Discussion 2

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).

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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:

An intimate understanding of the business

Proper oversight of projects

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.