their business is trying to achieve can sense the right ways to personally improve performance that will show up at a business unit and organizational level.

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The key to linking IT to business performance is to create an environment where everyone understands what measures are important to the business and are accountable for them.

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Enterprise Measures – Tie the work of IT directly to the performance of the organization (e.g., external customer satisfaction, corporate financial performance).

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Functional Measures – Assess the internal work of the IT organization as a whole (e.g., IT employee satisfaction, internal customer satisfaction, operational performance, development productivity).

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Project Measures – Assess the performance of a particular project team in delivering specific value to the organization (e.g., business case benefits, delivery on time).

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Balanced Scorecard – Uses measures from four dimensions (Customer perspective, Financial perspective, Internal Operations perspective, and Learning & Growth perspective). Each metric measures progress against the enterprise business plan. IT is treated as a separate business unit with its own scorecard.

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Source: Balanced Scorecard Institute, www.balancedscorecard.org

Shareholder Value

(financial)

Expense Management

(financial)

Customer/Client Focus

(customer)

Customer Loyalty

(customer)

Customercentric

organization (customer)

Effectiveness and

Efficiency of Business

Operations (operations)

Risk Management

(operations)

Contribution to Firmwide

Priorities and Business

Initiatives (growth)

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Modified Scorecard – Five key metrics that are linked to the company’s vision statement. Complimented by IT specific metrics. Results are communicated on a quarterly basis. This approach orients the employees to the company mission and vision.

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Customer Loyalty Index – the percent of customers who said they were very satisfied with the company and would recommend it to others.

Associate Loyalty Index – employees’ perception of the company as a great place to work.

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Revenue Growth – the percentage of this year’s total revenues with last year’s total revenues. Operating Margin – the operating income earned before interest and taxes for every dollar of revenue. Return on Capital Employed – earnings before interest and tax divided by the capital used to generate the earnings.

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Strategic Imperatives – company identifies a number of strategic imperatives each year. Each area of the business identifies initiatives that support these imperatives and determines which metrics to use. IT identifies key projects and measures that will help the business achieve these imperatives.

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Strategic imperatives - Initiatives are integrated into Variable Pay Program.

Variable Pay Program links a percentage of an individual’s pay to business results and overall business unit performance.

Metrics can change from year to year.

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Figure 3.1 Percentage weightings assigned to IT Variable Pay Components for a Particular Year

Focus on Overall Business Performance – focus employees on financial and nonfinancial enterprise performance.

Understanding is a Critical Success Factor – ensure employees understand their objectives and how they tie to company performance.

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Simplicity – metrics should be simple and easy to use.

Visibility – encourages employee buy-in and accountability.

Links to Incentive Systems – distinguish between fair compensation for the individual and reward for successfully achieving corporate goals.

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Results will take time.

Have common goals.

Follow-up on problem areas.

Be careful what you measure.

Don’t use measurement as a method of control.

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There are significant benefits to be realized by holding IT accountable for key business metrics.

Business performance will become part of the mindset of IT staff if the business measurement program is properly defined.

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