Read the Project Management Technology at Genex Fuels Case Study on pages 333-335 in the textbook.
Answer the Discussion Questions at the end of the Case Study.
1. What evidence is the CEO using to suggest that Genex is not using technology competitively?
2. Did Devlin need to hire Sandy, a “high-priced technology consultant,” to tell him that technology at Genex was a mess?
3. Devise a strategy to successfully implement enterprisewide systems (such as SAP) at Genex.
IT STraTegy: ISSueS and PracTIceS
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IT STraTegy: ISSueS and PracTIceS
T h i r d E d i t i o n
James D. McKeen Queen’s University
Heather A. Smith Queen’s University
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Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text.
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Library of Congress Cataloging-in-Publication Data
McKeen, James D. IT strategy: issues and practices/James D. McKeen, Queen’s University, Heather A. Smith, Queen’s University.—Third edition. pages cm ISBN 978-0-13-354424-4 (alk. paper) ISBN 0-13-354424-9 (alk. paper) 1. Information technology—Management. I. Smith, Heather A. II. Title. HD30.2.M3987 2015 004.068—dc23 2014017950
ISBN–10: 0-13-354424-9 ISBN–13: 978-0-13-354424-4
10 9 8 7 6 5 4 3 2 1
CoNTENTS
Preface xiii
About the Authors xxi
Acknowledgments xxii
Section I Delivering Value with IT 1
Chapter 1 DeVelopIng anD DelIVerIng on The IT Value propoSITIon 2 Peeling the Onion: Understanding IT Value 3
What Is IT Value? 3
Where Is IT Value? 4
Who Delivers IT Value? 5
When Is IT Value Realized? 5
The Three Components of the IT Value Proposition 6 Identification of Potential Value 7 Effective Conversion 8 Realizing Value 9
Five Principles for Delivering Value 10 Principle 1. Have a Clearly Defined Portfolio Value Management
Process 11
Principle 2. Aim for Chunks of Value 11
Principle 3. Adopt a Holistic Orientation to Technology Value 11
Principle 4. Aim for Joint Ownership of Technology Initiatives 12
Principle 5. Experiment More Often 12 Conclusion 12 • References 13
Chapter 2 DeVelopIng IT STraTegy for BuSIneSS Value 15 Business and IT Strategies: Past, Present, and Future 16
Four Critical Success Factors 18
The Many Dimensions of IT Strategy 20
Toward an IT Strategy-Development Process 22
Challenges for CIOs 23 Conclusion 25 • References 25
Chapter 3 lInkIng IT To BuSIneSS MeTrICS 27 Business Measurement: An Overview 28
Key Business Metrics for IT 30
v
vi Contents
Designing Business Metrics for IT 31
Advice to Managers 35 Conclusion 36 • References 36
Chapter 4 BuIlDIng a STrong relaTIonShIp wITh The BuSIneSS 38 The Nature of the Business–IT Relationship 39
The Foundation of a Strong Business–IT Relationship 41
Building Block #1: Competence 42
Building Block #2: Credibility 43
Building Block #3: Interpersonal Interaction 44
Building Block #4: Trust 46 Conclusion 48 • References 48
Appendix A The Five IT Value Profiles 50
Appendix B Guidelines for Building a Strong Business–IT Relationship 51
Chapter 5 CoMMunICaTIng wITh BuSIneSS ManagerS 52 Communication in the Business–IT Relationship 53
What Is “Good” Communication? 54
Obstacles to Effective Communication 56
“T-Level” Communication Skills for IT Staff 58
Improving Business–IT Communication 60 Conclusion 61 • References 61
Appendix A IT Communication Competencies 63
Chapter 6 BuIlDIng BeTTer IT leaDerS froM The BoTToM up 64 The Changing Role of the IT Leader 65
What Makes a Good IT Leader? 67
How to Build Better IT Leaders 70
Investing in Leadership Development: Articulating the Value Proposition 73
Conclusion 74 • References 75
MInI CaSeS Delivering Business Value with IT at Hefty Hardware 76
Investing in TUFS 80
IT Planning at ModMeters 82
Contents vii
Section II IT governance 87
Chapter 7 CreaTIng IT ShareD SerVICeS 88 IT Shared Services: An Overview 89
IT Shared Services: Pros and Cons 92
IT Shared Services: Key Organizational Success Factors 93
Identifying Candidate Services 94
An Integrated Model of IT Shared Services 95
Recommmendations for Creating Effective IT Shared Services 96
Conclusion 99 • References 99
Chapter 8 a ManageMenT fraMework for IT SourCIng 100 A Maturity Model for IT Functions 101
IT Sourcing Options: Theory Versus Practice 105
The “Real” Decision Criteria 109
Decision Criterion #1: Flexibility 109
Decision Criterion #2: Control 109
Decision Criterion #3: Knowledge Enhancement 110
Decision Criterion #4: Business Exigency 110
A Decision Framework for Sourcing IT Functions 111
Identify Your Core IT Functions 111
Create a “Function Sourcing” Profile 111
Evolve Full-Time IT Personnel 113
Encourage Exploration of the Whole Range of Sourcing Options 114
Combine Sourcing Options Strategically 114
A Management Framework for Successful Sourcing 115
Develop a Sourcing Strategy 115
Develop a Risk Mitigation Strategy 115
Develop a Governance Strategy 116
Understand the Cost Structures 116 Conclusion 117 • References 117
Chapter 9 The IT BuDgeTIng proCeSS 118 Key Concepts in IT Budgeting 119
The Importance of Budgets 121
The IT Planning and Budget Process 123
viii Contents
Corporate Processes 123
IT Processes 125
Assess Actual IT Spending 126
IT Budgeting Practices That Deliver Value 127 Conclusion 128 • References 129
Chapter 10 ManagIng IT- BaSeD rISk 130 A Holistic View of IT-Based Risk 131
Holistic Risk Management: A Portrait 134
Developing a Risk Management Framework 135
Improving Risk Management Capabilities 138
Conclusion 139 • References 140
Appendix A A Selection of Risk Classification Schemes 141
Chapter 11 InforMaTIon ManageMenT: The nexuS of BuSIneSS anD IT 142 Information Management: How Does IT Fit? 143
A Framework For IM 145
Stage One: Develop an IM Policy 145
Stage Two: Articulate the Operational Components 145
Stage Three: Establish Information Stewardship 146
Stage Four: Build Information Standards 147
Issues In IM 148
Culture and Behavior 148
Information Risk Management 149
Information Value 150
Privacy 150
Knowledge Management 151
The Knowing–Doing Gap 151
Getting Started in IM 151 Conclusion 153 • References 154
Appendix A Elements of IM Operations 155
MInI CaSeS Building Shared Services at RR Communications 156
Enterprise Architecture at Nationstate Insurance 160
IT Investment at North American Financial 165
Contents ix
Section III IT-enabled Innovation 169
Chapter 12 InnoVaTIon wITh IT 170 The Need for Innovation: An Historical
Perspective 171
The Need for Innovation Now 171
Understanding Innovation 172
The Value of Innovation 174
Innovation Essentials: Motivation, Support, and Direction 175
Challenges for IT leaders 177
Facilitating Innovation 179 Conclusion 180 • References 181
Chapter 13 BIg DaTa anD SoCIal CoMpuTIng 182 The Social Media/Big Data Opportunity 183
Delivering Business Value with Big Data 185
Innovating with Big Data 189
Pulling in Two Different Directions: The Challenge for IT Managers 190
First Steps for IT Leaders 192 Conclusion 193 • References 194
Chapter 14 IMproVIng The CuSToMer experIenCe: an IT perSpeCTIVe 195 Customer Experience and Business value 196
Many Dimensions of Customer Experience 197
The Role of Technology in Customer Experience 199
Customer Experience Essentials for IT 200
First Steps to Improving Customer Experience 203 Conclusion 204 • References 204
Chapter 15 BuIlDIng BuSIneSS InTellIgenCe 206 Understanding Business Intelligence 207
The Need for Business Intelligence 208
The Challenge of Business Intelligence 209
The Role of IT in Business Intelligence 211
Improving Business Intelligence 213 Conclusion 216 • References 216
x Contents
Chapter 16 enaBlIng CollaBoraTIon wITh IT 218 Why Collaborate? 219
Characteristics of Collaboration 222
Components of Successful Collaboration 225
The Role of IT in Collaboration 227
First Steps for Facilitating Effective Collaboration 229 Conclusion 231 • References 232
MInI CaSeS Innovation at International Foods 234
Consumerization of Technology at IFG 239
CRM at Minitrex 243
Customer Service at Datatronics 246
Section IV IT portfolio Development and Management 251
Chapter 17 applICaTIon porTfolIo ManageMenT 252 The Applications Quagmire 253
The Benefits of a Portfolio Perspective 254
Making APM Happen 256
Capability 1: Strategy and Governance 258
Capability 2: Inventory Management 262
Capability 3: Reporting and Rationalization 263
Key Lessons Learned 264 Conclusion 265 • References 265
Appendix A Application Information 266
Chapter 18 ManagIng IT DeManD 270 Understanding IT Demand 271
The Economics of Demand Management 273
Three Tools for Demand management 273
Key Organizational Enablers for Effective Demand Management 274
Strategic Initiative Management 275
Application Portfolio Management 276
Enterprise Architecture 276
Business–IT Partnership 277
Governance and Transparency 279 Conclusion 281 • References 281
Contents xi
Chapter 19 CreaTIng anD eVolVIng a TeChnology roaDMap 283 What is a Technology Roadmap? 284
The Benefits of a Technology Roadmap 285
External Benefits (Effectiveness) 285
Internal Benefits (Efficiency) 286
Elements of the Technology Roadmap 286
Activity #1: Guiding Principles 287
Activity #2: Assess Current Technology 288
Activity #3: Analyze Gaps 289
Activity #4: Evaluate Technology Landscape 290
Activity #5: Describe Future Technology 291
Activity #6: Outline Migration Strategy 292
Activity #7: Establish Governance 292
Practical Steps for Developing a Technology Roadmap 294
Conclusion 295 • References 295
Appendix A Principles to Guide a Migration Strategy 296
Chapter 20 enhanCIng DeVelopMenT proDuCTIVITy 297 The Problem with System Development 298
Trends in System Development 299
Obstacles to Improving System Development Productivity 302
Improving System Development Productivity: What we know that Works 304
Next Steps to Improving System Development Productivity 306
Conclusion 308 • References 308
Chapter 21 InforMaTIon DelIVery: IT’S eVolVIng role 310 Information and IT: Why Now? 311
Delivering Value Through Information 312
Effective Information Delivery 316
New Information Skills 316 New Information Roles 317
New Information Practices 317
xii Contents
New Information Strategies 318
The Future of Information Delivery 319 Conclusion 321 • References 322
MInI CaSeS Project Management at MM 324
Working Smarter at Continental Furniture International 328
Managing Technology at Genex Fuels 333 Index 336
PREFACE
Today, with information technology (IT) driving constant business transformation, overwhelming organizations with information, enabling 24/7 global operations, and undermining traditional business models, the challenge for business leaders is not simply to manage IT, it is to use IT to deliver business value. Whereas until fairly recently, decisions about IT could be safely delegated to technology specialists after a business strategy had been developed, IT is now so closely integrated with business that, as one CIO explained to us, “We can no longer deliver business solutions in our company without using technology so IT and business strategy must constantly interact with each other.”
What’s New in This Third Edition?
• Six new chapters focusing on current critical issues in IT management, including IT shared services; big data and social computing; business intelligence; manag- ing IT demand; improving the customer experience; and enhancing development productivity.
• Two significantly revised chapters: on delivering IT functions through different resourcing options; and innovating with IT.
• Two new mini cases based on real companies and real IT management situations: Working Smarter at Continental Furniture and Enterprise Architecture at Nationstate Insurance.
• A revised structure based on reader feedback with six chapters and two mini cases from the second edition being moved to the Web site.
All too often, in our efforts to prepare future executives to deal effectively with the issues of IT strategy and management, we lead them into a foreign country where they encounter a different language, different culture, and different customs. Acronyms (e.g., SOA, FTP/IP, SDLC, ITIL, ERP), buzzwords (e.g., asymmetric encryption, proxy servers, agile, enterprise service bus), and the widely adopted practice of abstraction (e.g., Is a software monitor a person, place, or thing?) present formidable “barriers to entry” to the technologically uninitiated, but more important, they obscure the impor- tance of teaching students how to make business decisions about a key organizational resource. By taking a critical issues perspective, IT Strategy: Issues and Practices treats IT as a tool to be leveraged to save and/or make money or transform an organization—not as a study by itself.
As in the first two editions of this book, this third edition combines the experi- ences and insights of many senior IT managers from leading-edge organizations with thorough academic research to bring important issues in IT management to life and demonstrate how IT strategy is put into action in contemporary businesses. This new edition has been designed around an enhanced set of critical real-world issues in IT management today, such as innovating with IT, working with big data and social media,
xiii
xiv Preface
enhancing customer experience, and designing for business intelligence and introduces students to the challenges of making IT decisions that will have significant impacts on how businesses function and deliver value to stakeholders.
IT Strategy: Issues and Practices focuses on how IT is changing and will continue to change organizations as we now know them. However, rather than learning concepts “free of context,” students are introduced to the complex decisions facing real organi- zations by means of a number of mini cases. These provide an opportunity to apply the models/theories/frameworks presented and help students integrate and assimilate this material. By the end of the book, students will have the confidence and ability to tackle the tough issues regarding IT management and strategy and a clear understand- ing of their importance in delivering business value.
Key Features of This Book
• A focus on IT management issues as opposed to technology issues • Critical IT issues explored within their organizational contexts • Readily applicable models and frameworks for implementing IT strategies • Mini cases to animate issues and focus classroom discussions on real-world deci-
sions, enabling problem-based learning • Proven strategies and best practices from leading-edge organizations • Useful and practical advice and guidelines for delivering value with IT • Extensive teaching notes for all mini cases
A Different ApproAch to teAching it StrAtegy
The real world of IT is one of issues—critical issues—such as the following:
• How do we know if we are getting value from our IT investment? • How can we innovate with IT? • What specific IT functions should we seek from external providers? • How do we build an IT leadership team that is a trusted partner with the business? • How do we enhance IT capabilities? • What is IT’s role in creating an intelligent business? • How can we best take advantage of new technologies, such as big data and social
media, in our business? • How can we manage IT risk?
However, the majority of management information systems (MIS) textbooks are orga- nized by system category (e.g., supply chain, customer relationship management, enterprise resource planning), by system component (e.g., hardware, software, networks), by system function (e.g., marketing, financial, human resources), by system type (e.g., transactional, decisional, strategic), or by a combination of these. Unfortunately, such an organization does not promote an understanding of IT management in practice.
IT Strategy: Issues and Practices tackles the real-world challenges of IT manage- ment. First, it explores a set of the most important issues facing IT managers today, and second, it provides a series of mini cases that present these critical IT issues within the context of real organizations. By focusing the text as well as the mini cases on today’s critical issues, the book naturally reinforces problem-based learning.
Preface xv
IT Strategy: Issues and Practices includes thirteen mini cases—each based on a real company presented anonymously.1 Mini cases are not simply abbreviated versions of standard, full-length business cases. They differ in two significant ways:
1. A horizontal perspective. Unlike standard cases that develop a single issue within an organizational setting (i.e., a “vertical” slice of organizational life), mini cases take a “horizontal” slice through a number of coexistent issues. Rather than looking for a solution to a specific problem, as in a standard case, students analyzing a mini case must first identify and prioritize the issues embedded within the case. This mim- ics real life in organizations where the challenge lies in “knowing where to start” as opposed to “solving a predefined problem.”
2. Highly relevant information. Mini cases are densely written. Unlike standard cases, which intermix irrelevant information, in a mini case, each sentence exists for a reason and reflects relevant information. As a result, students must analyze each case very carefully so as not to miss critical aspects of the situation.
Teaching with mini cases is, thus, very different than teaching with standard cases. With mini cases, students must determine what is really going on within the organiza- tion. What first appears as a straightforward “technology” problem may in fact be a political problem or one of five other “technology” problems. Detective work is, there- fore, required. The problem identification and prioritization skills needed are essential skills for future managers to learn for the simple reason that it is not possible for organi- zations to tackle all of their problems concurrently. Mini cases help teach these skills to students and can balance the problem-solving skills learned in other classes. Best of all, detective work is fun and promotes lively classroom discussion.
To assist instructors, extensive teaching notes are available for all mini cases. Developed by the authors and based on “tried and true” in-class experience, these notes include case summaries, identify the key issues within each case, present ancillary information about the company/industry represented in the case, and offer guidelines for organizing the class- room discussion. Because of the structure of these mini cases and their embedded issues, it is common for teaching notes to exceed the length of the actual mini case!
This book is most appropriate for MIS courses where the goal is to understand how IT delivers organizational value. These courses are frequently labeled “IT Strategy” or “IT Management” and are offered within undergraduate as well as MBA programs. For undergraduate juniors and seniors in business and commerce programs, this is usually the “capstone” MIS course. For MBA students, this course may be the compulsory core course in MIS, or it may be an elective course.
Each chapter and mini case in this book has been thoroughly tested in a variety of undergraduate, graduate, and executive programs at Queen’s School of Business.2
1 We are unable to identify these leading-edge companies by agreements established as part of our overall research program (described later). 2 Queen’s School of Business is one of the world’s premier business schools, with a faculty team renowned for its business experience and academic credentials. The School has earned international recognition for its innovative approaches to team-based and experiential learning. In addition to its highly acclaimed MBA programs, Queen’s School of Business is also home to Canada’s most prestigious undergraduate business program and several outstanding graduate programs. As well, the School is one of the world’s largest and most respected providers of executive education.
xvi Preface
These materials have proven highly successful within all programs because we adapt how the material is presented according to the level of the students. Whereas under- graduate students “learn” about critical business issues from the book and mini cases for the first time, graduate students are able to “relate” to these same critical issues based on their previous business experience. As a result, graduate students are able to introduce personal experiences into the discussion of these critical IT issues.
orgAnizAtion of thiS Book
One of the advantages of an issues-focused structure is that chapters can be approached in any order because they do not build on one another. Chapter order is immaterial; that is, one does not need to read the first three chapters to understand the fourth. This pro- vides an instructor with maximum flexibility to organize a course as he or she sees fit. Thus, within different courses/programs, the order of topics can be changed to focus on different IT concepts.
Furthermore, because each mini case includes multiple issues, they, too, can be used to serve different purposes. For example, the mini case “Building Shared Services at RR Communications” can be used to focus on issues of governance, organizational structure, and/or change management just as easily as shared services. The result is a rich set of instructional materials that lends itself well to a variety of pedagogical appli- cations, particularly problem-based learning, and that clearly illustrates the reality of IT strategy in action.
The book is organized into four sections, each emphasizing a key component of developing and delivering effective IT strategy:
• Section I: Delivering Value with IT is designed to examine the complex ways that IT and business value are related. Over the past twenty years, researchers and prac- titioners have come to understand that “business value” can mean many different things when applied to IT. Chapter 1 (Developing and Delivering on the IT Value Proposition) explores these concepts in depth. Unlike the simplistic value propo- sitions often used when implementing IT in organizations, this chapter presents “value” as a multilayered business construct that must be effectively managed at several levels if technology is to achieve the benefits expected. Chapter 2 (Developing IT Strategy for Business Value) examines the dynamic interrelationship between business and IT strategy and looks at the processes and critical success factors used by organizations to ensure that both are well aligned. Chapter 3 (Linking IT to Business Metrics) discusses new ways of measuring IT’s effectiveness that pro- mote closer business–IT alignment and help drive greater business value. Chapter 4 (Building a Strong Relationship with the Business) examines the nature of the business–IT relationship and the characteristics of an effective relationship that delivers real value to the enterprise. Chapter 5 (Communicating with Business Managers) explores the business and interpersonal competencies that IT staff will need in order to do their jobs effectively over the next five to seven years and what companies should be doing to develop them. Finally, Chapter 6 (Building Better IT Leaders from the Bottom Up) tackles the increasing need for improved leadership skills in all IT staff and examines the expectations of the business for strategic and innovative guidance from IT.
Preface xvii
In the mini cases associated with this section, the concepts of delivering value with IT are explored in a number of different ways. We see business and IT executives at Hefty Hardware grappling with conflicting priorities and per- spectives and how best to work together to achieve the company’s strategy. In “Investing in TUFS,” CIO Martin Drysdale watches as all of the work his IT depart- ment has put into a major new system fails to deliver value. And the “IT Planning at ModMeters” mini case follows CIO Brian Smith’s efforts to create a strategic IT plan that will align with business strategy, keep IT running, and not increase IT’s budget.
• Section II: IT Governance explores key concepts in how the IT organization is structured and managed to effectively deliver IT products and services to the orga- nization. Chapter 7 (IT Shared Services) discusses how IT shared services should be selected, organized, managed, and governed to achieve improved organizational performance. Chapter 8 (A Management Framework for IT Sourcing) examines how organizations are choosing to source and deliver different types of IT functions and presents a framework to guide sourcing decisions. Chapter 9 (The IT Budgeting Process) describes the “evil twin” of IT strategy, discussing how budgeting mecha- nisms can significantly undermine effective business strategies and suggesting practices for addressing this problem while maintaining traditional fiscal account- ability. Chapter 10 (Managing IT-based Risk) describes how many IT organizations have been given the responsibility of not only managing risk in their own activities (i.e., project development, operations, and delivering business strategy) but also of managing IT-based risk in all company activities (e.g., mobile computing, file sharing, and online access to information and software) and the need for a holistic framework to understand and deal with risk effectively. Chapter 11 (Information Management: The Nexus of Business and IT) describes how new organizational needs for more useful and integrated information are driving the development of business-oriented functions within IT that focus specifically on information and knowledge, as opposed to applications and data.
The mini cases in this section examine the difficulties of managing com- plex IT issues when they intersect substantially with important business issues. In “Building Shared Services at RR Communications,” we see an IT organiza- tion in transition from a traditional divisional structure and governance model to a more centralized enterprise model, and the long-term challenges experi- enced by CIO Vince Patton in changing both business and IT practices, includ- ing information management and delivery, to support this new approach. In “Enterprise Architecture at Nationstate Insurance,” CIO Jane Denton endeavors to make IT more flexible and agile, while incorporating new and emerging tech- nologies into its strategy. In “IT Investment at North American Financial,” we show the opportunities and challenges involved in prioritizing and resourcing enterprisewide IT projects and monitoring that anticipated benefits are being achieved.
• Section III: IT-Enabled Innovation discusses some of the ways technology is being used to transform organizations. Chapter 12 (Innovation with IT) examines the nature and importance of innovation with IT and describes a typical inno- vation life cycle. Chapter 13 (Big Data and Social Computing) discusses how IT leaders are incorporating big data and social media concepts and technologies
xviii Preface
to successfully deliver business value in new ways. Chapter 14 (Improving the Customer Experience: An IT Perspective) explores the IT function’s role in creating and improving an organization’s customer experiences and the role of technology in helping companies to understand and learn from their customers’ experiences. Chapter 15 (Building Business Intelligence) looks at the nature of business intelli- gence and its relationship to data, information, and knowledge and how IT can be used to build a more intelligent organization. Chapter 16 (Enabling Collaboration with IT) identifies the principal forms of collaboration used in organizations, the primary business drivers involved in them, how their business value is measured, and the roles of IT and the business in enabling collaboration.
The mini cases in this section focus on the key challenges companies face in innovating with IT. “Innovation at International Foods” contrasts the need for pro- cess and control in corporate IT with the strong push to innovate with technology and the difficulties that ensue from the clash of style and culture. “Consumerization of Technology at IFG” looks at issues such as “bring your own device” (BYOD) to the workplace. In “CRM at Minitrex,” we see some of the internal technological and political conflicts that result from a strategic decision to become more customercen- tric. Finally, “Customer Service at Datatronics” explores the importance of present- ing unified, customer-facing IT to customers.
• Section IV: IT Portfolio Development and Management looks at how the IT function must transform itself to be able to deliver business value effectively in the future. Chapter 17 (Application Portfolio Management) describes the ongoing management process of categorizing, assessing, and rationalizing the IT application portfolio. Chapter 18 (Managing IT Demand) looks at the often neglected issue of demand management (as opposed to supply management), explores the root causes of the demand for IT services, and identifies a number of tools and enablers to facilitate more effective demand management. Chapter 19 (Creating and Evolving a Technology Roadmap) examines the challenges IT managers face in implement- ing new infrastructure, technology standards, and types of technology in their real- world business and technical environments, which is composed of a huge variety of hardware, software, applications, and other technologies, some of which date back more than thirty years. Chapter 20 (Enhancing Development Productivity) explores how system development practices are changing and how managers can create an environment to promote improved development productivity. And Chapter 21 (Information Delivery: IT’s Evolving Role) examines the fresh challenges IT faces in managing the exponential growth of data and digital assets; privacy and account- ability concerns; and new demands for access to information on an anywhere, any- time basis.
The mini cases associated with this section describe many of these themes embedded within real organizational contexts. “Project Management at MM” mini case shows how a top-priority, strategic project can take a wrong turn when proj- ect management skills are ineffective. “Working Smarter at Continental Furniture” mini case follows an initiative to improve the company’s analytics so it can reduce its environmental impact. And in the mini case “Managing Technology at Genex Fuels,” we see CIO Nick Devlin trying to implement enterprisewide technology for competitive advantage in an organization that has been limping along with obscure and outdated systems.
Preface xix
SupplementAry mAteriAlS
online instructor resource center The following supplements are available online to adopting instructors:
• PowerPoint Lecture Notes • Image Library (text art) • Extensive Teaching Notes for all Mini cases • Additional chapters including Developing IT Professionalism; IT Sourcing; Master
Data Management; Developing IT Capabilities; The Identity Management Challenge; Social Computing; Managing Perceptions of IT; IT in the New World of Corporate Governance Reforms; Enhancing Customer Experiences with Technology; Creating Digital Dashboards; and Managing Electronic Communications.
• Additional mini cases, including IT Leadership at MaxTrade; Creating a Process-Driven Organization at Ag-Credit; Information Management at Homestyle Hotels; Knowledge Management at Acme Consulting; Desktop Provisioning at CanCredit; and Leveraging IT Vendors at SleepSmart.
For detailed descriptions of all of the supplements just listed, please visit http:// www.pearsonhighered.com/mckeen.
courseSmart etextbooks online CourseSmart is an exciting new choice for students looking to save money. As an alter- native to purchasing the print textbook, students can purchase an electronic version of the same content and save up to 50 percent off the suggested list price of the print text. With a CourseSmart etextbook, students can search the text, make notes online, print out reading assignments that incorporate lecture notes, and bookmark important pas- sages for later review. www.coursesmart.com.
the geneSiS of thiS Book
Since 1990 we have been meeting quarterly with a group of senior IT managers from a number of leading-edge organizations (e.g., Eli Lilly, BMO, Honda, HP, CIBC, IBM, Sears, Bell Canada, MacDonalds, and Sun Life) to identify and discuss critical IT manage- ment issues. This focus group represents a wide variety of industry sectors (e.g., retail, manufacturing, pharmaceutical, banking, telecommunications, insurance, media, food processing, government, and automotive). Originally, it was established to meet the com- panies’ needs for well-balanced, thoughtful, yet practical information on emerging IT management topics, about which little or no research was available. However, we soon recognized the value of this premise for our own research in the rapidly evolving field of IT management. As a result, it quickly became a full-scale research program in which we were able to use the focus group as an “early warning system” to document new IT management issues, develop case studies around them, and explore more collaborative approaches to identifying trends, challenges, and effective practices in each topic area.3
3 This now includes best practice case studies, field research in organizations, multidisciplinary qualitative and quantitative research projects, and participation in numerous CIO research consortia.
xx Preface
As we shared our materials with our business students, we realized that this issues- based approach resonated strongly with them, and we began to incorporate more of our research into the classroom. This book is the result of our many years’ work with senior IT managers, in organizations, and with students in the classroom.
Each issue in this book has been selected collaboratively by the focus group after debate and discussion. As facilitators, our job has been to keep the group’s focus on IT management issues, not technology per se. In preparation for each meeting, focus group members researched the topic within their own organization, often involving a number of members of their senior IT management team as well as subject matter experts in the process. To guide them, we provided a series of questions about the issue, although members are always free to explore it as they see fit. This approach provided both struc- ture for the ensuing discussion and flexibility for those members whose organizations are approaching the issue in a different fashion.
The focus group then met in a full-day session, where the members discussed all aspects of the issue. Many also shared corporate documents with the group. We facilitated the discussion, in particular pushing the group to achieve a common understanding of the dimensions of the issue and seeking examples, best practices, and guidelines for deal- ing with the challenges involved. Following each session, we wrote a report based on the discussion, incorporating relevant academic and practitioner materials where these were available. (Because some topics are “bleeding edge,” there is often little traditional IT research available on them.)
Each report has three parts:
1. A description of the issue and the challenges it presents for both business and IT managers
2. Models and concepts derived from the literature to position the issue within a con- textual framework
3. Near-term strategies (i.e., those that can be implemented immediately) that have proven successful within organizations for dealing with the specific issue
Each chapter in this book focuses on one of these critical IT issues. We have learned over the years that the issues themselves vary little across industries and organizations, even in enterprises with unique IT strategies. However, each organization tackles the same issue somewhat differently. It is this diversity that provides the richness of insight in these chapters. Our collaborative research approach is based on our belief that when dealing with complex and leading-edge issues, “everyone has part of the solution.” Every focus group, therefore, provides us an opportunity to explore a topic from a variety of perspectives and to integrate different experiences (both successful and oth- erwise) so that collectively, a thorough understanding of each issue can be developed and strategies for how it can be managed most successfully can be identified.
ABoUT THE AUTHoRS
James D. McKeen is Professor Emeritus at the Queen’s School of Business. He has been working in the IT field for many years as a practitioner, researcher, and consultant. In 2011, he was named the “IT Educator of the Year” by ComputerWorld Canada. Jim has taught at universities in the United Kingdom, France, Germany, and the United States. His research is widely published in a number of leading journals and he is the coau- thor (with Heather Smith) of five books on IT management. Their most recent book—IT Strategy: Issues and Practices (2nd ed.)—was the best-selling business book in Canada (Globe and Mail, April 2012).
Heather A. Smith has been named the most-published researcher on IT management issues in two successive studies (2006, 2009). A senior research associate with Queen’s University School of Business, she is the author of five books, the most recent being IT Strategy: Issues and Practices (Pearson Prentice Hall, 2012). She is also a senior research associate with the American Society for Information Management’s Advanced Practices Council. A former senior IT manager, she is codirector of the IT Management Forum and the CIO Brief, which facilitate interorganizational learning among senior IT executives. In addition, she consults and collaborates with organizations worldwide.
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ACKNowLEDGMENTS
The work contained in this book is based on numerous meetings with many senior IT managers. We would like to acknowledge our indebtedness to the following individuals who willingly shared their insights based on their experiences “earned the hard way”:
Michael Balenzano, Sergei Beliaev, Matthias Benfey, Nastaran Bisheban, Peter Borden, Eduardo Cadena, Dale Castle, Marc Collins, Diane Cope, Dan Di Salvo, Ken Dschankilic, Michael East, Nada Farah, Mark Gillard, Gary Goldsmith, Ian Graham, Keiko Gutierrez, Maureen Hall, Bruce Harding, Theresa Harrington, Tom Hopson, Heather Hutchison, Jim Irich, Zeeshan Khan, Joanne Lafreniere, Konstantine Liris, Lisa MacKay, Mark O’Gorman, Amin Panjwani, Troy Pariag, Brian Patton, Marius Podaru, Helen Restivo, Pat Sadler, A. F. Salam, Ashish Saxena, Joanne Scher, Stewart Scott, Andy Secord, Marie Shafi, Helen Shih, Trudy Sykes, Bruce Thompson, Raju Uppalapati, Len Van Greuning, Laurie Schatzberg, Ted Vincent, and Bond Wetherbe.
We would also like to recognize the contribution of Queen’s School of Business to this work. The school has facilitated and supported our vision of better integrat- ing academic research and practice and has helped make our collaborative approach to the study of IT management and strategy an effective model for interorganizational learning.
James D. McKeen Kingston, Ontario
Heather A. Smith School of Business
June 2014
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S e c t i o n i
Delivering Value with IT
Chapter 1 Developing and Delivering on the IT Value Proposition Chapter 2 Developing IT Strategy for Business Value Chapter 3 Linking IT to Business Metrics Chapter 4 Building a Strong Relationship with the Business Chapter 5 Communicating with Business Managers Chapter 6 Building Better IT Leaders from the Bottom Up
Mini Cases ■ Delivering Business Value with IT at Hefty Hardware ■ Investing in TUFS ■ IT Planning at ModMeters
2
C h a p t e r
1 Developing and Delivering on the it Value Proposition1
1 This chapter is based on the authors’ previously published article, Smith, H. A., and J. D. McKeen. “Developing and Delivering on the IT Value Proposition.” Communications of the Association for Information Systems 11 (April 2003): 438–50. Reproduced by permission of the Association for Information Systems.
It’s déjà vu all over again. For at least twenty years, business leaders have been trying to figure out exactly how and where IT can be of value in their organizations. And IT managers have been trying to learn how to deliver this value. When IT was used mainly as a productivity improvement tool in small areas of a business, this was a relatively straightforward process. Value was measured by reduced head counts— usually in clerical areas—and/or the ability to process more transactions per person. However, as systems grew in scope and complexity, unfortunately so did the risks. Very few companies escaped this period without making at least a few disastrous invest- ments in systems that didn’t work or didn’t deliver the bottom-line benefits executives thought they would. Naturally, fingers were pointed at IT.
With the advent of the strategic use of IT in business, it became even more difficult to isolate and deliver on the IT value proposition. It was often hard to tell if an invest- ment had paid off. Who could say how many competitors had been deterred or how many customers had been attracted by a particular IT initiative? Many companies can tell horror stories of how they have been left with a substantial investment in new forms of technology with little to show for it. Although over the years there have been many improvements in where and how IT investments are made and good controls have been established to limit time and cost overruns, we are still not able to accurately articulate and deliver on a value proposition for IT when it comes to anything other than simple productivity improvements or cost savings.
Problems in delivering IT value can lie with how a value proposition is conceived or in what is done to actually implement an idea—that is, selecting the right project and doing the project right (Cooper et al. 2000; McKeen and Smith 2003; Peslak 2012). In addition, although most firms attempt to calculate the expected payback of an IT invest- ment before making it, few actually follow up to ensure that value has been achieved or to question what needs to be done to make sure that value will be delivered.
Chapter 1 • Developing and Delivering on the IT Value Proposition 3
This chapter first looks at the nature of IT value and “peels the onion” into its different layers. Then it examines the three components of delivering IT value: value identification, conversion, and value realization. Finally, it identifies five general principles for ensuring IT value will be achieved.
Peeling the OniOn: Understanding it ValUe
Thirty years ago the IT value proposition was seen as a simple equation: Deliver the right technology to the organization, and financial benefits will follow (Cronk and Fitzgerald 1999; Marchand et al. 2000). In the early days of IT, when computers were most often used as direct substitutes for people, this equation was understandable, even if it rarely worked this simply. It was easy to compute a bottom-line benefit where “technology” dollars replaced “salary” dollars.
Problems with this simplistic view quickly arose when technology came to be used as a productivity support tool and as a strategic tool. Under these conditions, managers had to decide if an IT investment was worth making if it saved people time, helped them make better decisions, or improved service. Thus, other factors, such as how well technology was used by people or how IT and business processes worked together, became important considerations in how much value was realized from an IT investment. These issues have long confounded our understanding of the IT value prop- osition, leading to a plethora of opinions (many negative) about how and where technol- ogy has actually contributed to business value. Stephen Roach (1989) made headlines with his macroeconomic analysis showing that IT had had absolutely no impact on pro- ductivity in the services sector. More recently, research shows that companies still have a mixed record in linking IT to organizational performance, user satisfaction, productivity, customer experience, and agility (Peslak 2012).
These perceptions, plus ever-increasing IT expenditures, have meant business managers are taking a closer look at how and where IT delivers value to an organization (Ginzberg 2001; Luftman and Zadeh 2011). As they do this, they are beginning to change their understanding of the IT value proposition. Although, unfortunately, “silver bullet thinking” (i.e., plug in technology and deliver bottom-line impact) still predomi- nates, IT value is increasingly seen as a multilayered concept, far more complex than it first appeared. This suggests that before an IT value proposition can be identified and delivered, it is essential that managers first “peel the onion” and understand more about the nature of IT value itself (see Figure 1.1).
What is it Value?
Value is defined as the worth or desirability of a thing (Cronk and Fitzgerald 1999). It is a subjective assessment. Although many believe this is not so, the value of IT depends very much on how a business and its individual managers choose to view it. Different companies and even different executives will define it quite differently. Strategic posi- tioning, increased productivity, improved decision making, cost savings, or improved service are all ways value could be defined. Today most businesses define value broadly and loosely, not simply as a financial concept (Chakravarty et al. 2013). Ideally, it is tied to the organization’s business model because adding value with IT should enable a firm to do its business better. In the focus group (see the Preface), one company sees value
4 Section I • Delivering Value with IT
resulting from all parts of the organization having the same processes; another defines value by return on investment (ROI); still another measures it by a composite of key performance indicators. In short, there is no single agreed-on measure of IT value. As a result, misunderstandings about the definition of value either between IT and the busi- ness or among business managers themselves can lead to feelings that value has not been delivered. Therefore, a prerequisite of any IT value proposition is that everyone involved in an IT initiative agree on what value they are trying to deliver and how they will recognize it.
Where is it Value?
Value may also vary according to where one looks for it (Davern and Kauffman 2000; Oliveira and Martins 2011). For example, value to an enterprise may not be perceived as value in a work group or by an individual. In fact, delivering value at one level in an orga- nization may actually conflict with optimizing value at another level. Decisions about IT value are often made to optimize firm or business process value, even if they cause difficulties for business units or individuals. As one manager explained, “At the senior levels, our bottom-line drivers of value are cost savings, cash flow, customer satisfaction, and revenue. These are not always visible at the lower levels of the organization.” Failure to consider value implications at all levels can lead to a value proposition that is coun- terproductive and may not deliver the value that is anticipated. Many executives take a hard line with these value conflicts. However, it is far more desirable to aim for a value
What Value will be Delivered?
Where will Value be Delivered?
Who will Deliver Value?
When will Value be Delivered?
How will Value be Delivered?
FigUre 1.1 IT Value Is a Many-Layered Concept
Chapter 1 • Developing and Delivering on the IT Value Proposition 5
that is not a win–lose proposition but is a win–win at all levels. This can leverage overall value many times over (Chan 2000; Grant and Royle 2011).
Who delivers it Value?
Increasingly, managers are realizing that it is the interaction of people, information, and technology that delivers value, not IT alone.2 Studies have confirmed that strong IT practices alone do not deliver superior performance. It is only the combination of these IT practices with an organization’s skills at managing information and people’s behav- iors and beliefs that leads to real value (Birdsall 2011; Ginzberg 2001; Marchand et al. 2000). In the past, IT has borne most of the responsibility for delivering IT value. Today, however, business managers exhibit a growing willingness to share responsibility with IT to ensure value is realized from the organization’s investments in technology. Most companies now expect to have an executive sponsor for any IT initiative and some busi- ness participation in the development team. However, many IT projects still do not have the degree of support or commitment from the business that IT managers feel is necessary to deliver fully on a value proposition (Peslak 2012).
When is it Value realized?
Value also has a time dimension. It has long been known that the benefits of technol- ogy take time to be realized (Chan 2000; Segars and Chatterjee 2010). People must be trained, organizations and processes must adapt to new ways of working, information must be compiled, and customers must realize what new products and services are being offered. Companies are often unprepared for the time it takes an investment to pay off. Typically, full payback can take between three and five years and can have at least two spikes as a business adapts to the deployment of technology. Figure 1.2 shows this “W” effect, named for the way the chart looks, for a single IT project.
Initially, companies spend a considerable amount in deploying a new technology. During this twelve-to-sixteen-month period, no benefits occur. Following implementa- tion, some value is realized as companies achieve initial efficiencies. This period lasts for about six months. However, as use increases, complexities also grow. Information overload can occur and costs increase. At this stage, many can lose faith in the initia- tive. This is a dangerous period. The final set of benefits can occur only by making the business simpler and applying technology, information, and people more effectively. If a business can manage to do this, it can achieve sustainable, long-term value from its IT investment (Segars and Chatterjee 2010). If it can’t, value from technology can be offset by increased complexity.
Time also changes perceptions of value. Many IT managers can tell stories of how an initiative is vilified as having little or no value when first implemented, only to have people say they couldn’t imagine running the business without it a few years later. Similarly, most managers can identify projects where time has led to a clearer
2 These interactions in a structured form are known as processes. Processes are often the focus of much orga- nizational effort in the belief that streamlining and reengineering them will deliver value. In fact, research shows that without attention to information and people, very little value is delivered (Segars and Chatterjee 2010). In addition, attention to processes in organizations often ignores the informal processes that contribute to value.
6 Section I • Delivering Value with IT
understanding of the potential value of a project. Unfortunately, in cases where antici- pated value declines or disappears, projects don’t always get killed (Cooper et al. 2000).
Clarifying and agreeing on these different layers of IT value is the first step involved in developing and delivering on the IT value proposition. All too often, this work is for- gotten or given short shrift in the organization’s haste to answer this question: How will IT value be delivered? (See next section.) As a result, misunderstandings arise and tech- nology projects do not fulfill their expected promises. It will be next to impossible to do a good job developing and delivering IT value unless and until the concepts involved in IT value are clearly understood and agreed on by both business and IT managers.
the three COmPOnents OF the it ValUe PrOPOsitiOn
Developing and delivering an IT value proposition involves addressing three compo- nents. First, potential opportunities for adding value must be identified. Second, these opportunities must be converted into effective applications of technology. Finally, value
12–16 Months
EVA
Time
Get the House in Order
Harvest Low- Hanging Fruit
Make the Business Complex
Make Business Simpler
16–22 Months 22–38 Months 3–5 Years
FigUre 1.2 The ‘W’ Effect in Delivering IT Value (Segars & Chatterjee, 2010)
Best Practices in Understanding IT Value
• Link IT value directly to your business model. • Recognize value is subjective, and manage perceptions accordingly. • Aim for a value “win–win” across processes, work units, and individuals. • Seek business commitment to all IT projects. • Manage value over time.
Chapter 1 • Developing and Delivering on the IT Value Proposition 7
must be realized by the organization. Together, these components comprise the funda- mentals of any value proposition (see Figure 1.3).
identification of Potential Value
Identifying opportunities for making IT investments has typically been a fairly informal activity in most organizations. Very few companies have a well-organized means of doing research into new technologies or strategizing about where these tech- nologies can be used (McKeen and Smith 2010). More companies have mechanisms for identifying opportunities within business units. Sometimes a senior IT manager will be designated as a “relationship manager” for a particular unit with responsi- bility for working with business management to identify opportunities where IT could add value (Agarwal and Sambamurthy 2002; Peslak 2012). Many other com- panies, however, still leave it up to business managers to identify where they want to use IT. There is growing evidence that relegating the IT organization to a passive role in developing systems according to business instructions is unlikely to lead to high IT value. Research shows that involving IT in business planning can have a direct and positive influence on the development of successful business strategies using IT (Ginzberg 2001; Marchand et al. 2000). This suggests that organizations should estab- lish joint business–IT mechanisms to identify and evaluate both business and technical opportunities where IT can add value.
Once opportunities have been identified, companies must then make decisions about where they want to focus their dollars to achieve optimal value. Selecting the right projects for an organization always involves balancing three fundamental factors: cash, timing, and risk (Luehrman 1997). In principle, every company wants to under- take only high-return projects. In reality, project selection is based on many different factors. For example, pet or political projects or those mandated by the government or competitors are often part of a company’s IT portfolio (Carte et al. 2001). Disagreement at senior levels about which projects to undertake can arise because of a lack of a coher- ent and consistent mechanism for assessing project value. All organizations need some formal mechanism for prioritizing projects. Without one, it is very likely that project selection will become highly politicized and, hence, ineffective at delivering value. There are a variety of means to do this, ranging from using strictly bottom-line metrics, to comparing balanced scorecards, to adopting a formal value-assessment methodology. However, although these methods help to weed out higher cost–lower return projects, they do not constitute a foolproof means of selecting the right projects for an organiza- tion. Using strict financial selection criteria, for example, can exclude potentially high- value strategic projects that have less well-defined returns, longer payback periods, and more risk (Cooper et al. 2000; DeSouza 2011). Similarly, it can be difficult getting
Identification Conversion Realization IT
Value
FigUre 1.3 The Three Components of the IT Value Proposition
8 Section I • Delivering Value with IT
important infrastructure initiatives funded even though these may be fundamental to improving organizational capabilities (Byrd 2001).
Therefore, organizations are increasingly taking a portfolio approach to project selection. This approach allocates resources and funding to different types of projects, enabling each type of opportunity to be evaluated according to different criteria (McKeen and Smith 2003; Smith and McKeen 2010). One company has identified three different classes of IT—infrastructure, common systems, and business unit applications—and funds them in different proportions. In other companies, funding for strategic initia- tives is allocated in stages so their potential value can be reassessed as more information about them becomes known. Almost all companies have found it necessary to justify infrastructure initiatives differently than more business-oriented projects. In fact, some remove these types of projects from the selection process altogether and fund them with a “tax” on all other development (McKeen and Smith 2003). Other companies allocate a fixed percentage of their IT budgets to a technology renewal fund.
Organizations have come a long way in formalizing where and how they choose to invest their IT dollars. Nevertheless, there is still considerable room for judgment based on solid business and technical knowledge. It is, therefore, essential that all executives involved have the ability to think strategically and systematically as well as financially about project identification and selection.
effective Conversion
“Conversion” from idea/opportunity to reality has been what IT organizations have been all about since their inception. A huge amount of effort has gone into this central component of the IT value proposition. As a result, many IT organizations have become very good at developing and delivering projects on time and on budget. Excellent project management, effective execution, and reliable operations are a critical part of IT value. However, they are not, in and of themselves, sufficient to convert a good idea into value or to deliver value to an organization.
Today managers and researchers are both recognizing that more is involved in effective conversion than good IT practices. Organizations can set themselves up for failure by not providing adequate and qualified resources. Many companies start more projects than they can effectively deliver with the resources they have available. Not having enough time or resources to do the job means that people are spread too thin and end up taking shortcuts that are potentially damaging to value (Cooper et al. 2000). Resource limitations on the business side of a project team can be as damaging to con- version as a lack of technical resources. “[Value is about] far more than just sophisticated managerial visions. . . . Training and other efforts . . . to obtain value from IT investments
Best Practices in Identifying Potential Value
• Joint business–IT structures to recognize and evaluate opportunities • A means of comparing value across projects • A portfolio approach to project selection • A funding mechanism for infrastructure
Chapter 1 • Developing and Delivering on the IT Value Proposition 9
are often hamstrung by insufficient resources” (Chircu and Kauffman 2000). Inadequate business resources can lead to poor communication and ineffective problem solving on a project (Ginzberg 2001). Companies are beginning to recognize that the number and quality of the staff assigned to an IT project can make a difference to its eventual out- come. They are insisting that the organization’s best IT and businesspeople be assigned to critical projects.
Other significant barriers to conversion that are becoming more apparent now that IT has improved its own internal practices include the following:
• Organizational barriers. The effective implementation of IT frequently requires the extensive redesign of current business processes (Chircu and Kauffman 2000). However, organizations are often reluctant to make the difficult complementary business changes and investments that are required (Carte et al. 2001). “When new IT is implemented, everyone expects to see costs come down,” explained one manager. “However, most projects involve both business and IT deliverables. We, therefore, need to take a multifunctional approach to driving business value.” In recognition of this fact, some companies are beginning to put formal change man- agement programs in place to help businesses prepare for the changes involved with IT projects and to adapt and simplify as they learn how to take advantage of new technology.
• Knowledge barriers. Most often new technology and processes require employ- ees to work differently, learn new skills, and have new understanding of how and where information, people, and technologies fit together (Chircu and Kauffman 2000; Perez-Lopez and Alegre 2012). Although training has long been part of new IT implementations, more recently businesses are recognizing that delivering value from technology requires a broader and more coordinated learning effort (Smith and McKeen 2002). Lasting value comes from people and technology working together as a system rather than as discrete entities. Research confirms that high- performing organizations not only have strong IT practices but also have people who have good information management practices and who are able to effectively use the information they receive (Beath et al. 2012; Marchand et al. 2000).
realizing Value
The final component of the IT value proposition has been the most frequently ignored. This is the work involved in actually realizing value after technology has been imple- mented. Value realization is a proactive and long-term process for any major initiative. All too often, after an intense implementation period, a development team is disbanded to work on other projects, and the business areas affected by new technology are left to
Best Practices in Conversion
• Availability of adequate and qualified IT and business resources • Training in business goals and processes • Multifunctional change management • Emphasis on higher-level learning and knowledge management
10 Section I • Delivering Value with IT
sink or swim. As a result, a project’s benefits can be imperfectly realized. Technology must be used extensively if it is to deliver value. Poorly designed technology can lead to high levels of frustration, resistance to change, and low levels of use (Chircu and Kauffman 2000; Sun et al., 2012).
Resistance to change can have its root cause in an assumption or an action that doesn’t make sense in the everyday work people do. Sometimes this means challeng- ing workers’ understanding of work expectations or information flows. At other times it means doing better analysis of where and how a new process is causing bottlenecks, overwork, or overload. As one manager put it, “If value is not being delivered, we need to understand the root causes and do something about it.” His company takes the unusual position that it is important to keep a team working on a project until the expected benefits have been realized. This approach is ideal but can also be very costly and, therefore, must be carefully managed. Some companies try to short-circuit the value management process by simply taking anticipated cost savings out of a business unit’s budget once technology has been implemented, thereby forcing it to do more with less whether or not the technology has been as beneficial as anticipated. However, most often organizations do little or no follow-up to determine whether or not benefits have been achieved.
Measurement is a key component of value realization (Thorp 1999). After imple- mentation, it is essential that all stakeholders systematically compare outcomes against expected value and take appropriate actions to achieve benefits. In addition to monitor- ing metrics, a thorough and ongoing assessment of value and information flows must also be undertaken at all levels of analysis: individual, team, work unit, and enterprise. Efforts must be taken to understand and improve aspects of process, information, and technology that are acting as barriers to achieving value.
A significant problem with not paying attention to value recognition is that areas of unexpected value or opportunity are also ignored. This is unfortunate because it is only after technology has been installed that many businesspeople can see how it could be leveraged in other parts of their work. Realizing value should, therefore, also include provisions to evaluate new opportunities arising through serendipity.
FiVe PrinCiPles FOr deliVering ValUe
In addition to clearly understanding what value means in a particular organization and ensuring that the three components of the IT value proposition are addressed by every project, five principles have been identified that are central to developing and deliver- ing value in every organization.
Best Practices in Realizing Value
• Plan a value-realization phase for all IT projects. • Measure outcomes against expected results. • Look for and eliminate root causes of problems. • Assess value realization at all levels in the organization. • Have provisions for acting on new opportunities to leverage value.
Chapter 1 • Developing and Delivering on the IT Value Proposition 11
Principle 1. have a Clearly defined Portfolio Value management Process
Every organization should have a common process for managing the overall value being delivered to the organization from its IT portfolio. This would begin as a means of identifying and prioritizing IT opportunities by potential value relative to each other. It would also include mechanisms to optimize enterprise value (e.g., through tactical, stra- tegic, and infrastructure projects) according to a rubric of how the organization wants to allocate its resources.
A portfolio value management process should continue to track projects as they are being developed. It should ensure not only that projects are meeting schedule and budget milestones but also that other elements of conversion effectiveness are being addressed (e.g., business process redesign, training, change management, informa- tion management, and usability). A key barrier to achieving value can be an organiza- tion’s unwillingness to revisit the decisions made about its portfolio (Carte et al. 2001). Yet this is critically important for strategic and infrastructure initiatives in particular. Companies may have to approve investments in these types of projects based on imper- fect information in an uncertain environment. As they develop, improved information can lead to better decision making about an investment. In some cases this might lead to a decision to kill a project; in others, to speed it up or to reshape it as a value proposition becomes clearer.
Finally, a portfolio value management process should include an ongoing means of ensuring that value is realized from an investment. Management must monitor expected outcomes at appropriate times following implementation and hold someone in the organization accountable for delivering benefits (Smith and McKeen 2010).
Principle 2. aim for Chunks of Value
Much value can be frittered away by dissipating IT investments on too many projects (Cho et al. 2013; Marchand et al. 2000). Focusing on a few key areas and designing a set of complementary projects that will really make a difference is one way companies are trying to address this concern. Many companies are undertaking larger and larger tech- nology initiatives that will have a significant transformational and/or strategic impact on the organization. However, unlike earlier efforts, which often took years to complete and ended up having questionable value, these initiatives are aiming to deliver major value through a series of small, focused projects that, linked together, will result in both immediate short-term impact and long-term strategic value. For example, one company has about three hundred to four hundred projects underway linked to one of a dozen major initiatives.
Principle 3. adopt a holistic Orientation to technology Value
Because value comes from the effective interaction of people, information, and tech- nology, it is critical that organizations aim to optimize their ability to manage and use them together (Marchand et al. 2000). Adopting a systemic approach to value, where technology is not viewed in isolation and interactions and impacts are anticipated and planned, has been demonstrated to contribute to perceived business value (Ginzberg 2001). Managers should aim to incorporate technology as an integral part of an overall
12 Section I • Delivering Value with IT
program of business change rather than dealing with people and information manage- ment as afterthoughts to technology (Beath et al. 2012). One company has done this by taking a single business objective (e.g., “increase market penetration by 15 percent over five years”) and designing a program around it that includes a number of bundled tech- nology projects.
Principle 4. aim for Joint Ownership of technology initiatives
This principle covers a lot of territory. It includes the necessity for strong executive sponsorship of all IT projects. “Without an executive sponsor for a project, we simply won’t start it,” explained one manager. It also emphasizes that all people involved in a project must feel they are responsible for the results. Said another manager, “These days it is very hard to isolate the impact of technology, therefore there must be a ‘we’ mentality.” This perspective is reinforced by research that has found that the quality of the IT–business relationship is central to the delivery of IT value. Mutual trust, visible business support for IT and its staff, and IT staff who consider themselves to be part of a business problem-solving team all make a significant difference in how much value technology is perceived to deliver (Ginzberg 2001).
Principle 5. experiment more Often
The growing complexity of technology, the range of options available, and the uncertainty of the business environment have each made it considerably more difficult to determine where and how technology investments can most effectively be made. Executives naturally object to the risks involved in investing heavily in possible business scenarios or technical gambles that may or may not realize value. As a result, many companies are looking for ways to firm up their understanding of the value proposition for a particular opportunity without incurring too much risk. Undertaking pilot studies is one way of doing this (DeSouza 2011). Such experiments can prove the value of an idea, uncover new opportunities, and identify more about what will be needed to make an idea successful. They provide senior managers with a greater number of options in managing a project and an overall technology portfolio. They also enable poten- tial value to be reassessed and investments in a particular project to be reevaluated and rebalanced against other opportunities more frequently. In short, experimentation enables technology investments to be made in chunks and makes “go/no go” decisions at key milestones much easier to make.
This chapter has explored the concepts and activities involved in developing and delivering IT value to an organization. In their efforts to use technology to deliver business value, IT managers should keep clearly in mind the maxim “Value is in the eye of the beholder.” Because there is no
single agreed-on notion of business value, it is important to make sure that both business and IT managers are working to a common goal. This could be traditional cost reduction, process efficiencies, new business capabili- ties, improved communication, or a host of other objectives. Although each organization
Conclusion
Chapter 1 • Developing and Delivering on the IT Value Proposition 13
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Davern, M., and R. Kauffman. “Discovering Potential and Realizing Value from Information Technology Investments.” Journal of Management Information Systems 16, no. 4 (Spring 2000): 121–43.
DeSouza, K. Intrapreneurship: Managing Ideas in Your Organization. Toronto: University of Toronto Press, 2011.
Ginzberg, M. “Achieving Business Value Through Information Technology: The Nature of High Business Value IT Organizations.” Society for Information Management Advanced Practices Council Report, Chicago, November 2001.
Grant, G. L., and M. T. Royle. “Information Technology and Its Role in Creating Sustainable Competitive Advantage.” Journal of International Management Studies 6, no. 1 (2011): 1–7.
Luehrman, T. A. “What’s It Worth? A General Manager’s Guide to Valuation.” Harvard Business Review (May–June 1997): 131–41.
Luftman, J., and H. S. Zadeh. “Key Information Technology and Management Issues 2010– 2011: An International Study.” Journal of Information Technology 26, no. 3 (2011): 193–204.
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Marchand, D., W. Kettinger, and J. Rollins. “Information Orientation: People, Technology and the Bottom Line.” Sloan Management Review (Summer 2000): 69–80.
McKeen, J. D., and H. A. Smith. Making IT Happen. Chichester, England: John Wiley & Sons, 2003.
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15
C h a p t e r
2 Developing IT Strategy for Business Value1
1 This chapter is based on the authors’ previously published article, Smith, H. A., J. D. McKeen, and S. Singh. “Developing IT Strategy for Business Value.” Journal of Information Technology Management XVIII, no. 1 (June 2007): 49–58. Reproduced by permission of the Association of Management.
Suddenly, it seems, executives are “getting” the strategic potential of IT. Instead of being relegated to the back rooms of the enterprise, IT is now being invited to the boardrooms and is being expected to play a leading role in delivering top- line value and business transformation (Korsten 2011; Luftman and Zadeh 2011; Peslak 2012). Thus, it can no longer be assumed that business strategy will naturally drive IT strategy, as has traditionally been the case. Instead, different approaches to strategy development are now possible and sometimes desirable. For example, the capabilities of new technologies could shape the strategic direction of a firm (e.g., mobile, social media, big data). IT could enable new competencies that would then make new busi- ness strategies possible (e.g., location-based advertising). New options for governance using IT could also change how a company works with other firms (think Wal-Mart or Netflix). Today new technologies coevolve with new business strategies and new behaviors and structures (see Figure 2.1). However, whichever way it is developed, if IT is to deliver business value, IT strategy must always be closely linked with sound business strategy.
Ideally, therefore, business and IT strategies should complement and support each other relative to the business environment. Strategy development should be a two-way process between the business and IT. Yet unfortunately, poor alignment between them remains a perennial problem (Frohman 1982; Luftman and Zadeh 2011; McKeen and Smith 1996; Rivard et al. 2004). Research has already identified many organizational challenges to effective strategic alignment. For example, if their strategy-development processes are not compatible (e.g., if they take place at different times or involve differ- ent levels of the business), it is unlikely that the business and IT will be working toward the same goals at the same time (Frohman 1982). Aligning with individual business units can lead to initiatives that suboptimize the effectiveness of corporate strategies (McKeen and Smith 1996). Strategy implementation must also be carefully aligned to
16 Section I • Delivering Value with IT
ensure the integration of business and IT efforts (Smith and McKeen 2010). Finally, com- panies often try to address too many priorities, leading to an inadequate focus on key strategic goals (Weiss and Thorogood 2011).
However, strategic alignment is only one problem facing IT managers when they develop IT strategy. With IT becoming so much more central to the development and delivery of business strategy, much more attention is now being paid to strategy devel- opment than in the past. What businesses want to accomplish with their IT and how IT shapes its own delivery strategy are increasingly vital to the success of an enterprise. This chapter explores how organizations are working to improve IT strategy develop- ment and its relationship with business strategy. It looks first at how our understanding of business and IT strategies has changed over time and at the forces that will drive even further changes in the future. Then it discusses some critical success factors for IT strategy development about which there is general consensus. Next it looks at the dif- ferent dimensions of the strategic use of IT that IT management must address. Finally, it examines how some organizations are beginning to evolve a more formal IT strategy- development process and some of the challenges they are facing in doing so.
Business and iT sTraTegies: PasT, PresenT, and FuTure
At the highest level, a strategy is an approach to doing business (Gebauer 1997). Traditionally, a competitive business strategy has involved performing different activi- ties from competitors or performing similar activities in different ways (Porter 1996). Ideally, these activities were difficult or expensive for others to copy and, therefore, resulted in a long-term competitive advantage (Gebauer 1997). They enabled firms to charge a premium for their products and services.
Until recently, the job of an IT function was to understand the business’s strategy and figure out a plan to support it. However, all too often IT’s strategic contribution was inhibited by IT managers’ limited understanding of business strategy and by busi- ness managers’ poor understanding of IT’s potential. Therefore, most formal IT plans were focused on the more tactical and tangible line of business needs or opportunities
New Capabilities
New Behaviors & Structures
N ew
T ec
hn ol
og
y
New Strate gie
s
Figure 2.1 Business and IT Strategies Co-evolve to Create New Capabilities
Chapter 2 • Developing IT Strategy for Business Value 17
for operational integration rather than on supporting enterprise strategy (Burgelman and Doz 2001). And projects were selected largely on their abilities to affect the short- term bottom line rather than on delivering top-line business value. “In the past IT had to be a strategic incubator because businesspeople simply didn’t recognize the potential of technology,” said a member of the focus group.
As a result, instead of looking for ways to be different, in the past much business strategy became a relentless race to compete on efficiencies with IT as the primary means of doing so (Hitt et al. 1998; Porter 1996). In many industries, companies’ improved information-processing capabilities have been used to drive down transaction costs to near zero, threatening traditional value propositions and shaving profit margins. This is leading to considerable disruption as business models (i.e., the way companies add value) are under attack by new, technology-enabled approaches to delivering products and services (e.g., the music industry, bookselling). Therefore:
Strategists [have to] honestly face the many weaknesses inherent in [the] industrial-age ways of doing things. They [must] redesign, build upon and reconfig- ure their components to radically transform the value proposition. (Tapscott 1996)
Such new business strategies are inconceivable without the use of IT. Other factors, also facilitated by IT, are further influencing the relationship between the business and IT strategy. Increasingly, globalization is altering the economic playing field. As countries and companies become more deeply interrelated, instability is amplified. Instead of being generals plotting out a structured campaign, business leaders are now more likely to be participating in guerilla warfare (Eisenhardt 2002; Friedman 2005). Flexibility, speed, and innovation are, therefore, becoming the watchwords of competi- tion and must be incorporated into any business or IT strategy–development process.
These conditions have dramatically elevated the business’s attention to the value of IT strategy (Korsten 2011; Weiss and Thorogood 2011). As a result, business executives recognize that it was a mistake to consider technology projects to be solely the responsibility of IT. There is, thus, a much greater understanding that business executives have to take leadership in making technology investments in ways that will shape and/or complement business strategy. There is also recognition at the top of most organizations that problems with IT strategy implementation are largely the fault of leaders who “failed to realize that adopting … systems posed a business—not just a technological—challenge” and didn’t take responsibility for the organizational and process changes that would deliver business value (Ross and Beath 2002).
Changing value models and the development of integrated, cross-functional systems have elevated the importance of both a corporate strategy and a technology strategy that crosses traditional lines of business. Many participants remarked that their executive teams at last understand the potential of IT to affect the top line. “IT recently added some new distribution channels, and our business has just exploded,” stated one manager. Others are finding that there is a much greater emphasis on IT’s ability to grow revenues, and this is being reflected in how IT budgets are allocated and projects prioritized. “Our executives have finally recognized that business strategy is not only enabled by IT, but that it can provide new business opportunities as well,” said another manager. This is reflected in the changing position of the CIO in many organizations over the past decade. “Today our CIO sits on the executive team and takes part in all
18 Section I • Delivering Value with IT
business strategy discussions because IT has credibility,” said a group member. “Our executives now want to work closely with IT and understand the implications of tech- nology decisions,” said another. “It’s not the same as it was even five years ago.” Now CIOs are valued for their insight into business opportunities, their perspective across the entire organization, and their ability to take the long view (Korsten 2011).
However, this does not mean that organizations have become good at developing strategy or at effectively integrating business and IT strategies. “There are many incon- sistencies and problems with strategy development,” said a participant. Organizations have to develop new strategy-making capabilities to cope in the future competitive environment. This will mean changing their current top–down method of developing and implementing strategy. If there’s one thing leading academics agree on, it’s that future strategy development will have to become a more dynamic and continuous pro- cess (Casadesus and Ricart 2011; Eisenhardt 2002; Kanter 2002; Prahalad and Krishnan 2002; Quinn 2002; Weill et al. 2002). Instead of business strategy being a well-crafted plan of action for the next three to five years, from which IT can devise an appropri- ate and supportive technology strategy, business strategy must become more and more evolutionary and interactive with IT. IT strategy development must, therefore, become more dynamic itself and focused on developing strategic capabilities that will support a variety of changing business objectives. In the future, managers will not align business strategy and IT at particular points in time but will participate in an organic process that will address the need to continually evolve IT and business plans in concert with each other (Casadesus and Ricart 2011).
Four CriTiCal suCCess FaCTors
Each focus group member had a different approach to developing IT strategy, but there was general agreement that four factors had to be in place for strategy development to be effective.
1. Revisit your business model. The worlds of business and IT have traditionally been isolated from each other, leading to misaligned and sometimes conflicting strategies. Although there is now a greater willingness among business manag- ers to understand the implications of technology in their world, it is still IT that must translate their ideas and concepts into business language. “IT must absolutely understand and focus on the business,” said a participant.
Similarly, it is essential that all managers thoroughly understand how their business as a whole works. Although this sounds like a truism, almost any IT man- ager can tell “war stories” of business managers who have very different visions of what they think their enterprise should look like. Business models and strate- gies are often confused with each other (Osterwalder and Pigneur 2010). A business model explains how the different pieces of a business fit together. It ensures that everyone in an organization is focused on the kind of value a company wants to create. Only when the business model is clear can strategies be developed to articu- late how a company will deliver that value in a unique way that others cannot easily duplicate (Osterwalder and Pigneur 2010).
2. Have strategic themes. IT strategy used to be about individual projects. Now it is about carefully crafted programs that focus on developing specific business
Chapter 2 • Developing IT Strategy for Business Value 19
capabilities. Each program consists of many smaller, interrelated business and IT initiatives cutting across several functional areas. These are designed to be adapted, reconfigured, accelerated, or canceled as the strategic program evolves. Themes give both business and IT leaders a broad yet focused topic of interest that chal- lenges them to move beyond current operations (Kanter 2002). For example, one retail company decided it wanted to be “a great place to work.” A bank selected mobile banking as a critical differentiator. Both firms used a theme to engage the imaginations of their employees and mobilize a variety of ideas and actions around a broad strategic direction. By grouping IT and business programs around a few key themes, managers find it easier to track and direct important strategic threads in an organization’s development and to visualize the synergies and interdepen- dencies involved across a variety of projects spread out across the organization and over time.
3. Get the right people involved. One of the most important distinguishing factors between companies that get high business value from their IT investment and those that don’t is that senior managers in high-performing companies take a leadership role in IT decision making. Abdication of this responsibility is a recipe for disas- ter (Ross and Beath 2002). “In the past it was very hard to get the right people involved,” said a focus group member. “Now it’s easier.” Another noted, “You don’t send a minion to an IT strategy meeting anymore; it’s just not done.” In this type of organization, the CIO typically meets regularly with the president and senior busi- ness leaders to discuss both business and IT strategies.
Getting the right people involved also means getting business managers and other key stakeholders involved in strategy as well. To do this, many com- panies have established “relationship manager” positions in IT to work with and learn about the business and bring opportunities for using technology to the table. Research shows that the best strategies often stem from grassroots innovations, and it is, therefore, critical that organizations take steps to ensure that good ideas are nurtured and not filtered out by different layers of management (DeSouza 2011). “We have two levels of strategy development in our organization,” said a focus group participant. “Our relationship managers work with functional managers and our CIO with our business unit presidents on the IT steering committee.” This com- pany also looks for cross-functional synergies and strategic dependencies by hold- ing regular meetings of IT account managers and between account managers and infrastructure managers.
4. Work in partnership with the business. Successful strategy demands a true partnership between IT and the business, not just use of the term. Strategy decisions are best made with input from both business and IT executives (Ross and Beath 2002). The focus group agreed. “Our partnerships are key to our success,” stated a manager. “It’s not the same as it was a few years ago. People now work very closely together.” Partnership is not just a matter of “involving” business lead- ers in IT strategy or vice versa or “aligning” business and IT strategies. Effective strategizing is about continuous and dynamic synchronization of capabilities (Smith and McKeen 2010). “Our IT programs need synchronizing with business strategy—not only at a high level, but right down to the individual projects and the business changes that are necessary to implement them properly,” explained another participant.
20 Section I • Delivering Value with IT
The Many diMensions oF iT sTraTegy
One of the many challenges of developing effective IT strategy is the fact that technology can be used in so many different ways. The opportunities are practically limitless. Unfortunately, the available resources are not. Thus, a key element of IT strategy is determining how best to allocate the IT budget. This issue is complicated by the fact that most businesses today require significant IT services just to operate. Utility and basic support costs eat up between 30 and 70 percent of the focus group members’ budgets. That’s just the cost of “keeping the lights on”—running existing applications, fixing problems, and dealing with mandatory changes (e.g., new legisla- tion). IT strategy, therefore, has two components: how to do more with less (i.e., driving down fixed costs) and how to allocate the remaining budget toward those projects that will support and further the organization’s business strategy.
With occasional exceptions, CIOs and their teams are mostly left alone to deter- mine the most cost-effective way of providing the IT utility. This has led to a variety of IT-led initiatives to save money, including outsourcing, shared services, use of software- as-a-service (SaaS), global sourcing, and partnerships. However, it is the way that IT spends the rest of its budget that has captured the attention of business strategists. “It used to be that every line of business had an IT budget and that we would work with each one to determine the most effective way to spend it,” said a manager. “Now there is much more recognition that the big opportunities are at the enterprise level and cut across lines of business.”
Focus group members explained that implementing a strategic program in IT will usually involve five types of initiatives. Determining what the balance among them will be is a significant component of how IT strategy delivers business value. Too much or too little emphasis on one type of project can mean a failure to derive maximum value from a particular strategic business theme:
1. Business improvement. These projects are probably the easiest to agree on because they stress relatively low-risk investments with a tangible short-to-medium-term payback. These are often reengineering initiatives to help organizations streamline their processes and save substantial amounts of money by eliminating unnecessary or duplicate activities or empowering customers/suppliers to self-manage transac- tions with a company. Easy to justify with a business case, these types of projects have traditionally formed the bulk of IT’s discretionary spending. “Cost-reduction projects have and always will be important to our company,” stated one member. “However, it is important to balance what we do in this area with other types of equally important projects that have often been given short shrift.”
2. Business enabling. These projects extend or transform how a company does business. As a result, they are more focused on the top-line or revenue-growing aspects of an enterprise. For example, a data warehouse could enable different parts of a company to “mine” transaction information to improve customer ser- vice, assist target marketing, better understand buying patterns, or identify new business opportunities. Adding a new mobile channel could make it easier for customers to buy more or attract new customers. A customer information file could make it more enjoyable for a customer to do business with a company (e.g., only one address change) and also facilitate new ways of doing business.
Chapter 2 • Developing IT Strategy for Business Value 21
Often the return on these types of projects is less clear, and as a result it has been harder to get them on the IT priority list. Yet many of these initiatives represent the foundations on which future business strategy will be built. For example, one CIO described the creation of a customer information file as “a key enabler for many different business units. . . . It has helped us build bench strength and move to a new level of service that other companies cannot match” (Smith 2003).
3. Business opportunities. These are small-scale, experimental initiatives designed to test the viability of new concepts or technologies. In the past these types of proj- ects have not received funding by traditional methods because of their high-risk nature. Often it has been left up to the CIO to scrounge money for such “skunk- works.” There is a growing recognition of the potential value of strategic innovation projects in helping companies to learn about and prepare for the future. In some companies the CEO and CFO have freed up seed money to finance a number of these initiatives. However, although there is considerably more acceptance for such projects, there is still significant organizational resistance to financing projects for which the end results are unpredictable (Quinn 2002; Weiss and Thorogood 2011). In fact, it typically requires discipline to support and encourage innovation exper- iments, which, by definition, will have a high number of false starts and wrong moves (DeSouza 2011). The group agreed that the key to benefiting from them is to design them for learning, incorporate feedback from a variety of sources, and make quick corrections of direction.
4. Opportunity leverage. A neglected but important type of IT project is one that oper- ationalizes, scales up, or leverages successful strategic experiments or prototypes. “We are having a great deal of success taking advantage of what we have learned earlier,” said one manager. Coming up with a new strategic or technological idea needs a different set of skills than is required to take full advantage of it in the mar- ketplace (Charitou and Markides 2003; DeSouza 2011). Some companies actually use their ability to leverage others’ ideas to their strategic advantage. “We can’t compete in coming up with new ideas,” said the manager of a medium-sized company, “but we can copy other peoples’ ideas and do them better.”
5. Infrastructure. This final type of IT initiative is one that often falls between the cracks when business and IT strategies are developed. However, it is clear that the hardware, software, middleware, communications, and data available will affect an organization’s capacity to build new capabilities and respond to change. Studies have found that most companies feel their legacy infrastructure can be an impediment to what they want to do (Peslak 2012; Prahalad and Krishnan 2002). Research also shows that leading companies have a framework for making targeted investments in their IT infrastructure that will further their overall strate- gic direction (Weill et al. 2002). Unfortunately, investing in infrastructure is rarely seen as strategic. As a result, many companies struggle with how to justify and appropriately fund it.
Although each type of project delivers a different type of business value, typi- cally IT strategy has stressed only those initiatives with strong business cases. Others are shelved or must struggle for a very small piece of the pie. However, there was a general recognition in the group that this approach to investment leads to an IT strategy
22 Section I • Delivering Value with IT
with a heavy emphasis on the bottom line. As a result, all participating companies were looking at new ways to build a strategy-development process that reflects a more appropriate balance of all dimensions of IT strategy.
Toward an iT sTraTegy-develoPMenT ProCess
Strategy is still very much an art, not a science, explained the focus group. And it is likely to remain so, according to strategy experts. Strategy will never again be a coherent, long-term plan with predictable outcomes—if it ever was. “Leaders can’t predict which combinations [of strategic elements] will succeed [and] they can’t drive their organiza- tions towards predetermined positions” (Quinn 2002). This situation only exacerbates the problem that has long faced IT strategists—that is, it is difficult to build systems, information, and infrastructure when a business’s direction is continually changing. Yet this degree of flexibility is exactly what businesses are demanding (Chakravarty et al. 2013; Luftman and Zadeh 2011; Korsten 2011). Traditional IT planning and budgeting mechanisms done once a year simply don’t work in today’s fast-paced business envi- ronment. “We always seem to lag behind the business, no matter how hard we try,” said a manager.
Clearly, organizations need to be developing strategy differently. How to do this is not always apparent, but several companies are trying ways to more dynamically link IT strategy with that of the business. Although no one company in the focus group claimed to have the answer, they did identify several practices that are moving them closer to this goal:
• “Rolling” planning and budget cycles. All participants agreed that IT plans and budgets need attention more frequently than once a year. One company has cre- ated an eighteen-month rolling plan that is reviewed and updated quarterly with the business to maintain currency.
• An enterprise architecture. This is an integrated blueprint for the development of the enterprise—both the business and IT. “Our enterprise architecture includes business processes, applications, infrastructure, and data,” said a member. “Our EA function has to approve all business and IT projects and is helpful in identify- ing duplicate solutions.” In some companies this architecture is IT initiated and business validated; in others it is a joint initiative. However, participants warned that an architecture has the potential to be a corporate bottleneck if it becomes too bureaucratic.
• Different funding “buckets.” Balancing short-term returns with the company’s longer-term interests is a continual challenge. As noted earlier, all five types of IT projects are necessary for an effective IT strategy (i.e., business improvement, business enabling, business opportunities, opportunity leverage, and infrastruc- ture). In order to ensure that each different type of IT is appropriately funded, many companies are allocating predetermined percentages of their IT budget to different types of projects (Smith and McKeen 2010). This helps keep continual pressure on IT to reduce its “utility costs” to free up more resources for other types of projects. “Since we implemented this method of budgeting, we’ve gone from spending 70 percent of our revenues on mandatory and support projects to spending 70 percent on discretionary and strategic ones,” said a manager. This
Chapter 2 • Developing IT Strategy for Business Value 23
is also an effective way to ensure that IT infrastructure is continually enhanced. Leading companies build their infrastructures not through a few large investments but gradually through incremental, modular investments that build IT capabilities (Weill et al. 2002).
• Relationship managers. There is no substitute for a deep and rich understand- ing of the business. This is why many companies have appointed IT relationship managers to work closely with key lines of business. These managers help business leaders to observe their environments systematically and identify new opportunities for which IT could be effective. Furthermore, together relationship managers can identify synergies and interdependencies among lines of business. One organization holds both intra- and interfunctional strategy sessions on a regular basis with busi- ness managers to understand future needs, develop programs, and design specific roadmaps for reaching business goals. “Our relationship managers have been a sig- nificant factor in synchronizing IT and business strategies,” said its manager.
• A prioritization rubric. “We don’t do prioritization well,” said one participant. IT managers have long complained that it is extremely difficult to justify certain types of initiatives using the traditional business case method of prioritization. This has led to an overrepresentation of business improvement projects in the IT portfolio and has inhibited more strategic investments in general capabilities and business opportunities. This problem is leading some companies to adopt multiple approaches to justifying IT projects (Chakravarty et al. 2013; Ross and Beath 2002). For example, business-enabling projects must be sponsored at a cross-functional level on the basis of the capabilities they will provide the enterprise as a whole. Senior management must then take responsibility to ensure that these capabili- ties are fully leveraged over time. Infrastructure priorities are often left up to IT to determine once a budget is set. One IT department does this by holding strategy sessions with its relationship and utility managers to align infrastructure spending with the organization’s strategic needs. Unfortunately, no one has yet figured out a way to prioritize business opportunity experiments. At present this is typically left to the “enthusiasms and intuitions” of the sponsoring managers, either in IT or in the business (DeSouza 2011). “Overall,” said a manager, “we need to do a better job of thinking through the key performance indicators we’d like to use for each type of project.”
Although it is unlikely that strategy development will ever become a completely formalized process, there is a clear need to add more structure to how it is done. A greater understanding of how strategy is developed will ensure that all stakeholders are involved and a broader range of IT investments are considered. The outcomes of strategy will always be uncertain, but the process of identifying new opportunities and how they should be funded must become more systematic if a business is going to real- ize optimum value from its IT resources.
Challenges For Cios
As often happens in organizations, recognition of a need precedes the ability to put it into place. IT leaders are now making significant strides in articulating IT strategy and linking it more effectively with business strategy. Business leaders are also more open
24 Section I • Delivering Value with IT
to a more integrated process. Nevertheless, some important organizational barriers that inhibit strategy development still remain.
A supportive governance structure is frequently lacking. “Now that so many s trategies are enterprisewide, we need a better way to manage them,” explained one manager. Often there are no formal structures to identify and manage interdepen- dencies between business functions and processes. “It used to be that everything was aligned around organizational boundaries, but strategy is now more complex since we’re working on programs with broader organizational scope,” said another. Similarly, current managerial control systems and incentives are often designed to reward thinking that is aligned to a line of business, not to the greater organiza- tional good. Enterprisewide funding models are also lacking. “Everything we do now requires negotiation for funding between the lines of business who control the resources,” a third stated. Even within IT, the group suggested it is not always clear who in the organization is responsible for taking IT strategies and turning them into detailed IT plans.
Traditional planning and budgetary practices are a further challenge. This is an often-neglected element of IT strategy. “Our business and IT strategies are not always done in parallel or even around the same time,” said a participant. As a result, it is not easy to stay aligned or to integrate the two sets of plans. Another commented, “Our business plans change constantly. It is, therefore, common for IT strategies to grow far- ther and farther apart over time.” Similarly, an annual budgeting process tends to lock an organization into fixed expenditures that may not be practical in a rapidly changing environment. IT organizations, therefore, need both a longer-term view of their resourc- ing practices and the opportunity to make changes to it more frequently. Even though rolling budgets are becoming more acceptable, they are by no means common in either IT or the business world today.
Both business and IT leaders need to develop better skills in strategizing. “We’ve gotten really good at implementing projects,” said an IT manager. “Strategy and inno- vation are our least developed capabilities.” IT is pushing the business toward better articulation of its goals. “Right now, in many areas of our business, strategy is not well thought through,” said another manager. “IT is having to play the devil’s advocate and get them to think beyond generalities such as ‘We are going to grow the business by 20 percent this year.’” With more attention to the process, it is almost certain to get better, but managers’ rudimentary skills in this area limit the quality of strategy development.
Over and over, the group stressed that IT strategy is mainly about getting the balance right between conflicting strategic imperatives. “It’s always a balancing act
Barriers to Effective IT Strategy Development
• Lack of a governance structure for enterprisewide projects • Inadequate enterprisewide funding models • Poorly integrated processes for developing IT and business strategies • Traditional budget cycles • Unbalanced strategic and tactical initiatives • Weak strategizing skills
Chapter 2 • Developing IT Strategy for Business Value 25
Conclusion
Effective strategy development is becoming vital for organizations. As the impact of IT has grown in companies, IT strategy is finally getting the attention it deserves in business. Nevertheless, most organizations are still at the earliest stages of learning how to develop an effective IT strategy and synchronize it with an overall business strategy. Getting the balance right between the many differ- ent ways IT can be used to affect a business is a constant challenge for leaders and one on
which they do not always agree. Although there is, as yet, no well-developed IT strat- egy–development process, there appears to be general agreement on certain critical suc- cess factors and the key elements involved. Over time, these will likely be refined and bet- ter integrated with overall business strategy development. Those who learn to do this well without locking the enterprise into inflexible technical solutions are likely to win big in our rapidly evolving business environment.
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Kanter, R. “Strategy as Improvisational Theater.” MIT Sloan Management Review (Winter 2002): 76–81.
between our tactical and operational commitments and the work that builds our long- term capabilities,” said a participant. Deciding how to make the trade-offs between the different types of IT work is the essence of effective strategy. Unfortunately, few businesses do this very well (Burgelman and Doz 2001; Luftman and Zadeh 2011). According to the focus group, traditional business thinking tends to favor short-term profitability, while IT leaders tend to take a longer-term view. Making sure some types of IT work (e.g., infrastructure, new business opportunities) are not underfunded while others (e.g., utility, business improvement) are not overfunded is a continual challenge for all IT and business leaders.
26 Section I • Delivering Value with IT
Korsten, P. “The Essential CIO.” IBM Institute for Business Value. Somers, NY: IBM Global Business Services, 2011.
Luftman, J., and H. S. Zadeh. “Key Information Technology and Management Issues 2010– 2011: An International Study.” Journal of Information Technology 26, no. 3 (2011): 193–204.
McKeen, J., and H. Smith. Management Challenges in IS: Successful Strategies and Appropriate Action. Chichester, England: John Wiley & Sons, 1996.
Osterwalder, A., and Y. Pigneur. Business Model Generation. Hoboken, NJ: John Wiley & Sons, 2010.
Peslak, A. R. “An Analysis of Critical Information Technology Issues Facing Organizations.” Industrial Management and Data Systems 112, no. 5 (2012): 808–27.
Porter, M. “What Is Strategy?” Harvard Business Review (November–December 1996): 61–78.
Prahalad, C., and M. Krishnan. “The Dynamic Synchronization of Strategy and Information Technology.” MIT Sloan Management Review (Summer 2002): 24–33.
Quinn, J. “Strategy, Science, and Management.” MIT Sloan Management Review (Summer 2002): 96.
Rivard, S., B. Aubert, M. Patry, G. Pare, and H. Smith. Information Technology and Organizational Transformation: Solving the Management Puzzle. New York: Butterworth Heinemann, 2004.
Ross, J., and C. Beath. “Beyond the Business Case: New Approaches to IT Investment.” MIT Sloan Management Review (Winter 2002): 51–59.
Smith, H. A. “The Best of the Best: Part II.” CIO Canada, October 1 (2003).
Smith, H., and J. McKeen. “Investment Spend Optimization at BMO Financial Group.” MISQ Executive 9, no. 2 (June 2010): 65–81.
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27
C h a p t e r
3 Linking IT to Business Metrics1
1 This chapter is based on the authors’ previously published article, Smith, H. A., J. D. McKeen, and C. Street. “Linking IT to Business Metrics.” Journal of Information Science and Technology 1, no. 1 (2004): 13–26. Reproduced by permission of the Information Institute.
From the first time IT started making a significant dent in corporate balance sheets, the holy grail of academics, consultants, and business and IT managers has been to show that what a company spends on IT has a direct impact on its performance. Early efforts to do this, such as those trying to link various measures of IT input (e.g., budget dollars, number of PCs, number of projects) with various measures of business performance (e.g., profit, productivity, stock value) all failed to show any relationship at all (Marchand et al. 2000). Since then, everyone has prop- erly concluded that the relationship between what is done in IT and what happens in the business is considerably more complex than these studies first supposed. In fact, many researchers would suggest that the relationship is so filtered through a variety of “conversion effects” (Cronk and Fitzgerald 1999) as to be practically impossible to demonstrate. Most IT managers would agree. They have long argued that technology is not the major stumbling block to achieving business performance; it is the business itself—the processes, the managers, the culture, and the skills—that makes the differ- ence. Therefore, it is simply not realistic to expect to see a clear correlation between IT and business performance at any level. When technology is successful, it is a team effort, and the contributions of the IT and business components of an initiative cannot and should not be separated.
Nevertheless, IT expenditures must be justified. Thus, most companies have concentrated on determining the “business value” that specific IT projects deliver. By focusing on a goal that matters to business (e.g., better information, faster transaction processing, reduced staff), then breaking this goal down into smaller projects that IT can affect directly, they have tried to “peel the onion” and show specifically how IT delivers value in a piecemeal fashion. Thus, a series of surrogate measures are usually used to demonstrate IT’s impact in an organization. (See Chapter 1 for more details.)
More recently, companies are taking another look at business performance met- rics and IT. They believe it is time to “put the onion back together” and focus on what
28 Section I • Delivering Value with IT
really matters to the enterprise. This perspective argues that employees who truly understand what their business is trying to achieve can sense the right ways to per- sonally improve performance that will show up at a business unit and organizational level. “People who understand the business and are informed will be proactive and … have a disposition to create business value every day in many small and not-so-small ways” (Marchand et al. 2000). Although the connection may not be obvious, they say, it is there nevertheless and can be demonstrated in tangible ways. The key to linking what IT does to business performance is, therefore, to create an environment within which everyone thoroughly understands what measures are important to the business and is held accountable for them. This point of view does not suggest that all the work done to date to learn how IT delivers value to an organization (e.g., business cases, productivity measures) has been unnecessary, only that it is incomplete. Without close attention to business metrics in addition, it is easy for IT initiatives and staff to lose their focus and become less effective.
This chapter looks at how these controversial yet compelling ideas are being pursued in organizations to better understand how companies are attempting to link IT work and firm performance through business metrics. The first section describes how business metrics themselves are evolving and looks at how new management philosophies are changing how these measures are communicated and applied. Next it discusses the types of metrics that are important for a well-rounded program of business measurement and how IT can influence them. Then it presents three differ- ent ways companies are specifically linking their IT departments with business met- rics and the benefits and challenges they have experienced in doing this. This section concludes with some general principles for establishing a business measurement pro- gram in IT. Finally, it offers some advice to managers about how to succeed with such a program in IT.
Business MeasureMent: an Overview
Almost everyone agrees that the primary goal of a business is to make money for its shareholders (Goldratt and Cox 1984; Haspeslagh et al. 2001; Kaplan and Norton 1996). Unfortunately, in large businesses this objective frequently gets lost in the midst of people’s day-to-day activities because profit cannot be measured directly at the level at which most employees in a company work (Haspeslagh et al. 2001). This “missing link” between work and business performance leads companies to look for ways to bridge this gap. They believe that if a firm’s strategies for achieving its goal can be tied much more closely to everyday processes and decision making, frontline employees will be better able to create business value. Proponents of this value-based manage- ment (VBM) approach have demonstrated that an explicit, firmwide commitment to shareholder value, clear communication about how value is created or destroyed, and incentive systems that are linked to key business measures will increase the odds of a positive increase in share price (Haspeslagh et al. 2001).
Measurement counts. What a company measures and the way it measures influence both the mindsets of managers and the way people behave. The best measures are tied to business performance and are linked to the strategies and business capabilities of the company. (Marchand et al. 2000)
Chapter 3 • Linking IT to Business Metrics 29
Although companies ascribe to this notion in theory, they do not always act in ways that are consistent with this belief. All too often, therefore, because they lack clarity about the links between business performance and their own work, individuals and even business units have to take leaps of faith in what they do (Marchand et al. 2000).
Nowhere has this been more of a problem than in IT. As has been noted often, IT investments have not always delivered the benefits expected (Bensaou and Earl 1998; Holland and Sharke 2001; Peslak 2012). “Efforts to measure the link between IT investment and business performance from an economics perspective have… failed to establish a consistent causal linkage with sustained business profitability” (Marchand et al. 2000). Value-based management suggests that if IT staff do not understand the business, they cannot sense how and where to change it effectively with technology. Many IT and business managers have implicitly known this for some time. VBM simply gives them a better framework for implementing their beliefs more systematically.
One of the most significant efforts to integrate an organization’s mission and strategy with a measurement system has been Kaplan and Norton’s (1996) balanced scorecard. They explain that competing in the information age is much less about managing physical, tangible assets and much more about the ability of a company to mobilize its intangible assets, such as customer relationships, innovation, employee skills, and information technology. Thus, they suggest that not only should business measures look at how well a company has done in the past (i.e., financial performance), but they also need to look at metrics related to customers, internal business processes, and learning and growth that position the firm to achieve future performance. Although it is difficult putting a reliable monetary value on these items, Kaplan and Norton sug- gest that such nonfinancial measures are critical success factors for superior financial performance in the future. Research shows that this is, in fact, the case. Companies that use a balanced scorecard tend to have a better return on investment (ROI) than those that rely on traditional financial measures alone (Alexander 2000).
Today many companies use some sort of scorecard or “dashboard” to track a vari- ety of different metrics of organizational health. However, IT traditionally has not paid much attention to business results, focusing instead on its own internal measures of performance (e.g., IT operations efficiency, projects delivered on time). This has per- petuated the serious disconnect between the business and IT that often manifests itself in perceptions of poor alignment between the two groups, inadequate payoffs from IT investments, poor relationships, and finger-pointing (Holland and Sharke 2001; Peslak 2012; Potter 2013). All too often IT initiatives are conceived with little reference to major business results, relying instead on lower-level business value surrogates that are not always related to these measures. IT organizations are getting much better at this bot- tom-up approach to IT investment (Smith and McKeen 2010), but undelivered IT value remains a serious concern in many organizations. One survey of CFOs found that only 49 percent felt that their ROI expectations for technology had been met (Holland and Sharke 2001). “Despite considerable effort, no practical model has been developed to measure whether a company’s IT investments will definitely contribute to sustainable competitive advantage” (Marchand et al. 2000). Clearly, in spite of significant efforts over many years, traditional IT measurement programs have been inadequate at
30 Section I • Delivering Value with IT
assessing business value. Many IT organizations believe, therefore, that it is time for a different approach to delivering IT value, one that holds IT accountable to the same measures and goals as the rest of the business.
Key Business Metrics fOr it
No one seriously argues that IT has no impact on an organization’s overall financial performance anymore. There may be disagreement about whether it has a positive or a negative impact, but technology is too pervasive and significant an expense in most firms for it not to have some influence on the corporate bottom line. However, as has been argued earlier, we now recognize that neither technology nor business alone is responsible for IT’s financial impact. It is instead a joint responsibility of IT and the busi- ness. This suggests that they need to be held accountable together for its impact. Some companies have accepted this principle for individual IT projects (i.e., holding business and IT managers jointly responsible for achieving their anticipated benefits), yet few have extended it to an enterprise level. VBM suggests that this lack of attention to enter- prise performance by IT is one reason it has been so hard to fully deliver business value for technology investments. Holding IT accountable for a firm’s performance according to key financial metrics is, therefore, an important step toward improving its contribu- tion to the corporate bottom line.
However, although financial results are clearly an important part of any mea- surement of a business’s success today, they are not enough. Effective business metrics programs should also include nonfinancial measures, such as customer and employee satisfaction. As already noted, because such nonfinancial measures are predictive of future performance, they offer an organization the opportunity to make changes that will ultimately affect their financial success.
Kaplan and Norton (1996) state “the importance of customer satisfaction probably cannot be overemphasized.” Companies that do not understand their customers’ needs will likely lose customers and profitability. Research shows that merely adequate satis- faction is insufficient to lead to customer loyalty and ultimately profit. Only firms where customers are completely or extremely satisfied can achieve this result (Heskett et al. 1994). As a result, many companies now undertake systematic customer satisfaction surveys. However, in IT it is rare to find external customer satisfaction as one of the metrics on which IT is evaluated. While IT’s “customers” are usually considered to be internal, these days technology makes a significant difference in how external custom- ers experience a firm and whether or not they want to do business with it. Systems that are not reliable or available when needed, cannot provide customers with the informa- tion they need, or cannot give customers the flexibility they require are all too common. And with the advent of online business, systems and apps are being designed to inter- face directly with external customers. It is, therefore, appropriate to include external customer satisfaction as a business metric for IT.
Another important nonfinancial business measure is employee satisfaction. This is a “leading indicator” of customer satisfaction. That is, employee satisfaction in one year is strongly linked to customer satisfaction and profitability in the next (Koys 2001). Employees’ positive attitudes toward their company and their jobs lead to posi- tive behaviors toward customers and, therefore, to improved financial performance
Chapter 3 • Linking IT to Business Metrics 31
(Rucci et al. 1998; Ulrich et al. 1991). IT managers have always watched their own employee satisfaction rate intently because of its close links to employee turnover. However, they often miss the link between IT employee satisfaction and customer satisfaction—both internal customer satisfaction, which leads to improved general employee satisfaction, and external customer satisfaction. Thus, only a few companies hold IT managers accountable for general employee satisfaction.
Both customer and employee satisfaction should be part of a business metrics program for IT. With its ever-growing influence in organizations, technology is just as likely to affect external customer and general employee satisfaction as many other areas of a business. This suggests that IT has three different levels of measurement and accountability:
1. Enterprise measures. These tie the work of IT directly to the performance of the organization (e.g., external customer satisfaction, corporate financial performance).
2. Functional measures. These assess the internal work of the IT organization as a whole (e.g., IT employee satisfaction, internal customer satisfaction, operational performance, development productivity).
3. Project measures. These assess the performance of a particular project team in delivering specific value to the organization (e.g., business case benefits, delivery on time).
Functional and project measures are usually well addressed by IT measurement programs today. It is the enterprise level that is usually missing.
Designing Business Metrics fOr it
The firms that hold IT accountable for enterprise business metrics believe this approach fosters a common sense of purpose, enables everyone to make better decisions, and helps IT staff understand the implications of their work for the success of the organi- zation (Haspeslagh et al. 2001; Marchand et al. 2000; Potter 2013; Roberts 2013). The implementation of business metrics programs varies widely among companies, but three approaches taken to linking IT with business metrics are distinguishable.
1. Balanced scorecard. This approach uses a classic balanced scorecard with mea- sures in all four scorecard dimensions (see the “Sample Balanced Scorecard Business Metrics” feature). Each metric is selected to measure progress against the entire enterprise’s business plan. These are then broken down into business unit plans and appropriate submetrics identified. Individual scorecards are then developed with metrics that will link into their business unit scorecards. With this approach, IT is treated as a separate business unit and has its own scorecard linked to the business plan. “Our management finally realized that we need to have everyone thinking in the same way,” explained one manager. “With enterprise systems, we can’t have people working in silos anymore.” The scorecards are very visible in the organization with company and business unit scorecards and those of senior execu- tives posted on the company’s intranet. “People are extremely interested in seeing how we’re doing. Scorecards have provided a common framework for our entire company.” They also provide clarity for employees about their roles in how they affect key business metrics.
32 Section I • Delivering Value with IT
Although scorecards have meant that there is better understanding of the business’s drivers and plans at senior management levels, considerable resistance to them is still found at the lower levels in IT. “While developers see how they can affect our customers, they don’t see how they can affect shareholder value, profit, or revenue, and they don’t want to be held accountable for these things,” stated the same manager. She noted that implementing an effective scorecard program relies on three things: good data to provide better metrics, simplicity of metrics, and enforcement. “Now if someone’s scorecard is not complete, they cannot get a bonus. This is a huge incentive to follow the program.”
2. Modified scorecard. A somewhat different approach to a scorecard is taken by one company in the focus group. This firm has selected five key measures (see the “Modified Scorecard Business Metrics” feature) that are closely linked to the com- pany’s overall vision statement. Results are communicated to all staff on a quarterly basis in a short performance report. This includes a clear explanation of each mea- sure, quarterly progress, a comparison with the previous year’s quarterly results, and a “stretch” goal for the organization to achieve. The benefit of this approach is that it orients all employees in the company to the same mission and values. With everyone using the same metrics, alignment is much clearer all the way through the firm, according to the focus group manager.
In IT these key enterprise metrics are complemented by an additional set of business measures established by the business units. Each line of business identifies one or two key business unit metrics on which they and their IT team
Sample Balanced Scorecard Business Metrics
• Shareholder value (financial) • Expense management (financial) • Customer/client focus (customer) • Loyalty (customer) • Customercentric organization (customer) • Effectiveness and efficiency of business operations (operations) • Risk management (operations) • Contribution to firmwide priorities and business initiatives (growth)
Modified Scorecard Business Metrics
• Customer loyalty index. Percentage 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. • Revenue growth. This year’s total revenues as a percentage of last year’s total revenues. • Operating margin. 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.
Chapter 3 • Linking IT to Business Metrics 33
will be measured. Functional groups within IT are evaluated according to the same metrics as their business partners as well as on company and internal IT team performance. For example, the credit group in IT might be evaluated on the number of new credit accounts the company acquires. Shared IT services (e.g., infrastructure) are evaluated according to an average of all of the IT func- tional groups’ metrics.
The importance the company places on these metrics is reflected in the firm’s generous bonus program (i.e., bonuses can reach up to 230 percent of an individual’s salary) in which all IT staff participate. Bonuses are separate from an individual’s salary, which is linked to personal performance. The percentage influence of each set of business measures (i.e., enterprise, business unit, and individual/team) varies according to the level of the individual in the firm. However, all staff have at least 25 percent of their bonus linked to enterprise performance metrics. No bonuses are paid to anyone if the firm does not reach its earnings-per-share target (which is driven by the five enterprise measures out- lined in the “Modified Scorecard Business Metrics” feature). This incentive sys- tem makes it clear that everyone’s job is connected to business results and helps ensure that attention is focused on the things that are important to the company. As a result, interest is much stronger among IT staff about how the business is doing. “Everyone now speaks the same language,” said the manager. “Project alignment is much easier.”
3. Strategic imperatives. A somewhat different approach is taken by a third focus group company. Here the executive team annually evaluates the key environmen- tal factors affecting the company, then identifies a number of strategic imperatives for the firm (e.g., achieve industry-leading e-business capability, achieve 10–15 percent growth in earnings per share). These can vary according to the needs of the firm in any particular year. Each area of the business is then asked to identify initiatives that will affect these imperatives and to determine how they will be measured (e.g., retaining customers of a recent acquisition, increased net sales, a new product). In the same way, IT is asked to identify the key projects and mea- sures that will help the business to achieve these imperatives. Each part of the company, including IT, then integrates these measures into its variable pay pro- gram (VPP).
The company’s VPP links a percentage of an individual’s pay to business results and overall business unit performance. This percentage could vary from a small portion of one’s salary for a new employee to a considerable proportion for senior management. Within IT, the weight that different measures are accorded in the VPP portion of their pay is determined by a measurement team and approved by the CIO and the president. Figure 3.1 illustrates the different percentages allo- cated to IT’s variable pay component for a typical year. Metrics can change from year to year depending on where management wants to focus everyone’s attention. “Performance tends to improve if you measure it,” explained the manager. “Over the years, we have ratcheted up our targets in different areas. Once a certain level of performance is achieved, we may change the measure or change the emphasis on this measure.”
34 Section I • Delivering Value with IT
An important difference from the scorecard approach is the identification of key IT projects. “These are not all IT projects, but a small number that are closely aligned with the strategic business imperatives,” stated the manager. “Having the success of these projects associated with their variable pay drives everyone’s behavior. People tend to jump in and help if there’s a problem with one of them.” The goal in this process is for everyone to understand the VPP measures and to make them visible within IT. Targets and results are posted quarterly, and small groups of employees meet to discuss ideas about how they can influence business and IT goals. “Some amazing ideas have come out of these meetings,” said the manager. “Everyone knows what’s important, and these measures get attention. People use these metrics to make choices all the time in their work.”
Each of these business measurement programs has been implemented somewhat differently, but they all share several key features that could be considered principles of a good business metrics program for IT:
1. Focus on overall business performance. These programs all focus employees on both financial and nonfinancial enterprise performance and have an explicit expecta- tion that everyone in the organization can influence these results in some way.
2. Understanding is a critical success factor. If people are going to be held accountable for certain business results, it is important that they understand them. Similarly, if the organization is worried about certain results, this must be communicated as well. Holding regular staff meetings where people can ask ques- tions and discuss results is effective, as is providing results on a quarterly basis. Understanding is the goal. “If you can ask … a person programming code and they can tell you three to four of their objectives and how those tie into the compa- ny’s performance and what the measures of achieving those objectives are, you’ve got it” (Alexander 2000).
3. Simplicity. Successful companies tend to keep their measures very simple and easy to use (Haspeslagh et al. 2001). In each approach already outlined, a limited number of measures are used. This makes it very easy for employees to calculate
Business Results 40%
Report Card Goals 30%
Partner Satisfaction
10%
Application Delivery Effectiveness
5%
Production Availability
5%
Member Retention
5%
Product Recovery
5%
Key Projects 30%
IT Performance 60%
IT Variable Pay 100%
figure 3.1 Percentage Weightings Assigned to IT Variable Pay Components for a Particular Year
Chapter 3 • Linking IT to Business Metrics 35
their bonuses (or variable pay) based on the metrics provided, which further strengthens the linkage between company performance and individual effort.
4. Visibility. In each of the programs already discussed, metrics were made widely available to all staff on a quarterly basis. In one case they are posted on the com- pany’s intranet; in another they are distributed in a printed report; in a third they are posted in public areas of the office. Visibility encourages employee buy-in and accountability and stimulates discussion about how to do better or what is working well.
5. Links to incentive systems. Successful companies tend to include a much larger number of employees in bonus programs than unsuccessful ones (Haspeslagh et al. 2001). Extending incentive schemes to all IT staff, not just management, is important to a measurement program’s effectiveness. The most effective programs appear to distinguish between fair compensation for individual work and competencies and a reward for successfully achieving corporate objectives.
aDvice tO Managers
The focus group had some final advice for other IT managers who are thinking of implementing a business metrics program:
• Results will take time. It takes time to change attitudes and behavior in IT, but it is worth making the effort. Positive results may take from six months to a year to appear. “We had some initial pushback from our staff at the beginning,” said one manager, “but now the metrics program has become ingrained in our attitudes and behaviors.” Another manager noted, “We had a few bumps during our first year, but everyone, especially our executives, is getting better at the program now [that] we’re in our third year. It really gets our staff engaged with the business.” If there has been no dramatic difference within three years, management should recognize that it is either using the wrong measures or hasn’t got employee buy-in to the pro- gram (Alexander 2000).
• Have common goals. Having everyone measured on the same business goals helps build a strong team at all levels in the organization. It makes it easier to set priorities as a group and collaborate and share resources, as needed.
• Follow up on problem areas. Companies must be prepared to take action about poor results and involve staff in their plans. In particular, if companies are going to ask customers and employees what they think, they must be prepared to act on the results. All metrics must be taken seriously and acted on if they are to be used to drive behavior and lead to continuous improvement.
• Be careful what you measure. Measuring something makes people pay attention to it, particularly if it is linked to compensation. Metrics must, therefore, be selected with care because they will be a major driver of behavior. For example, if incen- tives are solely based on financial results, it is probable that some people may be so driven that they will trample on the needs and interests of others. Similarly, if only costs are measured, the needs of customers could be ignored. Conversely, if a metric indicates a problem area, organizations can expect to see a lot of ingenuity and sup- port devoted to addressing it.
36 Section I • Delivering Value with IT
• Don’t use measurement as a method of control. A business metrics program should be designed to foster an environment in which people look beyond their own jobs and become proactive about the needs of the organization (Marchand et al. 2000). It should aim to communicate strategy and help align individual and organizational initiatives (Kaplan and Norton 1996). All managers should clearly understand that a program of this type should not be used for controlling behavior, but rather as a motivational tool.
Conclusion
Getting the most value out of IT has been a serious concern of business for many years. In spite of considerable effort, measurement initiatives in IT that use surrogates of busi- ness value or focus on improving internal IT behavior have not been fully successful in delivering results. Expecting IT to participate in achieving specific enterprise objectives— the same goals as the rest of the organiza- tion—has been shown to deliver significant benefits. Not only are there demonstrable financial returns, but there is also consider- able long-term value in aligning everyone’s behavior with the same goals; people become more supportive of each other and more
sensitive to the greater corporate good, and decisions are easier to make. A good business metrics program, therefore, appears to be a powerful component of effective measure- ment in IT. IT employees may initially resist accountability for business results, but the experiences of the focus group demonstrate that their objections are usually short lived. If a business measurement program is carefully designed, properly linked to an incentive pro- gram, widely implemented, and effectively monitored by management, it is highly likely that business performance will become an integral part of the mind-set of all IT staff and ultimately pay off in a wide variety of ways.
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Chapter 3 • Linking IT to Business Metrics 37
and the Bottom Line.” Sloan Management Review (Summer 2000): 69–89.
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C h a p t e r
4 Building a Strong Relationship with the Business1
1 This chapter is based on the authors’ previously published article, Smith, H. A., and J. D. McKeen. “Building a Strong Relationship with the Business.” Communications of the Association for Information Systems 26, Article 19 (April 2010): 429–40. Reproduced by permission of the Association for Information Systems.
There is no doubt that a strong business–IT relationship is now critical to the success of an organization’s successful and effective use of IT (Bassellier and Benbasat 2004; Kitzis and Gomolski 2006). With the rapid evolution of IT in busi- ness, simply “keeping the lights on” and delivering systems on time and on budget are not enough. Today, IT’s ability to deliver value is closely linked with the nature of its relationship with a large number of business stakeholders. Recognizing this, many IT functions have tried to become “partners” with the business at the most senior strategic levels, but with limited success (Gordon and Gordon 2002). It has become clear from these initiatives that business–IT interactions are more complex and highly resistant to change than first assumed and that building a strong relationship with business is a major challenge for most IT leaders.
We know that the nature and quality of the business–IT relationship are affected by many factors such as the subfunction of IT involved (e.g., operations, application development), the business unit involved, the management levels involved, changing expectations, and general perceptions of IT (McKeen and Smith 2008). However, research suggests that IT managers are still somewhat naïve about how relationships work in business and that interpersonal interaction and clear communication are often missing between the groups. We have also learned that perceptions of the value IT delivers are correlated with how well IT is perceived to understand and identify with the business (Anonymous 2002; Gold 2006; Tallon et al. 2000).
Nevertheless, we still know very little about the elements that contribute to a “strong relationship” between IT and business, nor even about how to characterize such a relationship (Day 2007). This chapter first looks at the nature of the business–IT relationship and how an effective relationship could be characterized. Then it examines in turn each of the four foundational elements of a strong, positive relationship, making suggestions for how IT managers could strengthen them.
Chapter 4 • Building a Strong Relationship with the Business 39
The NaTure of The BusiNess–iT relaTioNship
“The IT-business relationship is a set of beliefs that one party holds about the other and how these beliefs are formed from the interactions of . . . individuals as they engage in tasks associated with an IT service” (Day 2007). The business–IT relationship in orga- nizations tends to span the full range of relationship possibilities. Some members of the focus group felt they had generally healthy and positive relationships, and others labeled them negative or ineffective. Overall, “there’s still a general perception that IT is slow, expensive, and gets in the way,” said one manager. Even the focus group member with the most positive business–IT relationship admitted it was “not easy,” and one set of researchers has described it as typically “arduous” (Pawlowski and Robey 2004).
Although “you can’t have a one-sided relationship,” as one focus group manager remarked, agreement is almost universal that IT needs to change if it is to improve. Literally dozens of articles have been written about what IT should be doing to make it better. For example, IT should better understand the fundamentals of business and aim to satisfy the “right” customers (Kitzis and Gomolski 2006); act as a knowledge broker (Pawlowski and Robey 2004); get involved in the business and be skilled marketers (Schindler 2007); manage expectations (Ross 2006); convince the business that it under- stands its goals and concerns and communicate in business language (Bassellier and Benbasat 2004); and demonstrate its competencies (Day 2007). In short, “IT has to keep proving itself” to the business to demonstrate its value (Kaarst-Brown 2005). Thus, prac- titioners and researchers both consistently stress that cultivating a strong business–IT relationship is “a continuous effort” (a focus group member); “ongoing” (Luftman and Brier 1999); a “core IT skill” (Feeny and Willcocks 1998); and “ emergent” (Day 2007).
On the business side of the relationship, two features stand out. First, business managers are often disengaged from IT work, according to both the focus group and researchers (Ross and Weill 2002). For example, in some cases in the focus group, IT staff have taken on business roles in projects in order to get them done. Second, it is clear that what business wants from this relationship is continually changing. “The business–IT relationship is cyclical,” explained one manager. “The business goes back and forth about whether it wants IT to be an order taker or an innovator. Every time the business changes what it wants, the relationship goes sour.”
So what do we know about the business–IT relationship in organizations? First, we know it is a multifaceted interaction of people and processes. It is unfortunately true that the existence of positive relationships between individual business and IT professionals does not necessarily mean that interactions will be positive on a particular develop- ment project, with the IT help desk, with an individual business unit, or between IT and the business as a whole (McKeen and Smith 2008). Because relationships manifest themselves in so many ways—formal and informal, tacit and explicit, procedural and cultural—we must recognize that their complexity means that they don’t lend them- selves to simplistic solutions (Day 2007; Guillemette et al. 2008; Ross 2006).
Second, we know difficult, complex relationships often exhibit lack of clarity around expectations and accountabilities and difficulty communicating (Galford and Drapeau 2003; Pawlowski and Robey 2004). This, in turn, leads to lack of trust. In the business–IT relationship, “complexity often arises when expectations differ in vari- ous parts of an organization, leaving a CIO with the difficult task of reconciling them and elucidating exactly what the IT function’s mission and strategic role should be”
40 Section I • Delivering Value with IT
(Guillemette et al. 2008). Several focus group members complained that different parts of their business expected different things from IT. “In some parts of our business, they want IT to be an order-taker; in others, they want us to be thought leaders and innova- tors,” stated one manager. Another noted, “We live in an age of unmet expectations. There’s never enough resources to do everything the business wants us to do.”
Third, assumptions by the business about IT tend to cluster into patterns. One researcher has identified five sets of assumptions: (1) IT is a necessary evil, (2) IT is a support, not a partner, (3) IT rules, (4) business can do IT better, and (5) business and IT are equal partners. Business leaders who espouse one of these sets will tend to have sim- ilar ideas about who should control IT’s direction, how central IT is to business strategy, the value of IT skills and knowledge, how to justify IT investments, and who benefits from IT (Kaarst-Brown 2005). Building on this idea, another study has also shown that business–IT relationships tend to vary along similar patterns. Different organizations tend to adopt one of five IT value profiles and expect IT to behave in accordance with the profile selected (see Appendix A). Problems arise when the assumptions and value profiles espoused by IT conflict with those of the organization or a specific part of the organization. As a result, many “disconnects” are often present in the relationship. For example, although IT organizations often seek to be a business partner, their participa- tion in this way is not always welcomed by the business (Pawlowski and Robey 2004).
Focus group members defined a strong business–IT relationship in ways that recognize each of these factors. To them, it should include the following:
• Clearly defined expectations, governance models, and accountabilities. • Trust between the two groups. • Articulation and incorporation of corporate and client values and priorities in all
IT work. • A blurred line between business and IT (i.e., no “us vs. them”). • IT dedicated to business success. • IT serving as a trusted advisor to the business. • Mutual recognition of IT value.
In short, a strong business–IT relationship is one where realistic, mutual expectations are clearly articulated and communicated through individual and procedural interactions and where both groups recognize that all facets of this relationship are important to the successful delivery of IT value.
Characteristics of the Business–IT Relationship
• IT has to keep proving itself. • The business is often disengaged from IT work. • Business expectations of IT change continually. • The relationship is affected by the interaction of many people and processes at multiple
levels. • Clarity is often lacking around expectations and accountabilities. • Business assumptions of IT tend to cluster. • There are many “disconnects” between the two groups.
Chapter 4 • Building a Strong Relationship with the Business 41
The fouNdaTioN of a sTroNg BusiNess–iT relaTioNship
Strong relationships do not simply happen. They are built over time and, if they are to deliver value for the organization, they must be built to endure (Day 2007). The focus group told several stories of how the business–IT relationship in their organization had deteriorated when a business or IT leader changed or when a project wasn’t delivered on time. Because it can so easily become dysfunctional, constant attention and nurturing are needed at all levels, said the focus group. However, building a strong relationship is not easy to do. Although there is no shortage of prescriptions, the sustained nature of problems in this relationship suggests that some underlying root causes need to be addressed (Appendix B provides one organization’s view of what is needed in this relationship).
We have suggested previously that four components must be in place in order to deliver real business value with IT: competence, credibility, interpersonal inter- action, and trust. The focus group reviewed these components and agreed that they also form the foundation of a successful and effective business–IT relationship. The focus group saw that developing, sustaining, and growing a strong business–IT rela- tionship in each of these areas is closely intertwined with IT’s ability to deliver value with technology. Therefore, a consistent and structured initiative to strengthen the business–IT relationship in these dimensions will also lead to an improved ability to deliver value successfully (see Figure 4.1). In the remainder of this chapter, we look at these four components in turn, discussing in detail how each acts as an important building block of a strong business–IT relationship and suggesting how each could be strengthened.
Value
Trust
Interpersonal Interaction
Credibility
Competence
figure 4.1 Strong Relationships are Built on a Strong Foundation
42 Section I • Delivering Value with IT
Building Block #1: Competence
Although a competent IT organization that consistently delivers cost-efficient and reli- able services is the bare minimum for an IT function, businesses today expect a great deal more of both their IT organizations and their IT professionals. Although many IT organizations have adopted an internal service model in order to “operate IT like a business” and have demonstrated that they can provide services as effectively as exter- nal service providers, these competencies fall short of what business now expects of IT (Kitzis and Gomolski 2006). Over the last decade, researchers and practitioners have identified a number of new competencies that are now required—to a greater or lesser extent—from all IT professionals.
First and foremost, IT staff need business knowledge. This goes beyond basic know- ledge of a single business unit to include the “big picture” of the whole organization. IT personnel need to understand the business context in which their technologies are deployed, including organizational goals and objectives, capabilities, critical success factors, environment, and constraints. At all levels, they need to be able to “think about and understand the development of the business as [any other business] member would and participate in making [it] successful in the same way” (Bassellier and Benbasat 2004). Furthermore, they need to be able to apply their business understanding to help the organization visualize the ways in which “IT can contribute to organizational per- formance and look for synergies between IT and business activities” (Bassellier and Benbasat 2004). In this regard, an important competence an IT department and its staff can bring to an organization is cross-domain and cross-functional business knowledge (Kitzis and Gomolski 2006; Wailgum 2008a).
Developing business knowledge does not mean that IT staff should become busi- nesspeople but that they should be able to demonstrate they understand the business’s goals, concerns, language, and processes and are working to help achieve them (Feeny and Willcocks 1998). One focus group organization surveyed its senior managers about IT and found that these managers felt IT staff had a poor understanding of the business; as a result, they didn’t trust IT’s ideas.
Other key competencies that IT must cultivate include the following:
• Expertise. This includes having up-to-date knowledge, being able to support a technical recommendation, applying expertise to a particular business situation, and offering wise advice on risks, options, and trade-offs, as well as the ability to bring useful new ideas and external information (e.g., about new technolo- gies or what the competition is doing with technology) to the business (Joni 2004; Pawlowski and Robey 2004).
• Financial Awareness. Awareness of how IT delivers value and the ability to act in accordance with this value is a rare and prized skill (Mahoney and Gerrard 2007). All the focus group members felt pressure to continually demonstrate the business value of IT and recognized a strong need to make all IT staff more aware of such concepts as ROI, total cost of ownership, and how IT affects the bottom line and/or business strategy.
• Execution. It is not enough to understand the business and develop a vision; IT must also operationalize them. Since much of the business–IT relationship is dynamic—that is, continually being re-created—every IT action speaks about its competence. It is well known that the inability to deliver an individual project on
Chapter 4 • Building a Strong Relationship with the Business 43
time and within budget will undermine the business’s view of IT’s overall compe- tence. However, it is also the case that the actions of IT operations, the help desk, and other IT subfunctions will also be held up to similar scrutiny. As one focus group manager stated, “Poor delivery of any type can break a relationship.”
In short, if the IT function is not seen to be competent at executing basic IT services or able to communicate in business terms, it will simply not be given an opportunity to participate in higher-order business activities, such as planning and strategy develop- ment (Gerrard 2006).
sTreNgTheNiNg CompeTeNCe
• Find ways to develop business knowledge in all IT staff. Focus group members use “lunch and learn” sessions, job shadowing, and short-term assignments in the business to accomplish this, but they recognize that more needs to be done to develop this competence.
• Link IT’s success criteria to business metrics. This not only lifts IT’s perspective to larger business concerns, but it also introduces all IT staff to the key financial and other measures that drive the rest of the organization.
• Make business value an explicit criteria in all IT decisions. Asking why the busi- ness should care about a particular IT decision, and how it will affect the business in both the long and short terms, changes the focus of IT professionals in a subtle but very effective way, enabling them to communicate even technical decisions in business terms.
• Ensure effective execution in all IT activities. This ensures that IT sends a consis- tent message of competence to all parts and levels of the organization.
Building Block #2: Credibility
Credibility is the belief that others can be counted on to do what they say they will do. It is built in many ways. Keeping agreements and acting with integrity, honesty, and openness are essential behaviors, whereas lack of timely and substantive responses and failure to observe deadlines can undermine it (Feeny et al. 1992; Greenberg et al. 2007). Focus group managers concurred that credibility is very important to the busi- ness–IT relationship. Although in earlier days, credibility was largely about the ability to deliver systems on time and budget, now earning and maintaining credibility with the business has become more complex. Today’s IT projects often involve many more elements (e.g., multiple platforms, risk management, adherence to laws and standards) and stakeholders than in the past, and the methods and tools of delivery are constantly changing. Furthermore, research shows that it is often the “little things” that can be most significant in undermining credibility and that people often make decisions based on IT’s attention or inattention to such details (Buchanan 2005). One study concluded that “each and every IT service incident and event must be considered for its long-term influence” (Day 2007).
IT staff often assume that because they are competent they will be credible, but this is an invalid assumption. Thus, for example, a survey of CIOs found that they wished their developers “didn’t appear so clueless to the rest of the organization” (Wailgum 2008b). It is essential, therefore, that competence be demonstrated for others to feel
44 Section I • Delivering Value with IT
someone is credible (Ross 2006). This is especially important in relationships where there is little face-to-face interaction. In these cases in particular, work must be visible and communication constant in order to demonstrate credibility (Hurley 2006).
sTreNgTheNiNg CrediBiliTy
• Communicate frequently and explicitly. Make progress and accomplishments visible in clear and nontechnical ways. Focus group members found that when difficult decisions are planned together and clearly articulated in advance, much less tension develops in the relationship.
• Pay attention to the “little things.” Wherever possible, take steps to provide prompt feedback and responses to queries and to ensure consistently high- quality service encounters.
• Utilize external cues to credibility. Examples include awards, endorsements from third parties, and the experience and background of IT staff. These specifics can be very useful when starting a new relationship with the business.
• Assess all business touch points. All focus group members stressed the need to really listen to what the business says about its expectations and the problems it feels exist in the relationship. Just the effort alone sends a strong and positive mes- sage about the importance of this relationship, said a manager. However, he also stressed that undertaking such a review creates expectations that changes will be made, so regular reports back to the business about what is being done to improve things are especially important.
Building Block #3: interpersonal interaction
The business–IT relationship is shaped by the development of mutual understand- ing, interests, and expectations, which are formed and shaped during a wide variety of interpersonal interactions (Gold 2006). Business–IT interactions must be developed and nurtured at many different levels in the business–IT relationship, said focus group managers, and although CEO–CIO interactions can set the tone for the relationship, the connections at multiple touch points contribute to its overall quality (Flint 2004; Prewitt 2005). The following are the four significant dimensions of interpersonal interaction:
• Professionalism. This is the unarticulated set of working behaviors, attitudes, and expectations that serves as the glue that keeps teams of diverse individuals working together toward the same goal. These behaviors are not only carefully watched by the business, they are also just as important within IT, said the focus group. Members noted that difficult internal IT relationships can lead to problems delivering effective IT services. Five sets of attitudes and behaviors contribute to developing IT professionalism: (1) comportment (i.e., appearance and manners on the job), (2) preparation (i.e., displaying competence and good organization), (3) communication skill (i.e., both clarity and etiquette), (4) judgment (i.e., the abil- ity to make right choices for the organization), and (5) attitude (i.e., caring about doing a job well and about doing the right thing for the company) (McKeen and Smith 2008).
• Nontechnical communication. Over and over, research has found that the inabil- ity to communicate clearly with the business in its own terms can undermine the
Chapter 4 • Building a Strong Relationship with the Business 45
business–IT relationship (Bassellier and Benbasat 2004; Kitzis and Gomolski 2006). Today, because IT staff work across many organizational boundaries, they must also be effective at translating and interpreting needs, not only from business to technology and vice versa, but also between business units, in order to enable members of different communities to understand each other (Wailgum 2008a). Increasingly, as IT programs and services are delivered collaboratively by external partners and to external partners, clarity in communication is becoming mission critical.
• Social skills. The social dimension of the business–IT relationship is often ignored by both sides, leading to misunderstandings and lack of trust (Day 2007). Social bonds help diverse groups build trust and develop a common language, both of which are essential to a strong relationship. Socialization also helps build mutual understanding, enabling all parties to get comfortable with one another and uncovering hidden assumptions, which may become obstacles to success (Kaarst-Brown 2005). Socialization also develops empathy and facilitates problem solving (Feeny and Willcocks 1998).
Unfortunately, many IT organizations are structured in ways that create barri- ers between business and IT. For example, the use of “relationship managers” to act as interfaces between IT and the business is a mixed blessing. Although individually, these managers may be skilled and viewed positively by the business, focus group members noted that their position often leads them to act as gatekeepers to the business. One manager mentioned being hauled on the carpet to explain his lunch with a business manager (a personal friend), which hadn’t been approved by the relationship manager! “We need a broad range of social interactions with the business,” said another manager. “We use account managers, but we also encourage interactions through such things as lunches and social events.” Ongoing, face-to-face interaction is the ideal, but with today’s virtual teams and global organizations, other forms of social interaction, such as networking and collaboration tools, are being introduced to help bridge gaps in this area. Social bonds can be created in a virtual environment, but these take longer and are harder to develop although they are, if anything, more important than in a more tradi- tional workplace (Greenberg et al. 2007).
• Management of politics and conflict. The business–IT relationship can be turbulent, and IT personnel are not noted for their skills in dealing with the conflicts and challenges involved. Furthermore, conflict and politics tend to be exacerbated by the types of projects most commonly undertaken by IT—that is, those that cross internal and external organizational boundaries (Weiss and Hughes 2005). As a result, IT functions and personnel need ways to effectively address conflict and use it to deliver creative solutions. All too often, conflict is avoided or treated as a “hot potato” to be tossed up the management hierarchy (Weiss and Hughes 2005). Straight talk and the development of a healthy give- and-take attitude are fundamental to dealing with conflict at its source. Experts also recommend the development of transparent processes for managing disagreements and frank discussions of the trade-offs involved in dealing with problems (Pascale et al. 1997). These not only help stop damaging escalation and growing uncertainty but also help to model conflict-resolution skills for the staff involved.
46 Section I • Delivering Value with IT
As well, failure to understand the role of politics in a particular organization makes IT personnel less effective in their business interactions because they cannot craft “win–win” solutions. Thus, all IT staff need to understand something about politics and how they can affect their work. At more senior levels, it is imperative that IT profes- sionals learn how to act “wisely and shrewdly in a political environment” (Kitzis and Gomolski 2006). Since politics are part of every business relationship and cannot be avoided, IT personnel must learn how to work with them, said focus group members, even if they are trying to avoid them as much as possible.
sTreNgTheNiNg iNTerpersoNal iNTeraCTioNs
• Expect professionalism. IT managers must not only articulate professional values and behaviors, they must also live them and measure and reward them in their staff.
• Promote a wide variety of social interactions at all levels. Whether face-to-face or virtual, sharing information about each other’s background and interests is an important way to bolster working relationships at all levels. Therefore, even where formal relationship managers are in place, IT leaders should encourage all IT staff to connect informally with their business colleagues. “Social interaction facilitates quick problem ownership and resolution and helps to develop a com- mon language,” said a focus group participant. Although the need for socializa- tion increases as one moves up the organizational hierarchy, even at the lowest levels staff should be expected to spend about 10 percent of their time in this type of interaction (Kitzis and Gomolski 2006).
• Develop “soft skills” in IT staff. Although the need for interpersonal skills in IT has never been greater, many companies still give their development short shrift, preferring instead to stress technical competencies. In developing interpersonal skills, formal training should be only one component. It is even more important that IT managers take time to develop such skills in their staff through mentor- ing and coaching. Many focus group members have implemented “soft” skills development initiatives informally, but they have also admitted that the pressure to be instantly productive often detracts from both business and IT participation in them.
Building Block #4: Trust
Effective interpersonal interactions, a belief that the job at hand will get done and get done right, and demonstrated business and technical competence are all required to facilitate trust that IT can be a successful partner with the business. But even if these are in place, proactive measures are still needed to actually build trust between the two groups. In many firms, an underlying sense of distrust of IT as a whole remains:
IT’s processes are notoriously convoluted and bureaucratic, leaving the business unsure of how to accomplish their business strategies with IT. From strategy alignment to prioritization to budgeting and resourcing to delivering value to managing costs, it must be clear that what IT is doing is for the benefit of the enterprise, not itself. (McKeen and Smith 2008)
Chapter 4 • Building a Strong Relationship with the Business 47
The most important way to build trust at this level is through effective gover- nance. The story of how one CIO managed to transform the business–IT relationship at Farm Credit Canada illustrates its importance:
[At FCC, when Paul MacDonald became CIO], IT was considered a necessary evil. Business people were afraid of it and wished it would just go away. . . . [Transforming this relationship] was a very difficult and complex job—especially for cross-functional processes. Clear responsibilities and accountabilities had to be defined. . . . “It’s all about clarity of roles and responsibilities,” MacDonald said. The new IT governance model was validated and refined through sessions with key business stakeholders. “These sessions were important to demonstrate that we weren’t just shuffling the boxes around in IT,” [MacDonald] said. . . . MacDonald also made sure that the new model actually worked the way it was supposed to. “There were cases where it didn’t . . . and with these, we made changes in our pro- cesses.” He attributes his willingness to make changes where needed to his ability to make the new model actually function the way it was supposed to. . . .
“Today, at FCC user satisfaction is very high and IT is seen as being indis- pensable. . . . [MacDonald] stressed that it is important to review and refine the new governance model continually.” “There were some things that just didn’t work,” he said. “We are still constantly learning.” (Smith and McKeen 2008)
Effective governance should be designed to build common business goals and establish a good decision-making process (Gerrard 2006). Mature processes in IT and transparency about costs develop trust (Levinson and Pastore 2005; Overby 2005). A focus group manager stated succinctly, “[M]ore transparency equals fewer sur- prises and you get transparency through governance.” Aspects of governance that have enhanced trust in focus group organizations include integrated planning, defined accountabilities, a clear picture of mandates and authorities, and clarity around how work gets done.
Another focus group manager explained the importance of governance in this way:
In the past, we couldn’t break the trust barrier. Now, [with an effective governance structure] we are more proactive and are fighting fewer fires. Our processes ensure proper escalation and a new focus on value. In short, governance captures the value of a good relationship and good fences make good neighbours.
Trust is essential for both superior performance and for developing the collabora- tive relationships that lead to success (Greenberg et al. 2007). It is developed through consistency, clear communication, willingness to tackle challenges, and owning up to and learning from mistakes (Upton and Staats 2008). Both inconsistent messages to stakeholders and inconsistent processes and standards can seriously undermine trust (Galford and Drapeau 2003).
Nevertheless, it must be stressed that there is no optimal form of governance (Gordon and Gordon 2002). The key is to develop a model of IT governance that addresses the business’s expectations of its IT function. Thus, an IT organization can best build trust if it clearly understands the organization’s priorities for IT and designs its governance model to match (Guillemette et al. 2008).
48 Section I • Delivering Value with IT
sTreNgTheNiNg TrusT
• Design governance for clarity and transparency. IT leaders should assess how the business views IT processes—from the help desk on up. It is important to recognize that all processes play a very visible role in how IT is viewed in the organization and that clear, effective, and fair processes are needed to break the “trust barrier” between business and IT at all levels.
• Mandate the relationship. Although it may seem counterintuitive, companies have had success from strictly enforcing relationship basics such as formal roles and responsibilities, joint scorecards, and the use of common metrics. Such structural measures can ensure that common expectations, language, and goals are developed and met.
• Design IT for business expectations. Clearly understanding the primary value the business wants IT to deliver can help IT understand how to focus its process and governance models (see Appendix A).
Conclusion
There is clearly no panacea for a strong busi- ness–IT relationship. Yet, the correlation between a good relationship and the ability to deliver value with IT makes it impera- tive that leaders do all they can to develop effective interpersonal and interfunctional business–IT relations. It is unfortunately still incumbent on IT leadership to take on the bulk of this task, if only because it will make IT organizations more effective. Business–IT relationships are complex, with interactions of many types, at many levels, and between both individuals and across functional and
organizational entities. This chapter has not only identified and explored what a strong business–IT relationship should look like in its many dimensions but also has described the four major components needed to build it: competence, credibility, interpersonal skills, and trust. Unfortunately, business–IT relationships still leave a lot to be desired in most organizations. Recognizing that what it takes to build a strong business–IT partner- ship is also closely related to what is needed to deliver IT value may help to focus more attention on these mission-critical activities.
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50 Section I • Delivering Value with IT
Appendix A
The Five IT Value Profiles
Each of the following profiles is a unique way for IT to contribute to an organization. One is not “better” than the other, nor is one profile more or less mature than any other. Each represents a different, consistent way of organizing IT to deliver value. Each is different in five ways: main activities, dominant skills and knowledge, the business–IT relationship, governance and decision-making, and accountabilities.
Profile A: Project Coordinator This type of IT function coordinates IT activities between the business and outsourc- ers. Therefore, the primary value it delivers is organizational flexibility through the IT outsourcing strategy it establishes and through promoting informed IT decision making in the business units. The Project Coordinator function works with the busi- ness units, helping them formalize their requirements, and then finds an outsourcer to develop and implement what is needed. The Project Coordinator also manages the relationships between vendors and business units, not only with the organiza- tion’s current activities but also in planning for the future by developing strategic partnerships.
Profile B: Systems Provider The primary mission of the Systems Provider is to provide the organization with qual- ity information systems at the lowest possible cost. Strategically, the Systems Provider uses the organization’s business plans to set IT’s goals, prepare budgets, and determine the resources needed to implement the organization’s strategy for the required systems development projects.
Profile C: Architecture Builder The primary mission of this type of IT function is to link the firm’s various business units by integrating computerized systems, data, and technological platforms. The Architecture Builder seeks to design a flexible architecture and infrastructure that will meet the company’s needs. The architecture builder typically receives broad strategic direction from the organization and designs an architecture and infrastructure with which the organization can implement its strategy.
Profile D: Partner The main objective of the Partner IT function is to create IT-enabled business capabili- ties to support current business strategies. IT and the business collaborate to achieve a two-way strategic alignment that is developed iteratively and reciprocally over time. The Partner is a catalyst for change in business processes and seeks to improve organi- zational efficiency. As guardian of the organization’s business processes, the Partner’s mission therefore extends far beyond its technological tools.
Chapter 4 • Building a Strong Relationship with the Business 51
Profile E: Technological Leader The Technological Leader tries above all to use innovation to transform the organiza- tion’s strategy. IT’s main objective is therefore to identify opportunities, find innovative organizational applications for technology that will enable the organization to secure a significant competitive advantage, and then implement such applications.
Source: Guillemette et al. 2008.
Appendix B
Guidelines for Building a Strong Business–IT Relationship
The following was provided by a focus group member and is an excerpt from a com- pany memo on improving the business–IT relationship.
Now more than ever, we must truly understand the business transformation agenda. This will require us to potentially interact differently than in the past or in a mode beyond what our executives may be looking for. We must
• Stop acting as and being viewed as order takers once IT projects have been identified.
• Develop an understanding of business improvement ideas before they become ini- tiatives or projects.
• Be prepared to offer alternative perspectives on business solutions. • Be part of the strategic equation and have “feet on the street.” • Engage early before ideas and issues turn into projects. • Continue to shape the solution during pre-concept and concept phases.
To develop a relationship with the business units where we are viewed as a trusted advisor and as adding value, we need to truly be part of their decision-making process and team. We must ask ourselves the following questions:
• Are we considered a member of the business’s senior leadership team? • Are we consulted before decisions are made or just asked to execute what has
already been decided? • Are we involved in shaping the content of the strategic agenda not just its schedule?
Creating a consistent forum for one-on-one strategic interaction should allow us to rise above the normal churn of issues, projects, or other regularly scheduled meet- ings and be positioned to truly start understanding where our help is needed. Potential short-term next steps include the following:
• Get invited to each business unit’s leadership team meetings. • Schedule a monthly one to one strategy meeting with no set agenda.
52
C h a p t e r
5 Communicating with Business Managers1
1 This chapter is based on the authors’ previously published article, Smith, H. A., and J. D. McKeen. “How to Talk so Business Will Listen . . . and Listen so Business Can Talk.” Communications of the Association for Information Systems 27, Article 13 (August 2010): 207–16. Reproduced by permission of the Association for Information Systems.
At an IT governance meeting, attended by all our business executives, our IT architect was asked to discuss IT security and what steps needed to be taken to improve it. The architect proceeded to bombard the executives with extremely low-level details—an oversaturation of information, which they did not understand—and he lost their attention in very short order. What he did not do was deliver information in a positive manner geared to his audience. As a result, there was diminished business interest and understanding about this topic and a slowed-down budget for needed upgrades, which also affected other projects.
—(Senior IT manager in a global retail organization)
As this true story illustrates, the ability to communicate with the business in busi-ness terms does not appear to be a current IT strength. This is a serious problem for IT managers because as IT and business grow more entwined, IT staff are going to need to be increasingly organization savvy and possess greater business and interpersonal competencies (Basselier and Benbasat 2004; Karlsen et al.; 2008; Mingay 2005). Yet, despite consistent complaints from both business and IT leaders about how IT staff lack business and communication skills, it seems that many IT departments still hire largely for technical competencies and have little budget available for “soft skills” development (Cukier 2007). Problems communicating with business continue to play a significant part in today’s poor perceptions of IT in organizations and inhibit what IT is able to do for the organization (McKeen and Smith 2009). IT managers often bemoan the fact that IT-based initiatives—for example, to implement new technologies or establish
Chapter 5 • Communicating with Business Managers 53
a standard infrastructure—which they believe could have significant benefits for their organizations are not funded. Many of the reasons for this lie in IT’s inability to explain the value of such investments in terms the business will understand.
In short, one of the most important skills all IT staff need to develop today is how to communicate effectively with business. “Effective communication between IT . . . and its stakeholders has never been so important . . . so complex or so difficult to get right.” (Mingay 2005). Over and over, research has shown that if IT and business cannot speak the same language, focus on the same issues, and communicate constructively, they cannot build a trusting relationship (Karlsen et al. 2008). And business is consistently more negative than IT about IT’s abilities in communicating effectively. In fact, even while IT collaboration is improving, business’s assessment of IT’s communication skills is declining (Willcoxson and Chatham 2004).
Much attention has been paid to organizational alignment between IT and business (e.g., governance, structure), while very little has been paid to the nature and impact of the social dimension of alignment, a big element of which involves communication (Reich and Benbasat 2000). This chapter explores the business and interpersonal competencies that IT staff will need in order to do their jobs effectively over the next five to seven years and what companies should be doing to help develop them. It begins by characterizing the state of communication in the business–IT rela- tionship and why “good communication” is becoming increasingly important. Then, it explores what is meant by “good communication” in this relationship and looks at some of the inhibitors of effective communication between these groups. Finally, it dis- cusses the key communication skills that need to be developed by IT staff and makes recommendations for how organizations can improve or develop communication in the business–IT relationship.
CommuniCation in the Business–it Relationship
“Poor communication is a constant source of irritation, confusion, and animosity,” said one focus group manager. Another agreed: “So many of our IT staff don’t under- stand organizational dynamics. They say and do things that would be completely inappropriate anywhere else in our company.” There is general agreement between practitioners and researchers that poor business–IT communication is the source of poor relationships and alignment between these groups (Bittler 2008; Reich and Benbasat 2000). One study noted:
Many IT people have “turned off” their business peers with too much techni- cal jargon. This is one reason why the number of IT people that are “allowed” to speak with business people has been deliberately limited in many organizations. (Bittler 2008)
Communication is both an enabler and an inhibitor of a good business–IT relationship. On one hand, poor communication tends to be persistent and of lasting concern to practitioners (Coughlan et al. 2005). Often, IT personnel are perceived to live in an “ivory tower,” disengaged from the needs of the business (Burton et al. 2008). Typically, these problems are described as a communication or a cultural “gap”
54 Section I • Delivering Value with IT
between the two groups and are considered a major cause of systems development fail- ures (Coughlan et al. 2005; Reich and Benbasat 2000). “We struggle with communica- tion gaps and challenges,” said a manager. “There’s a lot of IT arrogance we need to deal with.” Another commented, “IT doesn’t listen and doesn’t talk the talk.”
On the other hand, there is broad recognition that good communication is essential for many reasons. First, it is fundamental to building a strong, positive business–IT rela- tionship. “When business people believe IT people ‘get it,’ the relationships are always improved” (Bittler 2008). Second, it helps set sensible expectations of IT and helps IT to manage how it is perceived in business (Day 2007). Third, it is an essential element of building trust and partnership, which in turn help drive the delivery of business value (McKeen and Smith 2012). Fourth, it is essential to conveying the business value of IT (Hunter 2007). And finally, it is critical to understanding the priorities and pressures of the business. Focus group managers spoke of the need for staff who would listen and look for new opportunities to deliver business value. In short, good communication is widely seen as being critical for IT to deliver successful projects, effective performance, and value ( Karlsen et al. 2008; Reich and Benbasat 2000; Willcoxson and Chatham 2004).
As a result, improving communication is increasingly recommended as a top pri- ority for IT managers (Burton et al. 2008; Mingay 2005). Several managers stated that they are working on building communication into their annual goals and into their expectations of staff. What is missing, however, is a better understanding of the nature of good business–IT communication and some of the obstacles IT managers face in improving it (Coughlan et al. 2005). Thus, poor communication continues to be the norm in most organizations (Pawlowski and Robey 2004).
What is “Good” CommuniCation?
Unfortunately, there is no magic formula for defining and teaching “good” communica- tion since it is a complex concept that has many dimensions. There are, however, some principles that are recognized as important elements of effective communication which can be used as guidelines for those who wish to assess their communication performance.
• Principle 1: The effectiveness of communication is measured by its outcomes. Communication is successful when it achieves the outcomes we desire (Gilberg 2006). However, all too often we measure communication by our intentions rather than its out- comes. The problem with that is this: “Communication is in the ear of the beholder,” and even the most direct, clear, understandable, and consistent message can there- fore get distorted through such filters as politics, culture, and personal points of view. As messages get passed along to others, they get further distorted, much like in the children’s game of “Telephone.” One study showed that although 97 percent of managers believed their own communication was clear, only 25 percent of the same people believed that the communication they received from their direct superior was clear and effective (Martin 2006). Another study showed that IT managers feel their communication is more effective than business managers feel it is (Willcoxson and Chatham 2004).
• Principle 2: Communication is social behavior. Communication not only trans- mits ideas but also negotiates relationships. Thus, how you say what you mean is
Chapter 5 • Communicating with Business Managers 55
just as important as what you say (Tannen 1995). This is an especially important principle for IT staff to learn because, as teams become increasingly diverse and virtual, many of the traditional nonverbal signals that we instinctively rely on to provide meaning are lost. A host of factors act as a social subtext to our commu- nication: tone of voice, rate of speed, degree of loudness, and pacing and pausing. These are all culturally learned signals that affect how we evaluate each other as people (Tannen 1995). Gender and culture are key social filters that all of us use. For example, the degree of directness and indirectness in communication has often been a source of significant misunderstandings. Women learn to be more indirect when telling others what to do so as not to be perceived as “bossy”; men are indi- rect when admitting to fault or weakness. In short, there is no one “right” way to speak, but speakers and listeners need to become more aware of the power of dif- ferent linguistic styles, and managers must learn to use and take advantage of these styles in different communication situations (Tannen 1995).
• Principle 3: Shared knowledge improves communication. It is all too well known that many IT people don’t “speak the language of the business.” As one manager stated, “Many IT staff think they’ve ‘communicated’ by explaining a technology need or a technology decision, instead of ensuring that everyone understands the business implications of what’s involved.” Studies show that the more IT staff learns about the business, the better communication becomes (Reich and Benbasat 2000). This is true not only because IT people understand business better but also because shared knowledge leads to increased frequency of communication and greater mutual under- standing, both of which lead to more success in implementation, which in turn leads to more communication and improved relationships (Reich and Benbasat 2000). Thus, the creation of shared knowledge can be the beginning of a “virtuous circle” of con- tinuously improving communication (see Figure 5.1).
• Principle 4: Mature organizations have better communication. Although commu- nication is a social process, it is also embedded within and fundamental to organiza- tional processes (Coughlan et al. 2005). Organizational maturity plays a significant part in the effectiveness of business–IT communication because strong practices support and reinforce good interpersonal communication. “You can’t be a part- ner unless you’re a mature IT organization,” explained one manager. The research supports this contention, showing that high-performing IT functions have a strong foundation of communication (Peppard and Ward 1999; Reich and Benbasat 2000). Thus, successful IT organizations embed appropriate communication in their pro- cesses and consider this to be a significant component of IT’s work (Mingay 2005). This work is even more important in times of organization transformation. “We are quite good about communicating operationally,” said a manager, “but we need to improve when talking with our business executives about strategy.” Another com- mented, “we need better skills to move up the ‘run, change, innovate’ curve, and we need the organizational maturity to do this.” The focus group identified some of the areas where improved maturity could help communication: developing busi- ness cases; assessing risk; integrating with the “big picture”; and communicating across business silos. In short, although communication is often seen as an individ- ual competency, it should be viewed and managed as an IT functional competency at all levels.
56 Section I • Delivering Value with IT
oBstaCles to effeCtive CommuniCation
Why is it so difficult to achieve effective business–IT communication? The principles haven’t changed much over time, but they have often not been applied, or they have been forgotten or ignored as busy IT managers focus on tight timelines and major deliverables (Mingay 2005). However, in addition to these considerations, some other obstacles to effective communication can hinder or prevent communication from occurring. These include the following:
• The changing nature of IT work. There is no question that IT work has become more complex over time. Increasingly, IT staff are intermediaries between third-party contract staff, global staff, or external stakeholders and vendors as well as tradi- tional business users. When multiple cultures, different political contexts, diverse time zones, and virtual relationships are added into the mix, communication simply becomes more multifaceted and challenging. Furthermore, organizations are expect- ing IT to do more for them. Transformation, innovation, or simply bigger and more visible projects all require more communication than the norm and therefore more management attention (Mingay 2005). “We must take a broader view of communi- cation,” stated an IT manager. “And we need conversations at many levels.” Thus, although IT may have adopted communication solutions that meet the needs of the past, these are inadequate for present and future needs.
Shared Knowledge
Increased Communication
Mutual Understanding and “Common Sense”
THE VIRTUOUS COMMUNICATION
CYCLE
Implementation Success
fiGuRe 5.1 Shared Knowledge Leads to Improved Communication
Chapter 5 • Communicating with Business Managers 57
• Hiring practices. “IT organizations can no longer support smart, super-talented, but socially disruptive people who cannot work well with a team or with the business,” said one manager. The group concurred that IT skills are changing to become more consultative and collaborative. Yet, frequently their organizations still hire for technology skills, rather than the “softer” skills, such as communication, which are essential for success these days. One study found that there is seri- ous misalignment in hiring between “the skills needed for a job (which heavily emphasize communication and general business skills . . . ) [and] the job require- ments that are . . . advertised (which tend to emphasize formal technical training)” (Cukier 2007).
• IT and business organization structures. A few years ago, many IT functions attempted to deal with their communication problems by creating relationship managers. These were skilled IT individuals whose job was to bridge the busi- ness and IT organizations and thus act as a communication conduit between the two groups. Unfortunately, relationship managers have become a mixed blessing at best and an obstacle at worst, restricting contact between the two groups and thereby limiting the development of shared knowledge and mutual understand- ing. “Relationship managers appear to do more to exacerbate rather than amelio- rate,” found one study (Coughlan et al. 2005). A focus group manager agreed, “You can’t partner if your only contact is through a relationship manager.” Furthermore, business silos can make communication about enterprise issues extremely chal- lenging for IT staff, who can be expected to play a “knowledge broker” role, not only between IT and business but also between business units (Pawlowski and Robey 2004).
• Nature and frequency of communication. It’s a bit of a chicken-and-egg situa- tion: More frequent contact with business leads to improved communication, but IT’s communication is often so full of jargon, technocentric, and inappropriate that many organizations have sought ways to limit the amount and nature of commu- nication between the two groups. One study found that about one-third of IT staff simply did not speak to the business at all (Basselier and Benbasat 2004). However, some of the focus group stated that, even when they are not restricted, IT staff often have trouble getting business to take the time to sit with them. Researchers have pointed out that it is the sharing of tacit and unstructured knowledge, which takes place in low-risk and informal settings, that contributes most to effective communi- cation and mutual understanding (Basselier and Benbasat 2004; Dunne 2002; Kitzis and Gomolski 2006). Limiting one’s focus to formal interactions (e.g., through IT governance processes) has been shown to be the least effective way of communicat- ing successfully (Dunne 2002).
• Attitude. Finally, IT’s attitude can be a huge obstacle to good communication. It was surprising to hear this complaint from so many in the focus group. “Our IT staff think their work is about IT. They don’t understand that we’re here to deliver business value with technology,” one manager stated. One manager described IT staff as “crotchety”; another as “obtuse”; and several stated IT staff are “defen- sive.” It is not surprising that if this is the case, a negative attitude on the part of an IT worker toward his or her work, business, or employer ends up being reflected in communication and how it is perceived (McKeen and Smith 2012). In turn, this can color how the communication is received (Anonymous 2005; Martin 2006).
58 Section I • Delivering Value with IT
Unfortunately as well, many IT staff are motivated by the desire to be right rather than the desire to communicate effectively (Gilberg 2006). “We definitely need a ‘we’ attitude in IT,” said a manager, “not an ‘us–them’ attitude.”
Overcoming these obstacles will require a combination of management attention to all dimensions of business–IT communication and the development of critical com- munication skills in IT staff. The next two sections of this chapter address these issues.
“t-level” CommuniCation skills foR it staff
Although IT workers’ communication skills need upgrading, there is no one-size-fits-all strategy for doing this (Kalin 2006). Nor do lists of communication competencies move us much further forward in clarifying exactly what IT workers are doing wrong and what needs to change in their communication style (see Appendix A for a sample list). It has been suggested that as business becomes more complex, it really needs more T-shaped professionals who are not only deep problem solvers in their home discipline but also capable of interacting with and understanding others from a wide range of disciplines and functional areas (Ding 2008). People possessing these skills are able to shape their knowl- edge to fit problems and apply synergistic thinking (Leonard-Barton 1995). Unfortunately, most IT organizations encourage I-shaped skills—that is, deep functional expertise. As a result, the individual is driven ever deeper into his or her specialized set of skills (Leonard- Barton 1995).
Developing T-shaped IT staff addresses the concern some in the focus group expressed that emphasizing the development of “soft skills” could come at the expense of the excellent technology skills still needed by the organization. “You don’t want your staff becoming disconnected from their technological capabilities,” said one. “Connecting the dots” between the group’s comments and the research on communica- tion shows that four communication skills form the horizontal bar of the “T” for IT pro- fessionals (the vertical one being the professionals’ technology skills and knowledge):
1. Translation. IT staff typically fail miserably at translating IT issues and con- cerns into business impacts—as illustrated by the story at the beginning of this chapter. Eliminating jargon is the first step. “Too often our IT population speaks in nano-words and gigabits, instead of using the English language,” said a man- ager. However, translation requires more than this because it requires the ability to understand how IT initiatives will affect the business or deliver value to it. To com- municate effectively about IT’s value, IT managers “must translate IT’s operational performance into business performance . . . and drive home the message that all IT initiatives are business initiatives” (Hunter 2007). It is not often recognized that IT staff are effectively knowledge brokers and that translation is a critical part of their work (Pawlowski and Robey 2004). As a result, bridging and translation skills are still rare in IT, agreed the focus group.
The work involved in translation can be characterized as a four-step process where IT staff move from the world of technology into the world of business to dis- cuss problems in terms of business impact and possible business solutions and then back into IT to translate these solutions into technological reality (see Figure 5.2). “In the end,” said a manager, “we must be able to translate what the business knows and wants into actionable IT proposals.”
Chapter 5 • Communicating with Business Managers 59
2. Tailoring. IT staff also need to adapt their communication to the needs of their audience. This involves two skills. First, IT workers need to know their audience— understanding their needs, their agendas, and their politics—so that they communicate in ways the business needs and wants to hear (Burton et al. 2008). Second, all IT per- sonnel need to know how to choose communication methods appropriately. For example, bad news is best delivered in face-to-face meetings, not in reports or e-mails (as some in the focus group reported); and presentations to executives are not the place to expound on one’s technology expertise (Martin 2006).
3. Transparency. Transparency is a cornerstone of trust in the business–IT relation- ship (Smith and McKeen 2007), and IT managers should not assume that success speaks for itself. The business needs to see what is being done in IT and what it costs. In fact, it has been suggested that transparency is the key to changing the business’s perception of IT’s value (Levinson and Pastore 2005). At an individual level, one member of the focus group defined transparency as communication that is “honest, accurate, ethical, and respectful.” “We need honesty and openness,” stated another. Transparency also means involving the right people in making decisions and recog- nizing that the goal is to get the communication process flowing both ways (Burton et al. 2008; Dunne 2002). Other ways to promote transparent communication include checking assumptions, clarifying goals, stating intentions up front, and asking for feedback on understanding (Dunne 2002; Gilberg 2006).
4. Thinking, talking, and listening. An important communication skill that is increasingly valued by business is the ability to “think outside the box” and to challenge the status quo, albeit diplomatically and responsibly. Focus group man- agers suggested that IT staff need to think “horizontally” across the enterprise in order to do what is best for the business. Communicating innovative ideas effec- tively involves “getting inside the head of the business,” they explained. In the future, the ideal IT manager will “think and talk like a business person with a strong background in technology” (Kitzis and Gomolski 2006). Thinking, how- ever, does not mean simply blurting out ideas; it means understanding how and where to speak and how to listen to others. Learning to listen can be a challenge
Translation
Translation
BUSINESS IT
Business Impact of
Technology Issues
Business Solutions
IT Solutions
Technology Issues
fiGuRe 5.2 Communicating with Business Involves Translation
60 Section I • Delivering Value with IT
for IT staff who tend to be impatient with politics and the process of coming to a solution that everyone can live with (Dunne 2002). Similarly, IT staff can underesti- mate the importance of listening to nonverbal communication or the “noise” of the context in which communication takes place (Anonymous 2005; Coughlan et al. 2005). In short, this skill involves more than simply “talking and waiting to talk” but also incorporates a more sophisticated and nuanced awareness of the process of communication, recognizing that how one reaches a decision is as important to the success of communication as the actual decision itself.
impRovinG Business–it CommuniCation
The focus group managers were the first to admit that much more needs to be done in their own organizations to improve communication between IT and the business at all levels. However, they were also implementing a number of practices that they believed would promote the development of good communication skills among their staff and also as an IT function. Their recommendations included the following:
• Make the importance of effective communication visible. It is well accepted that if you want people to pay attention to something, you need to measure and incentiv- ize for it. Several managers felt that good communication skills should be expected of every IT staff member. “These are now baseline expectations for us,” said one. A key way to get staff to pay attention is to incorporate communication skills into performance appraisals. One company makes it clear that specialized “niche” skills are more likely to be outsourced and that those who understand and can work with the business are more likely to have a long-term career in its organization.
• Work with HR to develop new skills expectations and roles. Several firms are incorporating specific communication competencies into staff role descriptions. One is even trying to create jobs that have titles which reflect the types of com- petencies needed, such as “senior business consultant,” “technology relationship manager,” and “business technology specialist.” Another is trying to make it easier for IT staff to transfer laterally into the business for a period of time.
• Develop communication skills both formally and informally. To support these new expectations, some firms offer formal training in communication skills in areas such as making presentations, communication styles, and negotiations. Incorporating com- munication skills into personal development plans is one way some managers tailor formal skills development for personal needs. However, the effectiveness of formal training is “mixed,” said many managers, and some firms don’t offer it at all, or only as part of management development. More informal approaches include mentoring, lunch-and-learn sessions, and self-assessment tools.
• Increase the nature and frequency of communication. Although not an ini- tiative of any of the focus groups, the research is clear that creating a “virtuous communication cycle” starts with creating shared knowledge between the two groups all levels. There are few “quick fixes” to the communication problem, but the importance of regular communication between IT and business at all levels cannot be overemphasized (Reich and Benbasat 2000). Wherever possible, prior- ity should be given to informal communication and social interaction as these are the best ways to build up shared language and understanding (Burton et al.; 2008;
Chapter 5 • Communicating with Business Managers 61
Dunne 2002). These types of interactions are particularly important when face-to- face communication is irregular or impossible (Greenberg et al. 2007). Recognizing this, one company that makes extensive use of global, virtual teams encourages socialization, and even virtual parties, through its social networking technologies.
• Spend more time on communication. Most important, IT leaders at all levels need to spend more time on communication—not only in what and how they communicate personally but, rather, in learning how their staff and organizations communicate. They need to seek out and remove obstacles to communication, coach their staff, become sensitized to their organization’s communication processes (both formal and informal), and do whatever it takes to develop a shared understanding and language with the business. Although the initial investment of time may be high, it is certain to pay off in terms of an improved relationship with business and greater perceptions of IT value.
Conclusion
“What we have here is a failure to commu- nicate” is a famous (and sarcastic) movie quote that is nevertheless an extraordinarily accurate description of the business–IT rela- tionship. Although many words and docu- ments may flow between the two groups, it is fair to say that often little true commu- nication is occurring. This has resulted in misunderstandings, dysfunctional behavior, and, above all, a failure to deliver value to the organization. This chapter has examined the difficult and complex challenges facing IT leaders as they attempt to improve their function’s communication with the business. It demonstrated that good communication has both social and organizational dimen- sions, both of which need to be appropri- ately managed. It also showed that there is a “virtuous circle” of communication, which is associated with improved IT performance
and perceptions of IT value. In short, good communication is important to the success- ful implementation of IT in business, and developing it is therefore worth more time and attention than most managers currently pay to it. This chapter has focused on the IT side of the communication equation—since it is usually held to be the culprit in the sometimes nasty war of words that ranges back and forth between the two groups. There is much that can be done within IT to improve communication skills—without los- ing technology capabilities—but it neverthe- less behooves business managers to explore ways in which they can assist IT in doing this. Most important, they can make the time and effort to ensure that IT staff are well edu- cated in how their business works. If they do, business leaders just might find that many of IT’s “communication problems” disappear.
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Pawlowski, S., and D. Robey. “Bridging User Organizations: Knowledge Brokering and the Work of Information Technology Professionals.” MIS Quarterly 28, no. 4 (December 2004).
Peppard, J., and J. Ward. “Mind the Gap: Diagnosing the Relationship Between the IT Organization and the Rest of the Business.” Journal of Strategic Information Systems 8, no. 2 (1999).
Reich, B., and I. Benbasat. “Factors That Influence the Social Dimension of Alignment Between Business and Information Technology Objectives.” MIS Quarterly 24, no. 1 (March 2000).
Smith, H., and McKeen, J. “Managing Perceptions of IS.” Communications of the Association for Information Systems 20, Article 47 (November 2007): 760–73.
Tannen, D. “The Power of Talk: Who Gets Heard and Why.” Harvard Business Review (September–October 1995).
Willcoxson, L., and R. Chatham. “Progress in the IT/Business Relationship: A Longitudinal Assessment.” Journal of Information Technology 19, no. 1 (March 2004).
Chapter 5 • Communicating with Business Managers 63
Appendix A
IT Communication Competencies
Level 1 Listens and clearly presents information
• Listens/pays attention actively and objectively (Persons with hearing impairments may lip-read.) • Presents information and facts in a logical manner, using appropriate phrasing and vocabulary • Shares information willingly and on a timely basis • Communicates with others honestly, respectfully, and sensitively • Recognizes and uses nonverbal communications
Level 2 Fosters two-way communication
• Recalls others’ main points and takes them into account in own communication • Checks own understanding of others’ communication (e.g., paraphrases, asks questions) • Elicits comments or feedback on what has been said • Maintains continuous, open, and consistent communication with others, considering nonverbal
messaging as required
Level 3 Adapts communication
• Tailors communication (e.g., content, style, and medium) to diverse audiences • Reads cues from diverse listeners to assess when and how to change planned communication
approach to effectively deliver message • Communicates equally effectively with all organizational levels and sells ideas and concepts • Understands others’ complex or underlying needs, motivations, emotions, or concerns and
communicates effectively despite the sensitivity of the situation
Level 4 Communicates complex messages
• Communicates complex issues clearly and credibly with widely varied audiences • Handles difficult on-the-spot questions (e.g., from senior executives, public officials, interest
groups, or the media) • Reads nonverbal communications signs and adapts materials and approach as required • Overcomes resistance and secures support for ideas or initiatives through high-impact
communication
Level 5 Communicates strategically
• Scans the environment for key information and messages to form the development of com- munication strategies
• Communicates strategically to achieve specific objectives (e.g., considers optimal “messaging” and timing of communication)
• Uses varied communication vehicles and opportunities to promote dialogue and develop shared understanding and consensus
Reproduced by permission of the Information and Communications Technology Council (ICTC) of Canada www.ictc-ctic.ca
64
C h a p t e r
6 Building Better IT Leaders from the Bottom Up1
1 This chapter is based on the authors’ previously published article, Smith, H. A., and J. D. McKeen. “Building Better IT Leaders: From the Bottom Up.” Communications of the Association for Information Systems 16, article 38 (December 2005): 785–96. Reproduced by permission of the Association for Information Systems.
For IT to assume full partnership with the business, it will have to take a leadership role on many vital organizational issues. . . . This leadership role is not the exclusive prerogative of senior executives—it is the duty of all IT employees. Effective leadership has enormous benefits. To realize these benefits, leadership qualities should be explicitly recognized, reinforced, and rewarded at all levels of the IT organization. This only happens when a concerted effort is made to introduce leadership activities into the very fabric of the IT organization. Leadership is everyone’s job.
(McKeen and Smith 2003)
This quote, taken from a book we published several years ago, remains as true today as it was then. But a lot has happened in the interim. Chiefly, in the chaotic business conditions of late, IT leadership development got sidetracked. The dot-com boom and bust soured many companies on the top-line potential of IT and refocused most CIOs on developing strong processes to ensure that IT’s bottom line was kept under control (Roberts and Mingay 2004). But the wheel has turned yet again, and there is now renewed emphasis on how IT can help the organization achieve com- petitive differentiation and top-line growth (Korsten 2011).
The many new challenges facing IT organizations today—achieving busi- ness growth goals, enterprise transformation, coping with technical and relationship complexity, facilitating innovation and knowledge development, and managing an increasingly mobile and virtual workforce—call for strong IT leadership. Unfortunately, few IT leadership teams are well equipped for the job (Kaminsky 2012; Mingay et al.
Chapter 6 • Building Better IT Leaders from the Bottom Up 65
2004). Traditional hierarchical structures with command-and-control leadership are not only ineffective, but they also can actually become a barrier to the development of a high-performance IT department (Avolio and Kahai 2003). New communications tech- nologies are enabling new ways of leading and empowering even the most junior staff in new ways. These factors are all bringing senior IT managers around to a new appre- ciation of the need to build strong IT leaders at all levels of their organization.
This chapter looks first at the increasing importance of leadership in IT and how it is changing over time. Next, it examines the qualities that make a good IT leader. Then it looks at how companies are trying to develop better IT leaders at all levels in their organiza- tions. Finally, it outlines the value proposition for investing in IT leadership development.
The Changing Role of The iT leadeR
The death of the traditional hierarchical organizational structure and top-down com- mand-and-control leader has been predicted for more than two decades (Bennis and Nanus 1985), but it’s dying a slow and painful death. Although much lip service is paid to the need for everyone in IT to be a leader, the fact remains that the traditional style of leadership is still very much in evidence, especially in large IT organizations.
There appear to be at least three reasons for this. First, until now, there has been very little pressure to change. As one manager pointed out, “We’ve been focusing on centralizing our IT organization in the last few years, and centralized decision making is inconsistent with the philosophy of ‘Everybody leads.’” Those IT managers strug- gling with the complexities engendered by nonstandard equipment, nonintegrated systems, and multiple databases full of overlapping but inconsistent data can be for- given if this philosophy suggests the “Wild West” days of IT, when everyone did their own thing.
Second, the organizations within which IT operates are largely hierarchical as well. Their managers have grown up with traditional structures and chains of com- mand. They are comfortable with them and are uncomfortable when they see parts of their organization (e.g., IT) behaving and being treated differently by their CEO (Feld and Stoddard 2004). Senior management may, therefore, pressure IT to conform to the ways of the rest of the firm. This situation has recently become exacerbated by new compliance regulations (e.g., Sarbanes–Oxley, privacy legislation) that require hierar- chical accountability and severely limit flexibility. Third, many senior executives—even within IT—find it difficult to relinquish control to more junior staff because they know they still have accountability for their results. Keeping a hands-on approach to leader- ship, they believe, is the only way to ensure work gets done right.
However, in spite of the remarkable tenacity of the hierarchical organization, there are signs that traditional leadership modes in IT are now in retreat, and there is a growing recognition that IT organizations must do a better job of inculcating leader- ship behaviors in all their staff (Bell and Gerrard 2004; Kaminsky 2012). There are some very practical reasons all IT staff are now expected to act as leaders, regardless of their official job titles:
• Top-line focus. CEOs are looking for top-line growth from their organizations (Korsten 2011). New technologies and applications largely drive the enterprise differentiation and transformation efforts that will deliver this growth. Strong IT
66 Section I • Delivering Value with IT
leadership teams are needed to take on this role in different parts of the organi- zation and at different levels. They can do this effectively only by sharing clear goals and direction, understanding business strategy, and having the requisite “soft” skills to influence business leaders (Roberts and Mingay 2004; Weiss and Adams 2011).
• Credibility. No IT leadership initiatives within business will be accepted unless IT is consistently able to deliver results. This aspect of leadership is often called “management” and is considered somewhat less important than transformational aspects of leadership, but IT’s credentials in the latter rest solidly on the former (Bouley 2006; Mingay et al. 2004). No business organization will accept IT leadership in other areas unless it has demonstrated the skills and competencies to consistently deliver on what it says it will do. Furthermore, distinguishing between leadership and management leads to a dysfunctional IT organization. “Managers who don’t lead are boring [and] dispiriting, [whereas] leaders who don’t manage are distant [and] disconnected” (Mintzberg 2004). We have too often forgotten that top-level leaders are developed over time from among the rank and file, and that is where they learn how to lead.
• Impact. There is no question that individuals within IT have more opportuni- ties to affect an organization, both positively and negatively, than others at similar levels in the business. The focus group felt that this fact alone makes it extremely important that IT staff have much stronger organizational perspectives, decision- making skills, entrepreneurialism, and risk-assessment capabilities at lower levels. Today, because even small decisions in IT can have a major impact on an organiza- tion, it is essential that a CIO be confident that his or her most junior staff have the judgment and skills to take appropriate actions.
• Flexibility. Increasingly, IT staff and organizations are expected to be responsive to rapidly changing business needs and help the enterprise compete in a highly competitive environment. This situation requires IT staff to have not only the tech- nical skills required to address a variety of needs, but also the ability to act in the best interests of the organization wherever opportunities arise. “We are no longer order takers in IT,” stated one manager. “All our staff are expected to do the right things for our firm, even when it means saying ‘no’ to senior business manage- ment.” Similarly, doing the right things involves being proactive. These actions take significant amounts of organizational know-how to pull off—leadership skills that rank-and-file IT staff are not noted for at present.
• Complexity. The responsibilities of IT have grown increasingly complex over the past two decades (Smith and McKeen 2012). Not only is IT expected to be a high- performance organization, it is also expected to offer change and innovation leadership, interact with other organizations to deliver low-cost services, chart a path through ever-growing new technology offerings, and offer content leadership. The complexity of the tasks, relationships, knowledge, and integration now needed in IT means that leadership cannot rest in the hands of one person or even a team. Instead, new ways of instilling needed skills and competencies into all IT staff must be found.
• New technology. Smartphones, collaboration tools, instant messaging, and social media are all changing how leaders work—especially in IT. Increasingly, staff are virtual or mobile and their interactions with their managers are mediated
Chapter 6 • Building Better IT Leaders from the Bottom Up 67
by technology. At the same time, IT staff have much greater access more quickly to the same information as their managers. New technologies change how infor- mation is acquired and disseminated, how communication takes place, and how people are influenced and decisions made. Traditional forms of control are, thus, increasingly ineffective (Avolio and Kahai 2003).
All of these factors are driving the need to push leadership skills and compe- tencies further down in the IT organization. Traditional hierarchies will likely remain in place to define authority and accountability, and leadership is likely to become increasingly situational—to be exercised as required by tasks and conditions (Bell and Gerrard 2004; Kaminsky 2012). With the demands on IT projected to be ever greater in the next decade, the need for more professional and sophisticated IT leadership is also greater than ever before (Korsten 2011). In fact, many believe that IT leadership will determine “which [IT] organizations disappear into the back office of utility services and which ones build companywide credibility and drive business growth and ability” (Mingay et al. 2004).
WhaT Makes a good iT leadeR?
In many ways the qualities that make a good IT leader resemble those that make any other good leader. These can be divided into two general categories:
1. Personal mastery. These qualities embody the collection of behaviors that deter- mine how an individual approaches different work and personal situations. They include a variety of “soft” skills, such as self-knowledge, awareness of individual approaches to work, and other personality traits. Most IT organizations include some form of personal mastery assessment and development as part of their man- agement training programs. Understanding how one relates to others, how they respond to you, and how to adapt personal behaviors appropriately to different sit- uations is a fundamental part of good leadership. One company’s internal leader- ship document states, “Leaders must exercise self-awareness, monitor their impact on others, be receptive to feedback, and adjust to that feedback.” “The higher up you get in IT, the greater the need for soft skills,” claimed one member. Another noted the positive impact of this type of skills development: “It’s quite evident who has been on our management development program by their behaviors.” An increasingly important component of this quality for IT staff is personal integrity— that is, the willingness to do what you say you are going to do—both within IT and with external parties such as users and vendors.
2. Leadership skill mastery. These qualities include the general leadership skills expected of all leaders in organizations today, such as motivation, team building, collaboration, communication, risk assessment, problem solving, coaching, and mentoring. These are skills that can be both taught and modeled by current leaders and are a necessary, but not sufficient, component of good IT leadership (Bouley 2006).
However, good IT leaders are required to have a further set of skills that could be collectively called “strategic vision” if they are going to provide the direction and deliver the impact that organizations are expecting from IT. Because this is a “soft skill,”
68 Section I • Delivering Value with IT
there is no firm definition of this quality, but several components that help to develop this quality at all levels in IT can be identified, including the following:
• Business understanding. It should go without saying that for an IT leader to have strategic vision, he or she should have a solid understanding of the organization’s current operations and future direction. This is well accepted in IT today, although few IT organizations have formal programs to develop this understanding. Most IT staff are expected to pick it up as they go along, mostly at the functional busi- ness process level. This may be adequate at junior levels, but being able to apply strategic vision to a task also involves a much broader understanding of the larger competitive environment, financial management, and marketing. “Our customers are now our end users. With our systems now reaching customers and reaching out horizontally in the organization and beyond, IT staff all need a broader and deeper appreciation of business than ever before,” said one manager.
• Organizational understanding. A key expectation of strategic vision in IT is enter- prise transformation (Korsten 2011; Mingay et al. 2004). This involves more than just generating insights into how technology and processes can be utilized to cre- ate new products and services or help the organization work more effectively; it also involves the effective execution of the changes involved. IT professionals have long known that technology must work in combination with people and processes to be effective. This is why they are now expected to be experts in change man- agement (Kaminsky 2012). But being able to drive transformation forward involves a number of additional skills, such as political savvy (to overcome resistance and negative influences), organizational problem solving (to address conflicting stake- holder interests), effective use of governance structures (to ensure proper support for change), and governance design (to work with partners and service providers) (Bell and Gerrard 2004; Kim and Maugorgne 2003; Raskino et al. 2013). Because IT people come from a technical background and their thinking is more analytical, they typically do not have strong skills in this area and need to acquire them.
• Creating a supportive working environment. Most IT work is done in teams. Increasingly, these teams are virtual and include businesspeople, staff from ven- dor companies, and members from different cultures. Motivating and inspiring one’s colleagues to do their best, dealing with relationship problems and conflicts, and making decisions that are consistent with the overall goals of the organiza- tion and a particular initiative are the job of every IT staff member. Since much leadership in a matrixed organization such as IT is situational, an IT professional could be a leader one day and a follower the next. Thus, that person must know how to create a work environment that is characterized by trust, empowerment, and accountability. This involves clear communication of objectives, setting the rules of engagement, developing strong relationships (sometimes virtually), and providing support to manage risks and resolve issues (Bell and Gerrard 2004; Kaminsky 2012; Light 2013).
• Effective use of resources. A good IT leader knows how to concentrate scarce resources in places where they will have the biggest payoff for the organization. This means not only making use of processes and tools to stretch out limited staff but also understanding where resources should not be used (i.e., saying “no”). In the longer term, using resources wisely may mean using job assignments and
Chapter 6 • Building Better IT Leaders from the Bottom Up 69
budgets to enhance people’s capabilities, identifying and developing emergent leaders, and using reward and recognition programs to motivate and encour- age staff (Anonymous 2004). Unfortunately, IT staff have often been spread too thinly, underappreciated, and not given time for training. Good IT leaders value their people, run interference for them when necessary, and work to build “bench strength” in their teams and organizations.
• Flexibility of approach. A good IT leader knows where and how to exercise leadership. “Skill mastery must be complemented with the ability to know when and where particular behaviors/skills are required and . . . how they should be deployed” (McKeen and Smith 2003). Even though this is true in all parts of the organization, leadership in IT can be a rapidly shifting target for two reasons. First, IT staff are well-educated, well-informed professionals whose opinions are valu- able. “Good IT leaders know when to encourage debate and also when to close it down,” said a manager. Second, the business’s rapid shifts of priority, the changing competitive and technical environment, and the highly politicized nature of much IT work mean that leaders must constantly adjust their style to suit a dynamic topography of issues and priorities. “There is a well-documented continuum of leadership styles. . . . The most appropriate style depends on the enterprise style and the business and strategic contexts” (Roberts and Mingay 2004).
• Ability to gain business attention. A large component of IT leadership is focused not on the internal IT organization but outward toward all parts of the business. One of the biggest challenges for today’s IT leaders is the fact that the focus of their work is more on business value than on technology (Korsten 2011). The ability to motivate business executives, often in more senior positions, lead business transformation, and gain and maintain executive attention is central to establishing and maintaining IT credibility in an organization (Kaminsky 2012; McDonald and Bace 2004). A good IT leader knows how to position his or her contribution in tangible, business terms; how to interact with business lead- ers; and how to guide and educate them about the realities of IT use. “Bringing value to the business is a very important trend in IT leadership,” stated one participant.
IT leaders will need more or fewer of these qualities, depending on the scope and type of their work. Obviously, IT staff responsible for sourcing will need a different mix of these skills than will those with an internal IT focus or those with a business focus.
Leadership Styles Vary According to the Degree of Involvement of Team Members
• Commanding. “Do what I tell you.” • Pacesetting. “Do as I do now.” • Visionary. “Come with me.” • Affiliate. “People come first.” • Coaching. “Try this.” • Democratic. “What do you think?”
(after Roberts and Mingay 2004)
70 Section I • Delivering Value with IT
They will also be more important the higher one moves in the management hierarchy. Nevertheless, these are skills that IT organizations should endeavor to grow in all their staff from the most junior levels. Since these skills take time and practice to develop and are in increasing demand, senior IT managers should put concrete plans in place to ensure that they will be present when needed.
hoW To Build BeTTeR iT leadeRs
Everyone agrees that fostering leadership skills throughout all levels of IT is important to IT’s future effectiveness (Bell and Gerrard 2004; Kaminsky 2012; Mingay et al. 2004; Mintzberg 2004). However, the reality is that leadership development is very hit and miss in most IT organizations. Many formal leadership courses have been cut or scaled back substantially because of cost-control initiatives. When offered, most IT leadership programs limit attendance to managers. Few organizations have articulated a com- prehensive program of leadership development that includes other initiatives besides training.
Leadership development in IT is not as simple as sending a few handpicked indi- viduals on a training course. In fact, formal training may be one of the least effective (and most expensive) aspects of building better IT leaders (Kesner 2003). Any compre- hensive leadership development program has three layers (see Figure 6.1). The first, most important, and probably the most difficult one is an environment within which leaders at all levels can flourish. It is often suggested that leaders, like cream, will natu- rally rise to the top regardless of the conditions in which they work. The reality is that more and better leaders are created when organizations have a supportive process for developing them that is widely understood. What’s needed is “a culture that nurtures talented managers, rather than one that leaves them to struggle through a Darwinian survival game” (Griffin 2003). There is general agreement on what constitutes this type of culture:
A Supportive Environment
Processes and Practices
Formal Training
figuRe 6.1 Effective Leadership Development Involves More then Training
Chapter 6 • Building Better IT Leaders from the Bottom Up 71
• Well-articulated and instantiated values. Values guide how staff should behave even when their managers aren’t around. They provide a basis for sound decision making (IBM 2012; Stewart 2004). “If you’re going to push leadership down in the organization, you have to push values down as well,” stated one manager. Others noted that senior IT leadership should primarily be about forming and modeling values, not managing tasks. Values are especially important now that staff are more mobile and virtual (Cascio and Shurygailo 2003; IBM 2012). A strong value system is crucial to bringing together and motivating a large, diverse workforce and help- ing staff act in ways that support the company’s brand and values. Unfortunately, although many organizations have values, they are often out of date or not mod- eled by management (Stewart 2004).
• A climate of trust. Trust that management means what it says about values and leadership development must be established early in any program. Trust is estab- lished by setting expectations and delivering results that meet or exceed those expectations. By sending clear messages to staff and exhibiting positive attitudes about staff behavior, senior IT managers will help people feel they can begin to take some risks and initiatives in their work (Cascio and Shurygailo 2003). If people feel their culture is based on fair processes and that they can draw lessons from both good and bad results, they will start to respond with the type of high performance and leadership behaviors that are expected (Kim and Maugorgne 2003). Conversely, senior managers must take steps to weed out counterpro- ductive behaviors, such as poor collaboration, that will undermine this climate (Roberts and Mingay 2004).
• Empowerment. Empowerment thrives in a climate of trust, but leaders need to deliberately encourage it as well. In IT one of the most important ways to do this is to create mechanisms to support staff’s making difficult decisions. One company recognized this by explicitly making “We’ll support you in doing the right things” a central element in revamping its leadership promise. To make it real and visible, the company established a clear process for junior staff to resolve potential con- flicts with users about disagreements on what is “the right thing.” Furthermore, they have established committees to help manage the risks involved in IT work, get at the root cause of recurring issues, and protect the promises made to business partners. Such processes, in conjunction with values and trust, create a manage- ment system that empowers people and frees them to make appropriate decisions (Stewart 2004). By staying connected with staff as teachers, coaches, champions, and mentors, more senior leaders help more junior staff to take “intelligent risks” and sponsor initiative (Light 2013; Taurel 2000).
• Clear and frequent communication. As with other types of change, one cannot communicate too much about the need to create an environment to foster leader- ship. “In spite of all we know about communication, it’s still one of our biggest leadership gaps,” said a participant. Open, two-way communication is the hall- mark of modern leadership. Leaders and followers are gradually learning how to effectively use the electronic nervous system that now runs through all orga- nizations (Avolio and Kahai 2003). Use of information technology and multiple channels is now the norm, and redundancy is advisable because of the increased opportunities for miscommunication in the virtual world. Senior executives are using IT to communicate interactively with their most junior staff (Stewart
72 Section I • Delivering Value with IT
2004). One company has established an “Ask Phil” e-mail whereby any member of IT can direct questions to the CIO. Leadership is about developing relation- ships with people. It engages them and helps direct them to a particular goal. Learning to leverage all conduits of communication to build and sustain an array of relationships is, therefore, central to becoming an effective IT leader (Avolio and Kahai 2003).
• Accountability. Acceptance of accountability is a key component of leadership. A climate where accountabilities are clear is an important aspect of a leadership development culture (Bell and Gerrard 2004). Natural leaders often first come to senior management’s attention because they consistently deliver on what they promise. The concept of accountability is also being extended to include expecta- tions that IT staff will assist the business in achieving its growth goals and that IT will not create technical impediments to implementing business strategies (Mingay et al. 2004). Unfortunately, IT accountability is frequently absent, and this has nega- tively affected the perceptions of IT leadership in the rest of the organization (Feld and Stoddard 2004). No member of IT should be allowed to abdicate responsibility for delivering results. However, focus group members stressed that in order to cre- ate a culture of accountability, IT leaders must also provide the processes, tools, and support to produce successful results.
The second layer of a leadership development program involves building leadership activities into IT’s processes and daily work. Well-designed and documented processes for such activities as planning, budgeting, conflict resolution, service delivery, and financial reviews and approvals clearly articulate the individual elements that con- tribute to leadership in particular situations. They make it easier for more junior staff to carry out these activities and to learn what is expected of them (Bell and Gerrard 2004). They also establish boundaries within which staff can exercise judgment and take risks.
Human resources management practices are a key component of fostering leadership at this level as well. Many companies have begun to document the compe- tencies that they expect staff to exhibit in each job category and level. These typically include leadership as well as technical skills. “It gets harder to do this the higher up the management hierarchy one goes,” stated one manager. “At the more senior levels, leadership skills are much more individualized and are more difficult to capture, but we’re working on it.” Specific training and development strategies work well for each job stream at more junior levels. With more senior positions, development plans should be created for each individual.
Job assignments are one of the most important ways to develop leadership exper- tise. In fact, some experts suggest that 80 percent of the levers management has at its disposal in this area are related to how a company uses assignments and job postings to influence an individual’s experience (Kesner 2003). Job rotations, stretch assignments, and on-the-job coaching and mentoring are all effective ways to build leadership skills. Occasionally, this may entail taking risks and not always appointing the most qualified person for a particular job (Roberts and Mingay 2004). Sometimes, this should involve moving a person out of IT into the business for an assignment. All organizations should have processes in place to identify emergent leaders and take proactive steps to design individualized strategies of coaching and assignments that will fit their unique person- alities (Griffin 2003). Succession planning should be a significant part of this process as
Chapter 6 • Building Better IT Leaders from the Bottom Up 73
well. Recruiting leaders from outside is sometimes necessary, but this is a far more risky and expensive way to address succession than growing leaders from within (Roberts and Mingay 2004).
Finally, at the core of any leadership development program is formal training. Commitment to formal leadership training in organizations has been patchy at best. Training can be internally developed or externally purchased. The fastest-growing seg- ment of executive education is customized programs for a particular organization that are specifically tied to business drivers and values (Kesner 2003). In-house programs are best for instilling vision, purpose, values, and priorities. External training is best used for introducing new knowledge, practices, and thinking to leadership.
Because of the time and expense involved, leadership training should be used strategically rather than comprehensively. Often IT resources can be so stretched that finding time for development is the biggest challenge. One company reasserted the importance of training by promising its staff that it would spend its entire annual train- ing budget for the first time! This organization sees training as one tool for helping individuals make their best contributions and achieving success; interestingly, it has found that making it easier to find appropriate courses through the creation of a formal curriculum and streamlining the registration and payment processes has led to a sig- nificant uptake in employees’ taking advantage of development opportunities.
invesTing in leadeRship developMenT: aRTiCulaTing The value pRoposiTion
Although leadership development is widely espoused, many organizations have reduced their budgets in recent years, and that has hit formal training programs hard. One manager remarked that his staff knew senior management was serious about development when it maintained training budgets while trimming in other areas. However, as mentioned earlier, training is only one facet of a good leadership develop- ment program, and doing it right will take executive time and consistent attention, in addition to the costs involved in establishing and following through on necessary com- munications, procedures, and planning. It is essential to articulate the value proposition for this initiative.
Experts suggest that several elements of value can be achieved by implementing a leadership development program. Using a rubric established by Smith and McKeen (see Chapter 1), these elements include the following:
• What is the value? Because different companies and managers have different perceptions of value, it is critical that the value that is to be achieved by a lead- ership development program be clearly described and agreed on. Some of the value elements that organizations could achieve with leadership development include improved current and future leadership capabilities and bench strength (preventing expensive and risky hires from outside), improved innovation and alignment with business strategy, improved teamwork (both internally and cross- functionally), improved collaboration and knowledge sharing, greater clarity of purpose and appropriate decision making, reduced risk, and a higher- performing IT organization. When these value objectives are understood, it is possible to develop metrics to determine whether or not the program is successful. Having
74 Section I • Delivering Value with IT
a focus and metrics for a leadership program will ensure that management pays attention to it and that it doesn’t get shunted into a corner with the “soft and fuzzy stuff” (Kesner 2003).
• Who will deliver the value? Because leadership development is partially HR’s responsibility and partially IT’s, clarifying which parts of the program should be delivered by which group is important. Similarly, much of the coaching, mentor- ing, and experiential components will be fulfilled by different managers within IT. It is, therefore, important for senior management to clarify roles and responsi- bilities for leadership development and ensure they are implemented consistently across the organization. Ideally, senior IT management will retain responsibil- ity for the outer layer of the leadership program—that is, creating a supportive working environment. At one company the senior IT team created several pack- aged presentations for middle managers to help them articulate their “leadership promises.”
• When will value be realized? Leadership development should have both long- and short-term benefits. Effective training programs should result in visible behavior changes, as already noted. The initial impacts of a comprehensive leader- ship initiative should be visible in-house within a year and to business units and vendors within eighteen to twenty-four months (McDonald and Bace 2004). Again, metrics are an essential part of leadership programs because they demonstrate their success and effectiveness. Although there is no causal link between leadership development and improved business results, there should be clear and desirable results achieved (Kesner 2003). Using a “balanced scorecard” approach to track the different types of impacts over time is recommended. This methodology can be used to demonstrate value to IT managers, who may be skeptical, and to HR and senior management. It can also be used to make modifications to the program in areas where it is not working well.
• How will value be delivered? This is the question that everyone wants to ask first and that should only be addressed after the other questions have been answered. Once it is clear what IT wants to accomplish with leadership development, it will be much easier to design an effective program to deliver it.
Conclusion
Leadership development in IT is something that everyone agrees is increasingly important to helping companies achieve their business goals. However, all too often it is a hit-and- miss exercise, depending on management whim and budget availability. It is now clear that senior IT leaders must make leadership development a priority if IT is going to con- tribute to business strategy and help deliver
services in an increasingly competitive envi- ronment. To do this, leadership develop- ment in IT must start with the most junior IT staff. An effective program involves more than just training. It must include the cre- ation of a supportive work environment and the development of processes that deliver on management’s promises. However, no lead- ership program should be implemented in a
Chapter 6 • Building Better IT Leaders from the Bottom Up 75
vacuum. There should be a clearly articulated proposition outlining its value to the organi- zation and a set of metrics to monitor its effec- tiveness. Like technology itself, leadership
development will be effective only if manage- ment takes a comprehensive approach that integrates culture, behavior, processes, and training to deliver real business value.
Anonymous. “A Guide for Leaders.” Presentation to the IT Management Forum, November 2004.
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Bell, M., and M. Gerrard. “Organizational Chart Is Falling into Irrelevance.” Gartner Inc., ID Number: QA-22-2873, July 6, 2004.
Bennis, W. G., and B. Nanus. Leaders: The Strategies for Taking Charge. New York: Harper and Row, 1985.
Bouley, J. “Leading versus Managing.” PM Network 20, no. 2 (2006).
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Light, M. “To Discern Potential Mastery, Assess Project Management Leadership and Planning Expertise.” Gartner Inc., ID Number: G00258389, November 8, 2013.
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References
Mini Case Delivering Business Value with IT at Hefty Hardware2
“IT is a pain in the neck,” groused Cheryl O’Shea, VP of retail marketing, as she slipped into a seat at the table in the Hefty Hardware executive dining room, next to her colleagues. “It’s all technical mumbo-jumbo when they talk to you and I still don’t know if they have any idea about what we’re trying to accomplish with our Savvy Store program. I keep explaining that we have to improve the customer experience and that we need IT’s help to do this, but they keep talking about infrastructure and bandwidth and technical architecture, which is all their internal stuff and doesn’t relate to what we’re trying to do at all! They have so many processes and reviews that I’m not sure we’ll ever get this project off the ground unless we go outside the company.”
“You’ve got that right,” agreed Glen Vogel, the COO. “I really like my IT account manager, Jenny Henderson. She sits in on all our strategy meetings and seems to really understand our business, but that’s about as far as it goes. By the time we get a project going, my staff are all complaining that the IT people don’t even know some of our basic business functions, like how our warehouses operate. It takes so long to deliver any sort of technology to the field, and when it doesn’t work the way we want it to, they just shrug and tell us to add it to the list for the next release! Are we really getting value for all of the millions that we pour into IT?”
“Well, I don’t think it’s as bad as you both seem to believe,” added Michelle Wright, the CFO. “My EA sings the praises of the help desk and the new ERP system we put in last year. We can now close the books at month-end in 24 hours. Before that, it took days. And I’ve seen the benchmarking reports on our computer operations. We are in the top quartile for reliability and cost-effectiveness for all our hardware and systems. I don’t think we could get IT any cheaper outside the company.”
“You are talking ‘apples and oranges’ here,” said Glen. “On one hand, you’re saying that we’re getting good, cheap, reliable computer operations and value for the money we’re spending here. On the other hand, we don’t feel IT is contributing to creating new business value for Hefty. They’re really two different things.”
“Yes, they are,” agreed Cheryl. “I’d even agree with you that they do a pretty good job of keeping our systems functioning and preventing viruses and things. At least we’ve never lost any data like some of our competitors. But I don’t see how they’re contributing to executing our business strategy. And surely in this day and age with increased competition, new technologies coming out all over the place, and so many changes in our economy, we should be able to get them to help us be more flexible, not less, and deliver new products and services to our customers quickly!”
2 Smith, H. A., and J. D. McKeen. “Delivering Business Value with IT at Hefty Hardware.” #1-L10-1-001, Queen’s School of Business, May 2010. Reproduced by permission of Queen’s University, School of Business, Kingston, Ontario, Canada.
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Delivering Business Value with IT at Hefty Hardware 77
The conversation moved on then, but Glen was thoughtful as he walked back to his office after lunch. Truthfully, he only ever thought about IT when it affected him and his area. Like his other colleagues, he found most of his communication with the depart- ment, Jenny excepted, to be unintelligible, so he delegated it to his subordinates, unless it absolutely couldn’t be avoided. But Cheryl was right. IT was becoming increasingly important to how the company did its business. Although Hefty’s success was built on its excellent supply chain logistics and the assortment of products in its stores, IT played a huge role in this. And to implement Hefty’s new Savvy Store strategy, IT would be critical for ensuring that the products were there when a customer wanted them and that every store associate had the proper information to answer customers’ questions.
In Europe, he knew from his travels, IT was front and center in most cutting- edge retail stores. It provided extensive self-service to improve checkout; multichannel access to information inside stores to enable customers to browse an extended product base and better support sales associates assisting customers; and multimedia to engage customers with extended product knowledge. Part of Hefty’s new Savvy Store business strategy was to copy some of these initiatives, hoping to become the first retailer in North America to completely integrate multimedia and digital information into each of its 1,000 stores. They’d spent months at the executive committee meetings working out this new strategic thrust—using information and multimedia to improve the customer experience in a variety of ways and to make it consistent in each of their stores. Now, they had to figure out exactly how to execute it, and IT was a key player. The question in Glen’s mind now was how could the business and IT work together to deliver on this vision, when IT was essentially operating in its own technical world, which bore very little relationship to the world of business?
Entering his office, with its panoramic view of the downtown core, Glen had an idea. “Hefty’s stores operate in a different world than we do at our head office. Wouldn’t it be great to take some of our best IT folks out on the road so they could see what it’s really like in the field? What seems like a good idea here at corporate doesn’t always work out there, and we need to balance our corporate needs with those of our store operations.” He remembered going to one of Hefty’s smaller stores in Moose River and seeing how its managers had circumvented the company’s stringent security protocols by writing their passwords on Post-it notes stuck to the store’s only computer terminal.
So, on his next trip to the field he decided he would take Jenny, along with Cheryl and the Marketing IT Relationship Manager, Paul Gutierez, and maybe even invite the CIO, Farzad Mohammed, and a couple of the IT architects. “It would be good for them to see what’s actually happening in the stores,” he reasoned. “Maybe once they do, it will help them understand what we’re trying to accomplish.”
A few days later, Glen’s e-mailed invitation had Farzad in a quandary. “He wants to take me and some of my top people—including you—on the road two weeks from now,” he complained to his chief architect, Sergei Grozny. “Maybe I could spare Jenny to go, since she’s Glen’s main contact, but we’re up to our wazoos in alligators trying to put together our strategic IT architecture so we can support their Savvy Stores initiative and half a dozen more ‘top priority’ projects. We’re supposed to present our IT strategy to the steering committee in three weeks!”
“And I need Paul to work with the architecture team over the next couple of weeks to review our plans and then to work with the master data team to help them outline their information strategy,” said Sergei. “If we don’t have the infrastructure and
78 Section I • Delivering Value with IT
integrated information in place there aren’t going to be any ‘Savvy Stores’! You can’t send Paul and my core architects off on some boondoggle for a whole week! They’ve all seen a Hefty store. It’s not like they’re going to see anything different.”
“You’re right,” agreed Farzad. “Glen’s just going to have to understand that I can’t send five of our top people into the field right now. Maybe in six months after we’ve finished this planning and budget cycle. We’ve got too much work to do now. I’ll send Jenny and maybe that new intern, Joyce Li, who we’re thinking of hiring. She could use some exposure to the business, and she’s not working on anything critical. I’ll e-mail Jenny and get her to set it up with Glen. She’s so great with these business guys. I don’t know how she does it, but she seems to really get them onside.”
Three hours later, Jenny Henderson arrived back from a refreshing noontime workout to find Farzad’s request in her priority in-box. “Oh #*!#*@!” she swore. She had a more finely nuanced understanding of the politics involved in this situation, and she was standing on a land mine for sure. Her business contacts had all known about the invitation, and she knew it was more than a simple request. However, Farzad, hav- ing been with the company for only eighteen months, might not recognize the olive branch that it represented, nor the problems that it would cause if he turned down the trip or if he sent a very junior staff member in his place. “I have to speak with him about this before I do anything,” she concluded, reaching for her jacket.
But just as she swiveled around to go see Farzad, Paul Gutierez appeared in her doorway, looking furious. “Got a moment?” he asked and, not waiting for her answer, plunked himself down in her visitor’s chair. Jenny could almost see the steam coming out of his ears, and his face was beet red. Paul was a great colleague, so mentally put- ting the “pause” button on her own problems, Jenny replied, “Sure, what’s up?”
“Well, I just got back from the new technology meeting between marketing and our R&D guys, and it was just terrible!” he moaned. I’ve been trying to get Cheryl and her group to consider doing some experimentation with cell phone promotions—you know, using that new Japanese bar coding system. There are a million things you can do with mobile these days. So, she asked me to set up a demonstration of the technol- ogy and to have the R&D guys explain what it might do. At first, everyone was really excited. They’d read about these things in magazines and wanted to know more. But our guys kept droning on about 3G and 4G technology and different types of connec- tivity and security and how the data move around and how we have to model and architect everything so it all fits together. They had the business guys so confused we never actually got talking about how the technology might be used for marketing and whether it was a good business idea. After about half an hour, everyone just tuned out. I tried to bring it back to the applications we could develop if we just invested a little in the mobile connectivity infrastructure, but by then we were dead in the water. They wouldn’t fund the project because they couldn’t see why customers would want to use mobile in our stores when we had perfectly good cash registers and in-store kiosks!”
“I despair!” he said dramatically. “And you know what’s going to happen don’t you? In a year or so, when everyone else has got mobile apps, they’re going to want us to do something for them yesterday, and we’re going to have to throw some sort of stopgap technology in place to deal with it, and everyone’s going to be complaining that IT isn’t helping the business with what it needs!”
Jenny was sympathetic. “Been there, done that, and got the T-shirt,” she laughed wryly. “These tech guys are so brilliant, but they can’t ever seem to connect what they
Delivering Business Value with IT at Hefty Hardware 79
know to what the business thinks it needs. Sometimes, they’re too farsighted and need to just paint the next couple of steps of what could be done, not the ‘flying around in jetpacks vision.’ And sometimes I think they truly don’t understand why the business can’t see how these bits and bytes they’re talking about translate into something that it can use to make money.” She looked at her watch, and Paul got the hint. He stood up. “Thanks for letting me vent,” he said. “You’re a good listener.”
“I hope Farzad is,” she thought grimly as she headed down the hall. “Or he’s going to be out of here by Thanksgiving.” It was a sad truth that CIOs seemed to turn over every two years or so at Hefty. It was almost predictable. A new CEO would come in, and the next thing you knew the CIO would be history. Or the user satisfaction rate would plummet, or there would be a major application crash, or the executives would complain about how much IT cost, or there would be an expensive new system failure. Whatever it was, IT would always get blamed, and the CIO would be gone. “We have some world-class people in IT,” she thought, “but everywhere we go in the business, we get a bad rap. And it’s not always our fault.”
She remembered the recent CIM project to produce a single customer database for all of Hefty’s divisions: hardware, clothing, sporting goods, and credit. It had seemed to be a straightforward project with lots of ROI, but the infighting between the client divisions had dragged the project (and the costs) out. No one could agree about whose version of the truth they should use, and the divisions had assigned their most junior people to it and insisted on numerous exceptions, workarounds, and enhancements, all of which had rendered the original business case useless. On top of that, the company had undergone a major restructuring in the middle of it, and a lot of the major play- ers had changed. “It would be a lot easier for us in IT if the business would get its act together about what it wants from IT,” she thought. But just as quickly, she recognized that this was probably an unrealistic goal. A more practical one would be to find ways for business and IT to work collaboratively at all levels. “We each hold pieces of the future picture of the business,” she mused. “We need to figure out a better way to put them together than simply trying to force them to fit.”
Knocking on Farzad’s door, she peeked into the window beside it. He seemed lost in thought but smiled when he saw her. “Jenny!” he exclaimed. “I was just think- ing about you and the e-mail I sent you. Have you done anything about it yet?” When she shook her head, he gave a sigh of relief. “I was just rethinking my decision about this trip, and I’d like your advice.” Jenny gave her own mental sigh and stepped into the office. “I think we have a problem with the business and we need to fix it—fast,” she said. “I’ve got some ideas, and what to do about the trip is just part of them. Can we talk?” Farzad nodded encouragingly and invited her to sit down. “I agree with you, and I’d like to hear what you have to say. We need to do things differently around here, and I think with your help we can. What did you have in mind?”
Discussion Questions
1. Overall, how effective is the partnership between IT and the business at Hefty Hardware? Identify the shortcomings of both IT and the business.
2. Create a plan for how IT and the business can work collaboratively to deliver the Savvy Store program successfully.
Mini Case Investing in TUFS3
“Why do I keep this around?” Martin Drysdale wondered. “It infuriates me every time I see all that satisfaction over something that is now the bane of my existence.”
He looked gloomily at the offending photo, which showed the project team hap- pily “clinking” pop cans and coffee cups in a toast: “Here’s to TUFS!” The Technical Underwriting Financial System (TUFS) was the largest single investment in IT ever made by Northern Insurance, and it was going to transform Northern by streamlining the underwriting processes and providing strategic e-business capabilities. The TUFS team had brought the project in on time and on budget, so the party was a thank-you for all of the team’s dedicated, hard work. But it was two years ago when the camera captured the happy moment for posterity, and Martin, CIO for Northern, had celebrated with the rest.
“Yeah, right,” Martin grimaced as he turned from the photo to the e-mail message on his computer screen, summoning him to a meeting with his boss that morning to discuss TUFS. The system had turned into a nightmare in its first few months of opera- tion. Now his job was on the line. What was supposed to have brought efficiency to the underwriting process and new opportunities for top-line growth had become a major corporate money pit. TUFS was still eating up the vast majority of Northern’s IT budget and resources to fix the underwriting errors that kept appearing, and resistance to the system had grown from sniping and grumbling into calls for Martin’s head. “No wonder we’re not saving any money, though, with senior underwriting managers still insisting on receiving some of their old reports, even though TUFS lets them look up the same information online anytime they want,” Martin fumed. The meeting with the CFO was to discuss TUFS and the company’s “very significant investment in this system.” Feeling like a condemned prisoner on his way to the gallows, Martin grabbed his suit jacket, straightened his tie, and headed up to the seventh-floor executive suite.
An hour later Martin was feeling very well grilled as he was confronted with a long list of the problems with TUFS. The CFO, Melissa Freeman, had done her home- work. Before her was a binder full of TUFS documentation, stretching back almost three years from when the project had been first identified. “According to my calculations, Northern has spent almost $4 million on this system, if you include all of the resources dedicated to fixing the problems identified after implementation,” she noted. “And I have yet to see any cost savings in the underwriting department. Why?”
“It’s true that there have been some unanticipated changes to the system that have cost us, but the underwriters have never bought into the system,” Martin conceded. “They insist on following their old procedures and then using the system at the last pos- sible moment as a double-check. What can we do if they won’t use the system the way it was designed?”
3 Smith, H. A., and J. D. McKeen. “Investing in TUFS.” #9-L05-1-003, Queen’s School of Business, February 2005. Reproduced by permission of Queen’s University, School of Business, Kingston, Ontario, Canada.
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“Could there possibly be a reason why they don’t like the system?” Freeman asked. “It seems to me from looking at these change reports that the system hasn’t been meet- ing our basic underwriting needs.”
Martin acknowledged that there had been some problems. “But my guys are tech- nicians, not underwriters. They didn’t get much participation from the underwriters in the first place. The underwriting department wouldn’t take the time to bring my people up to speed on what they needed and why. As well, we were facing a very tight deadline, which meant that we had to defer some of the functionality we had origi- nally intended to include. That was senior management’s decision, and everyone was informed about it when it was made.” He added that they were now asking for a TUFS training program and a help desk to handle questions that underwriters might face while using the system!
“A help desk and training program weren’t in our original plan,” Martin reminded Freeman. “These extras are eating away at the system’s benefits.” According to the busi- ness case prepared by the users, TUFS was supposed to pay for itself over its first two years of operations from savings realized from the underwriting process. The system’s problems certainly accounted for some of the extra costs, but the users hadn’t made any of the process changes that would help those savings be realized. “They think we can just plug in the system and cost savings will appear like magic. And other parts of the system are going to take time to deliver benefits.”
The “other parts” he was referring to were the e-business capabilities that TUFS provided. “If you will recall, this system was approved in the days when we had to have e-business or we were going to be dinosaurs. In retrospect, we could have cut back on this functionality more easily and left some of the underwriting functionality in, but who knew?”
“Well, as you know, our financial resources are very limited at present.” Freeman leaned forward. “I’ve been asked to make some recommendations to the executive com- mittee about whether or not we should put more money into this system. TUFS has been our number-one priority for two years now, and quite a few people are saying that enough is enough—that we need to make some major changes around here.”
Martin took a deep breath, waiting for the ax to fall. Freeman continued, “What I need to know now from you is this: What went wrong with our TUFS investment, and what can we do to prevent these problems in the future? What do we need to do to real- ize the benefits that were projected for TUFS? How can we measure these benefits? And how can we best decide how to apportion our IT budget between TUFS and these other projects?”
As he slowly exhaled and felt his pulse resume, Martin nodded. “I’ve got some ideas. Can I get them to you in writing by the end of the week?”
Discussion Questions
1. What went wrong with the TUFS investment, and what can be done to prevent these problems in the future?
2. What does Northern need to do to realize the benefits that were projected for TUFS? 3. How can Northern measure these benefits?
Mini Case IT Planning at ModMeters4
Brian Smith, CIO of ModMeters, groaned inwardly as he listened to CEO John Johnson wrapping up his remarks. “So our executive team thinks there are real business oppor- tunities for us in developing these two new strategic thrusts. But before I go to the board for final approval next month, I need to know that our IT, marketing, and sales plans will support us all the way,” Johnson concluded.
Brian mentally calculated the impact these new initiatives would have on his orga- nization. He had heard rumors from his boss, the COO, that something big was coming down. He had even been asked his opinion about whether these strategies were techni- cally doable, theoretically. But both at once? Resources—people, time, and money—were tight, as usual. ModMeters was making a reasonable profit, but the CFO, Stan Abrams, had always kept the lid screwed down tightly on IT spending. Brian had to fight for every dime. How he was going to find the wherewithal to support not one but two new strategic initiatives, he didn’t know.
The other VPs at this strategy presentation were smiling. Taking ModMeters global from a North American operation seemed to be a logical next step for the com- pany. Its products, metering components of all types, were highly specialized and in great demand from such diverse customers as utility companies, manufacturers, and a host of other industries. Originally founded as Modern Meters, the firm had grown steadily as demand for its metering expertise and components had grown over the past century or so. Today ModMeters was the largest producer of metering components in the world with a full range of both mechanical and, now, digital products. Expanding into meter assembly with plants in Asia and Eastern Europe was a good plan, thought Brian, but he wasn’t exactly sure how he was going to get the infrastructure in place to support it. “Many of these countries simply don’t have the telecommunications and equipment we are going to need, and the training and new systems we have to put in place are going to be substantial,” he said.
But it was the second strategic thrust that was going to give him nightmares, he predicted. How on earth did they expect him to put direct-to-customer sales in place so they could sell “green” electric meters to individual users? His attention was jerked back to the present by a flashy new logo on an easel that the CEO had just unveiled.
“In keeping with our updated strategy, may I present our new name—MM!” Johnson announced portentously.
“Oh, this is just great,” thought Brian. “Now I have to go into every single applica- tion and every single document this company produces and change our name!”
Because of its age and scientific orientation, ModMeters (as he still preferred to call it) had been in the IT business a long time. Starting back in the early 1960s, the
4 Smith, H. A., and J. D. McKeen. “IT Planning at ModMeters.” #1-L05-1-008, Queen’s School of Business, September 2005. Reproduced by permission of Queen’s University, School of Business, Kingston, Ontario, Canada.
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company had gradually automated almost every aspect of its business from finance and accounting to supply chain management. About the only thing it didn’t have was a fancy Web site for consumers, although even that was about to change. ModMeters currently had systems reflecting just about every era of computers from punch cards to PCs. Unfortunately, the company never seemed to have the resources to invest in reengineering its existing systems. It just layered more systems on top of the others. A diagram of all the interactions among systems looked like a plate of spaghetti. There was no way they were going to be able to support two new strategic thrusts with their current budget levels, he thought as he applauded the new design along with the others. “Next week’s IT budget meeting is going to be a doozy!”
Sure enough, the following week found them all, except for the CEO, back in the same meeting room, ready to do battle. Holding his fire, Brian waited until all the VPs had presented their essential IT initiatives. In addition to what needed to be done to support the new business strategies, each division had a full laundry list of essentials for maintaining the current business of the firm. Even Abrams had gotten into the act this year because of new legislation that gave the firm’s outside auditors immense scope to peer into the inner workings of every financial and governance process the organization had.
After listening carefully to each speaker in turn, Brian stood up. “As many of you know, we have always been cautious about how we spend our IT budget. We have been given a budget that is equal to 2 percent of revenues, which seriously limits what we in IT have been able to do for the company. Every year we spend a lot of time paring our project list down to bare bones, and every year we make do with a patchwork of infra- structure investments. We are now at the point where 80 percent of our budget in IT is fixed. Here’s how we spend our money.” Brian clicked on a PowerPoint presentation showing a multicolored pie chart.
“This large chunk in blue is just about half our budget,” he stated. “This is simply the cost of keeping the lights on—running our systems and replacing a bare minimum of equipment. The red chunk is about 30 percent of the pie. This is the stuff we have to do—fixing errors, dealing with changes mandated by government and our own indus- try, and providing essential services like the help desk. How we divide up the remain- der of the pie is what this meeting is all about.”
Brian clicked to a second slide showing a second pie chart. “As you know, we have typically divided up the remaining IT budget proportionately, according to who has the biggest overall operating budget. This large pink chunk is you, Fred.” Brian gestured at Fred Tompkins, head of manufacturing and the most powerful executive in the room. It was his division that made the firm’s profit. The pink chunk easily took up more than half of the pie. Tompkins smiled. Brian went on, pointing out the slice that each part of the firm had been allotted in the previous year. “Finally, we come to Harriet and Brenda,” he said with a smile. Harriet Simpson and Brenda Barnes were the VPs of human resources and marketing, respectively. Their tiny slivers were barely visible— just a few percent of the total budget.
“This approach to divvying up our IT budget may have served us well over the years”—Brian didn’t think it had, but he wasn’t going to fight past battles—“however, we all heard what John said last week, and this approach to budgeting doesn’t give us any room to develop our new strategies or cover our new infrastructure or staffing needs. Although we might get a little more money to obtain some new applications
84 Section I • Delivering Value with IT
and buy some more computers”—Abrams nodded slightly—“it won’t get us where we need to go in the future.”
A third graph went up on the screen, showing the next five years. “If we don’t do something now to address our IT challenges, within five years our entire IT budget will be eaten up by just operations and maintenance. In the past we have paid mini- mal attention to our infrastructure or our information and technology architecture or to reengineering our existing systems and processes.” A diagram of the “spaghetti” flashed on. “This is what you’re asking me to manage in a cost-effective manner. It isn’t pretty. We need a better plan for making our systems more robust and flexible. If we are going to be moving in new directions with this firm, the foundation just isn’t there. Stan, you should be worried that we won’t be able to give our auditors what they ask for. But you should also be worried about our risk exposure if one of these systems fails and about how we are going to integrate two new business ventures into this mess.”
Tompkins looked up from his papers. It was clear he wasn’t pleased with where this presentation was headed. “Well, I, for one, need everything I’ve asked for on my list,” he stated flatly. “You can’t expect me to be the cash cow of the organization and not enable me to make the money we need to invest elsewhere.”
Brian was conciliatory. “I’m not saying that you don’t, Fred. I’m just saying that we’ve been given a new strategic direction from the top and that some things are going to have to change to enable IT to support the whole enterprise better. For example, until now, we have always prioritized divisional IT projects on the basis of ROI. How should we prioritize these new strategic initiatives? Furthermore, these new ventures will require a lot of additional infrastructure, so we need to figure out a way to afford this. And right now our systems don’t ‘talk’ to the ones running in other divisions because they don’t use the same terminology. But in the future, if we’re going to have systems that won’t cost increasing amounts of our budget, we are going to have to simplify and integrate them better.”
Tompkins clearly hadn’t considered the enterprise’s needs at all. He scowled but said nothing. Brian continued, “We are being asked to do some new things in the com- pany. Obviously, John hopes there’s going to be a payback, but it may take a while. New strategies don’t always bear fruit right away.” Now looking at Abrams, he said point- edly, “There’s more to IT value than short-term profit. Part of our business strategy is to make new markets for our company. That requires investment, not only in equipment and product but also in the underlying processes and information we need to manage and monitor that investment.”
Harriet Simpson spoke for the first time. “It’s like when we hire someone new in R&D. We hire for quality because we want their ideas and innovation, not just a warm body. I think we need to better understand how we are going to translate our five key corporate objectives into IT projects. Yes, we need to make a profit, but Stan needs to satisfy regulators and Brenda’s going to be on the hot seat when we start marketing to individuals. And we haven’t even spoken about Ted’s needs.” As the VP of R&D, Ted Kwok was tasked with keeping one or more steps ahead of the competition. New types of products and customer needs would mean expansion in his area as well.
Abrams cleared his throat. “All of you are right. As I see it, we are going to have to keep the cash flowing from Fred’s area while we expand. But Brian’s got a point. We may be being penny wise and pound foolish if we don’t think things through more
IT Planning at ModMeters 85
carefully. We’ve put a lot of effort into developing this new strategy, and there will be some extra money for IT but not enough to do that plus everything all of you want. We need to retrench and regroup and move forward at the same time.”
There was silence in the room. Abrams had an annoying way of stating the obvious without really helping to move the ball forward. Brian spoke again. “The way I see it, we have to understand two things before we can really make a new budget. First, we need to figure out how each of the IT projects we’ve got on the table contri- butes to one of our key corporate objectives. Second, we need to figure out a way to determine the value of each to ModMeters so that we can prioritize it. Then I need to incorporate a reasonable amount of IT regeneration so that we can continue to do new projects at all.”
Everyone was nodding now. Brian breathed a small sigh of relief. That was step one accomplished. But step two was going to be harder. “We have a month to get back to the board with our assurances that the IT plan can incorporate the new strategies and what we’re going to need in terms of extra funds to do this. As I said earlier, this is not just a matter of throwing money at the problem. What we need is a process for IT planning and budgeting that will serve us well over the next few years. This process will need to accomplish a number of things: It will need to take an enterprise perspective on IT. We’re all in these new strategies together. It will have to incorporate all types of IT initiatives—our new strategies, the needs of Fred and others for the new IT to oper- ate and improve our existing business, Stan’s new auditing needs, and our operations and maintenance needs. In addition, we must find some way of allocating some of the budget to fixing the mess we have in IT right now. It must provide a better way to con- nect new IT work with our corporate objectives. It must help us prioritize projects with different types of value. Finally, it must ensure we have the business and IT resources in place to deliver that value.”
Looking at each of his colleagues in turn, he asked, “Now how are we going to do this?”
Discussion Question
1. Develop an IT planning process for ModMeters to accomplish the demands as set out above.
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S e c t i o n i i
IT Governance
Chapter 7 Creating IT Shared Services Chapter 8 A Management Framework for IT Sourcing Chapter 9 The IT Budgeting Process Chapter 10 Managing IT-Based Risk Chapter 11 Information Management: The Nexus of Business and IT
Mini Cases ■ Building Shared Services at RR Communications ■ Enterprise Architecture at Nationstate Insurance ■ IT Investment at North American Financial
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C h a p t e r
7 creating it Shared Services1
1 This chapter is based on the authors’ previously published article, McKeen, J. D., and H. A. Smith. “Creating IT Shared Services.” Communications of the Association for Information Systems 29, Article 34 (October 2011): 645–656. Reproduced by permission of the Association for Information Systems.
A “shared service” is the “provision of a service by one part of an organization where that service had previously been found in more than one part of the organization. Thus the funding and resourcing of the service is shared and the providing department effectively becomes an internal service provider” (Wikipedia 2014). The key idea is “sharing” within an organization. It suggests centralization of resources, uniformity of service, consistent processes for service provisioning, econo- mies of scale, reduced headcount, and enhanced professionalism. As such it has definite appeal for IT organizations, and creating them has been identified as one of the effective habits of successful CIOs (Andriole 2007).
For the business, an IT shared service is also appealing but for a different set of reasons. Although the promise of reducing costs, time, and complexity through reuse and the ability to leverage IT skills and knowledge are attractive, they rank a distant second to the ability to free up resources by transferring responsibility for a noncore activity to another organizational body. Not surprisingly, the successful creation of a shared service is by necessity an exercise in goal alignment (between the business and IT) coupled with a strategy for goal attainment.
A shared services organization constitutes an alternate business model. Therefore, the decision to adopt a shared services model entails a number of critical questions for management, such as What are the key attributes of a good candidate for a shared ser- vice? How should a shared service be organized, managed, and governed? What is the relationship between shared services and the parent organization? What can be learned from experience with a shared services model? What theoretical and practical insight is offered by published studies of shared services?
This chapter explores these questions. It begins with a review of the published literature to provide some definitional clarity concerning the shared services model
Chapter 7 • Creating IT Shared Services 89
and to differentiate shared services from other closely related models. The remainder of the chapter focuses on the key management issues surrounding the IT shared services model, including the pros and cons, key organizational factors, and identifying candi- date shared services. It concludes with an integrated shared services conceptual model and recommendations for moving toward successful shared services in IT.
IT Shared ServIceS: an OvervIew
As already noted, the key high-level concepts of a shared service are that a single group within the organization manages the service, the service is offered to any organizational unit in need of the service, and the shared service is a single-source provider. Accenture (2005) similarly defines shared services as “the consolidation of support functions (such as human resources, finance, information technology, and procurement) from several departments into a standalone organizational entity whose only mission is to provide services as efficiently and effectively as possible”. While these definitions work in general, they also raise a number of questions. For instance, how does a shared ser- vice differ from any other organizational unit that provides service to the organization (e.g., IT or HR)? How does a shared services organization relate to the parent organiza- tion? Does a shared service alter customer relationship in significant ways? How is a shared service governed?
Bergeron (2003) offers additional clarity by defining a shared service as a:
collaborative strategy in which a subset of existing business functions are concentrated into a new, semi-autonomous business unit that has a manage- ment structure designed to promote efficiency, value generation, cost savings, and improved service for the internal customers of the parent corporation, like a business competing in the open market.
This definition answers some of the earlier mentioned questions. For instance, it interprets shared services as a “collaborative strategy” that differentiates it from an organizational structure/design exercise. For example, deciding that all customer sup- port functions should report to the COO does not make customer support a shared service.
Bergeron further specifies that the shared service should be a “semiautonomous” business unit with its own management structure, which suggests a different and more “arms-length” relationship with the parent organization—one that allows suf- ficient management discretion to enable the shared services organization to attain its goals. These goals also differ within this definition with respect to their breadth and scope. Value generation, as a goal, takes the shared services organization well beyond efficiency and cost considerations; the goal of a shared services organization is to “improve the bottom line of the parent corporation, not to create a more efficient, inter- nally streamlined shared business unit per se” (Bergeron 2003, p. 5).
Bergeron’s definition also differentiates a shared service with respect to its customer orientation. In a shared services model, internal customers are treated as if they were external customers to be won or lost. With this orientation, the shared service competes aggressively for business, places customer satisfaction as a top priority,
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actively manages customer relationships, collaborates effectively on new business ini- tiatives, markets its services internally, and communicates its performance to the busi- ness on the basis of quality, price, and time. This is not the lackadaisical approach to customer service that is typical of organizations that treat their business partners as a captive audience.
Treating internal customers like external customers is a laudable goal but, accord- ing to one focus group member, a shared services organization can theoretically go well beyond this. She explained that significant advantages accrue exclusively to an internal provider. For instance, a shared services organization has existing relationships with its internal customers with whom they enjoy unfettered access. Furthermore, they share goals, strategies, and culture. They have common knowledge and are motivated by the same reward systems. Their loyalty is to the same organization and they share financial goals.
External providers, in contrast, lack these advantages but have the benefit of others. Most have credibility beyond internal providers simply because they are competitive in the marketplace. They may also have economies of scale and advanced technology that can be amortized over a broad client base. Moreover, they may have superior skills and knowledge. Her argument was that an effective shared services organization, to the extent that it develops enhanced customer relationships and a competitive mar- ket orientation while both facilitating and benefiting from internal customer access, could at least theoretically realize the “best of both worlds”. More than just the conver- gence and streamlining of an organization’s functions to ensure that they deliver to the organization the services required of them as effectively and efficiently as possible, the true shared services organization generates value for the parent organization as if (and possibly) competing in the open market.
Shared services are related to, but should not be confused with, more traditional models of delivering IT services (McKeen and Smith 2007). Carefully delineating each of the following points further aids our understanding of shared services.
• A shared service is most easily differentiated from a decentralized service delivery model. In the decentralized model, services are provided in various organizational units and managed locally. It is common in highly diversified organizations to find that each business unit has its own IT organization so that the provision of IT services can be tailored to the unique differences existing within each of the strategic business units.
• In contrast, a centralized model for IT services brings all resources under a single management structure, adopting virtualization and standardization strategies to increase utilization of key resources and to lower operational costs. There are two primary differences between a centralized model and the shared services model. First, shared services have a customer-centric mind-set (users of the service are viewed as customers, and the shared service is dedicated to providing high- quality, cost-effective, and timely service) and second, shared services are run as an inde- pendent business with their own budget and bottom-line accountability. The focus group concluded that a shared service is always centralized but a centralized ser- vice is not necessarily a shared service; that is, centralization is a “necessary but insufficient” condition for a shared service.
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• The shared services model also differs from outsourcing where an external third party is paid to provide a service that was previously internal to the buying orga- nization. While a shared services model is often viewed as a stepping-stone to out- sourcing, the focus group suggested that the decision to create a shared service should not be a de facto decision to outsource. The relationship between outsourcing and shared services is further explored later.
• A shared services model also differs from a joint venture where two or more organi- zations create a separate, jointly owned, legal, and commercial entity that provides profit to its shareholders/owners. This delivery mechanism is used frequently in various industries such as banking and finance as well as oil and petroleum. As with the outsourcing model, the service is provided by an external agency that owns the profits derived from the provision of the service.
After a lengthy discussion, the focus group reached a consensual understanding of a shared services organization. The members suggested that a true shared service must adhere to the following four principles:
1. Shared services involves more than just centralization or consolidation of simi- lar activities in one location (although this was recognized as an essential part as already noted);
2. Shared services must embrace a customer orientation (i.e., as already mentioned, a shared service cannot behave as a monopolistic provider);
3. Sufficient management discretion and autonomy must exist within the shared ser- vices organization to allow freedom to generate the necessary efficiencies to create value for the parent organization; and,
4. Shared services must be run like a business in order to deliver services to internal customers with costs, quality, and timeliness that are competitive with that of exter- nal providers.
On this last point, one member of the focus group argued that a shared services provider will never satisfy internal customers unless and until the shared services orga- nization is allowed to offer services to external customers. In his organization, despite spending a considerable amount of money on external consultants to prove that their IT shared services was competitive with that of external providers, the business “just didn’t buy it.” There seems to be a general unease among business executives about whether or not they are getting real value from their IT investments and this carries over to shared services.
The other major concern for the focus group was the interpretation of “value” as created by the shared services organization. Some members felt that “value” was the demonstration that the shared services unit could provide cost savings to their par- ent organization. Other members felt that cost savings would be insufficient to justify the creation of a shared services organization, arguing that simply centralizing services would produce similar savings. They felt that a shared services organization should be expected to generate additional value beyond efficiency—offering enhanced quality and/or differentiated services—such that value could be realized in terms of revenue generation. While no resolution emerged, it is clear that the broader interpretation of value aligns better with the group’s accepted definition of shared services.
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IT Shared ServIceS: PrOS and cOnS
A shared services model for IT has the potential to deliver significant benefits to the organization (Bergeron 2003). From the parent organization’s perspective, shared services promise to:
• Reduce costs (due to consolidated operations) and improve service (due to the customer-centric focus)
• Reduce distractions from core competency activities (due to transfer of noncore activities to the shared services organization)
• Potentially create an externally focused profit center (should the shared services decide to offer services beyond the parent organization).
From the perspective of the shared business unit, the shared services model promises:
• Increased efficiencies (due to standardization and uniformity of services) • Decreased personnel requirements (due to consolidated operations) • Improved economies of scale (due to the concentration of purchasing, HR, and
other specialized functions).
The focus group generally agreed with this list of possible benefits and suggested additional items including:
• Professionalism (due to the adoption of a customer-centric approach in dealing with clients)
• Uniformity of service (due to consistent service provisioning across the enterprise) • Personnel development (due to focused hiring, training, and skills/knowledge
development, all targeted toward service management) • Control (due to single-sourced service management).
However, there is also a case to be made against shared services (Bergeron 2003). The focus group highlighted the following limitations as being the most relevant for IT shared services:
• Becoming a disruption to the service flow • Moving work to a central location thereby creating wasteful handoffs, rework, and/
or duplication • Instilling an “us” versus “them” mentality within the provider–consumer relationship • Lengthening the time it takes to deliver a service.
The focus group also added the following:
• Additional costs associated with management bureaucracy and overhead • Loss of control experienced by independent business units • An increased communications burden • Extraordinary one-time costs at start-up that are reflected within the service
offerings.
Thus, while the list of benefits of shared services is long and impressive, the downside risk is equally imposing. The focus group also warned that the list of benefits represents “promised” benefits and that realizing actual benefits is a different matter!
Chapter 7 • Creating IT Shared Services 93
To gain a different perspective of the trade-offs between these pros and cons, members of the focus group were asked to share their actual experiences with IT shared services, highlighting failures as well as successes. Subsequent analysis revealed the following patterns of failure (from greatest to least):
• Promised headcount reduction doesn’t materialize • Customer-centric orientation gives way to indifferent service • Excessive bureaucratization of the service • Reduced headcount achieved but service levels deteriorate • Cost efficiencies are realized through “one size fits all” service offerings
The following patterns of success were identified (from greatest to least):
• Service improves producing quality, time, and cost advantages • Service quality and time/cost savings are realized • Service quality improves but without noticeable savings • Headcounts are reduced but service levels remain unchanged
The track record of the focus group was equivocal; no organization was celebrating the highest level of success and none was publicly admitting to outright failure. Explaining these differences in outcomes was the next challenge.
IT Shared ServIceS: Key OrganIzaTIOnal SucceSS FacTOrS
Interpreting the success of an organizational initiative depends on understanding the goals and objectives of those promoting the initiative. To gain some insight into this aspect of shared services, the focus group was asked what they felt was motivating the current interest in shared services and whether it was being driven primarily from the business or from IT. This allowed us not only to examine the driving factors behind a shared services model but also to highlight any differences between the business and IT perspectives. In the ensuing discussion, a significant gap emerged between the views of the business and the IT organizations with respect to a shared services model— specifically what problems it solved, the benefits it produced, and the unique challenges the adoption of a shared services model presents.
The majority of members felt that the push for shared services was coming from IT and that their IT organizations were sufficiently interested in actively promoting a shared services model. In contrast, two members of the focus group declared that the push within their organizations was definitely coming from the business. One was a large organization whose goal was to become a “globally integrated enterprise” built on shared business services. IT was no exception. Specialized IT services, located globally anywhere that would yield advantage, were offered to all business units within the organization as a shared service. The other organization was undergoing an enterprise- wide initiative to outsource noncore activities and IT had come under the microscope. Here, the focus group member stated that “our management clearly views shared services as a prerequisite for outsourcing.”
For organizations where the push for shared services originates within IT, the motivation was clearly cost savings and/or control. According to one manager, “shared services are seen as one way to reduce IT cost and/or complexity and drive IT reuse. This is being driven today out of the IT organization but we understand that our
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business partners need to be onboard for anything beyond the simplest of IT shared services”. Another manager stated that the interest was primarily being driven by her IT organization to achieve the following three key goals:
• To create reusable business functions to enable cost reduction • To drive agility by means of a set of well-defined horizontal services • To ultimately create a rationalized and simplified application portfolio.
When asked what problems a shared services model might solve, the focus group cited the following:
• Inconsistent integration patterns that lead to steadily increasing costs for solution maintenance and enhancement
• Building redundant applications using overly specific models because of the lack of a roadmap for sharing functionality
• Lack of integration, which hampers reusability and economies of scale • Increasing and perhaps unnecessary IT complexity.
The significant gap between how the IT organization approaches shared services as compared to the business is most apparent in the articulation of goals, objectives, and the ultimate justification of a shared services model. This becomes increasingly signifi- cant when coupled with the fact that the majority of shared services initiatives are being driven by IT.
In organizations where the driving force for shared services resides within the IT organization, the focus is commonly on that part of a shared service model that addresses IT problems; for example, reducing redundancy, encouraging integration, and rationalizing the application portfolio. Solving these problems, however, only addresses business problems tangentially through reduced costs and streamlined pro- cesses and fails outright to attain the goals of customer centricity and enhanced service to the business. The differences between the business vision for shared services and the IT vision, unless aligned, is a recipe for disaster. Based on input from the focus group, we build a conceptual model that bridges this gap by integrating the technical aspects of an IT shared service with the business aspects. But, before we do this, it is necessary to first discuss the key factors that constitute the basis for decision making regarding IT shared services.
IdenTIFyIng candIdaTe ServIceS
An analysis of the existing shared services within the focus group revealed very little in terms of discernible patterns. Some of the shared services were business-oriented services (e.g., payment processing or procurement) while others were IT-oriented (e.g., print management or network services). Some were comprehensive (e.g., application develop- ment, disaster recovery) while others were narrowly focused (e.g., credit authorization). Some of the services were deemed “core” while others were “noncore.” Other than enter- prisewide need, no obvious logical structure emerged from our analysis as a potential decision guideline for nominating shared services.
In general, the focus group felt that the selection criteria of candidate services for the shared services model were best understood by contrasting shared services with outsourcing. They argued that any service being considered for outsourcing could also
Chapter 7 • Creating IT Shared Services 95
be a candidate for a shared service subject to three key differences: knowledge reten- tion, control of resources, and value generation. That is, organizations appear to opt for a shared service in preference to outsourcing in order to retain critical knowledge and skills internally, to exercise greater control over these resources, or to capture additional value from the specific service rather than allowing it to accrue to the outsourcing party. The conclusion reached by the focus group was that the processes structured as shared services appear to offer a significant level of either present or future intrinsic value to the parent organization, which makes the organization reluctant to relinquish them to a third party. Services without incremental intrinsic value beyond cost savings are simply outsourced.
an InTegraTed MOdel OF IT Shared ServIceS
One member of the focus group presented his organization’s model of a shared service (Figure 7.1). In contrast to the Lacity and Fox (2008) framework, this conceptual model highlights the functional attributes of the business service, the management framework required to monitor and deliver the service, and the common technical infrastructure ser- vices that support it. It suggests that IT shared services is best viewed as inter connected layers of services; that is, business services are built on top of operational processes and common IT infrastructure, each of which deliver “services” but of a different sort. For example, a common business function (e.g., e-forms) is leveraged by multiple busi- ness entities, supported by commonly managed business delivery processes and SLAs,
Multi-Tenant Business Services
Common Business Service Delivery
Processes
Common Supporting IT Infrastructure
Components
Monitoring & Reporting
Network Mgmt
Server Mgmt Desktop Mgmt
Storage Mgmt
SLA Mgmt
Usage Mgmt
Security Mgmt
Business Unit Business Unit Business Unit
FIgure 7.1 IT Shared Service Conceptual Model
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and runs on common, highly standardized IT infrastructure. This model highlights how successful IT shared services depend on the effective coordination of each of these service layers. Although service delivery processes, such as relationship management and SLA management, are critical for the business, infrastructure processes, such as server and network management, are equally critical for the IT organization. The model also suggests that focusing on a single layer while neglecting key processes existing within other layers is likely to be unsuccessful and lead to the eventual failure of the shared service. In organizations where the shared service is being driven by the IT orga- nization with the goal of reuse, for example, the focus group suggested that the real danger is that attention will be predominantly focused on technical components while neglecting the managerial components (e.g., building effective customer relationships).
recOMMendaTIOnS FOr creaTIng eFFecTIve IT Shared ServIceS
Based on their experiences, focus group members agreed on four strategies that they believed would contribute to the successful creation of an IT shared services organization.
1. Create a transparent process for goal alignment. The group pointed out the importance of establishing a transparent process for articulating common goals. For IT managers, the key attraction of a shared service is typically cost savings and/or reduced complexity. Being able to reduce costs by means of mobilizing reuseable assets standardizing platforms and virtualizing services, and eliminating redun- dant systems while providing a uniform and consistent level of service is appeal- ing. For business managers, however, the promise of cost savings comes second to the desire for enhanced customer service through improved quality, faster response and delivery, greater financial transparency, and/or improved relationships with IT. Without goal clarity, transparency, and alignment, the shared services organiza- tion will champion one set of goals over another, creating animosity between the parent organization and the shared services provider. One manager described the experience in her firm as follows:
The centralization of the service was soon viewed by the business as a stand- in-line-and-wait for a one-size-fits-all solution . . . the fact that the business was unable to do an end-run on this delivery process was seen as unresponsive to the urgent and unforeseen demands placed on the business . . . the elimination of business priorities . . . no one on the business side wanted to hear about reduced costs of service.
The focus group suggested that the creation of a shared service need not degrade into a situation of conflicting goals. There is nothing to suggest that improved service and cost reduction cannot be tackled simultaneously. In fact, the centralization process alone should produce sufficient economy of resources to enable enhanced quality of service. The difficulty is typically built in at the outset of the shared service by failing to articulate a set of explicit goals that have acceptance by both the business and IT. Without mutual acceptance and alignment, the shared service can be doomed at inception.
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2. Develop a comprehensive investment model. Establishing a shared services organization is not a trivial task. In a majority of the cases, the existence of multiple distributed services across the enterprise (perhaps globally) presents formidable barriers to consolidation and coordination. Time differences, cultural differences, and geographical distances all complicate the process. For global enterprises, legal differences also come into play in building an effective shared services organiza- tion. The focus group suggested that the larger the organization, the more onerous the task and the longer it takes. But shared services are not just large organiza- tion phenomena. As a practical rule, Bergeron (2003) suggests, the “shared services model is a viable option when the savings from reduction in staffing are greater than the added overhead of creating a management structure to run the shared business unit.”
Administrative overhead is a significant component of the overall invest- ment in shared services. In addition, there are other substantial one-time costs associated with centralizing operations. These include the relocation of people, consolidation of technology, establishing support roles/activities, developing capabilities/skills, and building communication networks to support centralized operations. Most organizations currently have chargeback mechanisms in place for IT services but, according to the members of the focus group, these are often inadequate for a shared service. For well-defined services (like printing, desktops, or e-forms), the costs are easily identified and associated with the service levels provided. With more complex services (e.g., payroll management, disaster recov- ery and planning, records management), however, costing of the actual service requires more sophisticated algorithms to apportion costs2 for services provided. A key component is the ability to establish baselines for existing services. Without these, it is problematic to assess the incremental contribution of a shared service after its implementation.
A shared service investment model needs to account for significant ongoing costs in addition to the start-up costs mentioned earlier. Realistic implementation times range from “at least a year in simple domestic business scenarios involving one or two company locations to five years or more for a major international orga- nization with dozens of locations” (Bergeron 2003). Furthermore, cultural change can present a more formidable challenge than amassing resources (Lacity and Fox 2008). A shared business unit is first and foremost about building relationships between the parent organization and the service unit. Building effective relation- ships takes time (Smith and McKeen 2010).
The bottom line is that the investment model for the establishment of a shared service requires sophistication, understanding, and a commitment from the busi- ness as well as IT to make it work. Depending on the size of the undertaking, even reaching a breakeven point can be protracted. However, to the extent that the investment model is comprehensive and has the backing of senior management, it can withstand the ongoing challenges faced by any significant organizational transformation.
2 Difficulty arises with apportioning actual costs on a service level basis. For instance, actual costs vary over time with usage but business managers prefer to be billed on the basis of standardized rates/costs for specific services.
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3. Redraft the relationship with the business. The establishment of a shared ser- vice necessitates a different type of relationship between the business and the service provider. For instance, with a distributed service, business management has the ability to impose priorities to reflect the demands of the business. These localized priorities, however, rarely survive the transition to a centralized service mechanism. As a result, the business typically experiences feelings of loss of con- trol with the creation of a shared service. The old adage “centralize for control, decentralize for service” applies. Even worse is the potential to develop an “us versus them” mentality, where the business feels a tangible disconnect between the urgent demands of their business and the unresponsiveness of the shared services provider. The risk of this occurring is greatly enhanced in situations lacking goal alignment.
A customer service orientation must therefore be instilled within the shared ser- vices organization to guarantee that satisfaction of the client remains the key goal. The need for an effective service orientation, particularly during the early stages of the development, is to counter the risk of the shared service being perceived as a “distant, unresponsive, and overly bureaucratic” provider. Furthermore, this orientation must be conveyed to the parent organization. This involves strengthening internal IT capabilities; changing the mind-set of IT personnel; training and motivation; and commitment from all levels of management (Fonstad and Subramani 2009). To accomplish this, the shared service must build “internal sales and marketing” competencies, which require resources focused on communi cating with current and prospective customers (Bergeron 2003).
4. Make people an integral part of the process. Lacity and Fox (2008) argue that successful shared services result from effective management of four interrelated change programs: business process redesign (i.e., what business processes the shared services organization will perform); sourcing redesign (i.e., who performs the business processes); organizational redesign (i.e., where business processes will be performed); and technology enablement (i.e., technologies used to implement and coordinate the work). The focus group agreed with the need to manage each of these programs effectively but was particularly enamored with the notion that each of these programs was appropriately viewed as a “change” process. Their experience suggested that the difference between success and failure of an IT shared services initiative was frequently the result of the effectiveness of the change process itself.
The creation of a shared services organization requires significant transforma- tion within the IT organization and directly impacts IT staff. As with outsourcing, dislocations are inevitable. As decentralized staff become centralized, reductions are expected, reporting relationships change, new skills are required, existing skills become redundant, and the overall relationship with the business becomes much more immediate and business-like with the focus on the bottom line. None of this happens automatically. Communications and marketing strategies take on new importance. Customer service is no longer a “take it or leave it” phenom- enon. Training is essential. New metrics and key performance indicators become necessary. Service level agreements must be articulated and managed. Together, this represents enormous change for IT. Bergeron (2003) suggests, “The pace of
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cultural change, not the availability of resources or technology, generally gates the limitation.”
The focus group did not provide specific suggestions for organizations to fol- low but stressed a realization of the enormity and significance of the organizational change that accompanied the adoption of a shared services model and a call to make the “people part” of a shared services implementation the top priority. In short, a customer service orientation is built over time and through the conscious and deliberate attention of all employees. It thus needs to be planned as thoroughly as any other major organizational transformation initiative.
In recent years, the interest in adopting a shared services model for IT has grown substantially. This interest has been driven by the desire of business for a more customer-centric and responsive IT organization and by IT organizations pursuing centralization and standardization strategies. When success- ful, an IT shared services model can satisfy both goals but key challenges arise during the development and implementation of the shared service. By bringing together a number of senior IT managers with experi- ence in building shared service organizations,
this chapter has clarified what a shared ser- vice is and what it is not, identified different forms of success and failure, articulated an integrated conceptual model, and provided a number of suggestions to improve the chances of successful implementation. For those charged with developing IT shared services as well as those investi gating this emerging organizational form, this chapter provides insight and under standing for achieving successful shared services and ultimately the goal of improving overall organizational performance.