Business Executive Series #6

Business Imperative
Representative goal statement -  “I thought that (what) we needed IT to do started off as (IT) cost savings, but that quickly changed to support for competitive business requirements.”

The way in which the Representative Goal Statement was put leads me to believe that the business executive who authored it had made some initial assumptions about the IT value proposition. These assumptions were changed as IT began the engagement process with the business to reduce costs.

In my experience, there are a few conditions than can cause an initial mistaken assumption about IT costs being the main focus from the business:

•    IT costs are allocated back to the business units.
•    IT has few or no business-friendly performance indicators.
•    IT business engagement (the Business Value Discovery function) is underdeveloped.

I’ll focus this post on those conditions and what needs to be done about them for IT to be better aligned with the business.

IT costs are allocated back to the business units
This is a good thing – certainly better than IT being “free” to the business. It was likely the primary reason for the business executive thinking that the most valuable role that IT could play was to cut its own costs.

No doubt that the most consistent feedback that s/he received from the business unit leaders was that IT costs too much. After all, if it was a significant and largely uncontrollable part of their P&L, then it stands to reason that whatever IT cost – it was probably too much. Therefore, to make IT successful in the eyes of the business units, it needed to be focused on cost reduction efforts.

This dynamic ties back to my first post (BES-1) where the actions taken to fix the situation need to include better transparency and reporting mechanisms for IT costs.
This unmet need was beneficial, as it was the cause of business dissatisfaction that led to uncovering a broader value proposition for IT services.

IT has few or no business-friendly performance indicators
All businesses have some sort of performance metrics. IT performance metrics usually begin as availability-based measures for specific technologies (e.g. “servers” “network” “mainframe”). Unfortunately, these don’t mean much to a business executive trying to manage a budget.

Absent performance metrics that are meaningful to the business from IT, the only metric for them becomes cost, which as we saw earlier is a very narrow discussion.

Development of a Balanced Scorecard for IT performance is important to connecting with the business. Although I’ve discussed scorecards in other posts, these were purpose-built for uses other than reporting overall IT performance. The important common theme with those other scorecards is fitness for use.

I’ve been a part of several multi-million dollar consulting engagements at various companies to develop IT Balanced Scorecards (probably averaging $1.7M). None of these projects resulted in a product that was completely satisfactory to IT or the business.

These experiences have taught me to be cautious about consultants that force-fit the company into their performance framework (Balanced Scorecard + Key Performance Indicators), which is almost always based on the original Kaplan & Norton model and some standard KPI categories.

My suggestion is to work with an internal team to develop a practical scorecard based on your business. The most successful balanced scorecard effort that I’ve been a part of was initiated as a part of implementing an IT Managed Services Strategy. The end scorecard measured four areas:

•    IT Service Delivery (metrics for service delivery failures and service level agreement performance)
•    IT Solution Delivery (metrics for responsiveness and delivery of new solutions)
•    IT People (metrics for IT staff satisfaction)
•    IT Financials (metrics for IT budget performance)

Each category had KPI’s that were built by IT and the business (for Service & Solution Delivery) or were extended from standard enterprise metrics (for People & Financials). It was simple, objective, understandable, and able to be implemented. It also cost far less (staff time vs. out-of-pocket) compared to the consulting engagements and had the added benefit of total buy-in from both the business units and IT.

A Balanced Scorecard implementation doesn’t have to be expensive, complex, or part of a larger program of work, like the Managed Services Strategy. It simply has to be aligned with your customers, services, and corporate measures (where applicable).

On Day 1, all the measures won’t be there (some automation/instrumentation will need to be put into place), but IT will have engaged with the business on meaningful level and be able to checkpoint progress against the full implementation plan.

IT business engagement (Business Value Discovery function) is underdeveloped
It’s arguable that this specific “Aha” moment for the business executive would never have occurred if this IT function were fully capable and engaging the business units at an appropriate level. Because this was not happening, the business units could only engage at the most superficial discussion level of IT performance – cost.

Of all the IT functions, this one is arguably the most strategic to both the business and IT – and the one that is generally least invested in terms of both budget and organizational mind share (Architecture runs a close second). In most companies, it is still a part of the Application Development or Solution Delivery group and needs to be split off so that it can be focused upon and developed as an IT competency.

Why is this important?

The definition of the function that you find in the Library “IT Functions & Definitions” points directly to the strategic nature of the function. It is the part of IT that is specifically accountable for partnering with the business to find where IT can create competitive advantage. Because of where it sits in relation to the business, this function is largely responsible for enabling the CIO to be successful in optimizing the value of IT to the business. IT has no hope of being accepted as a business partner if this function is unsuccessful.

So now you know that the function is not performing in a satisfactory manner. What can be done about it in the short-term? Short of an interim stop-gap measure, presenting an improvement plan may be the limit of what can be done in less than a few months.

Normalizing the group and the AD or SD groups is not a trivial program of work. It needs strong HR support and a supporting Organizational Change Management program to be successful. In terms of what will need to happen, there are elements of Process and Organization that need attention.

From a Process standpoint, the role of the new organization in Portfolio Management (Solutions Delivery investments), Solutions Delivery, Enterprise Architecture, and Service Delivery will need to be defined.

Organizationally, each dimension will need to be addressed to stand up the new group:

•    Structure: Definition of a separate “Business Engagement” group (which requires the existing AD or SD group to be adjusted).
•    Skills: Development of new job descriptions (levels, comp, career path) that articulate the new roles and responsibilities.
•    Staffing: The plan that says who is going where and when (what transition and training look like)
•    Sourcing: Where you are going to find all these talented folks (strongly suggest that these are sourced internally, with a hiring plan developed to close the gaps)

In an organization of any size, this will be several months of work, perhaps longer.

Given the shift as stated earlier in the Representative Goal Statement, the success of the IT organization will now be judged on its ability to support “competitive business requirements”. The first step in doing that is being able to engage with the business to determine what those requirements are and manage the ideation, portfolio and delivery processes going forward.

Library Addition & Housekeeping

Hello Everyone,

Several of you have emailed to ask for the Colin Powell Leadership Primer referenced at the end of FAQ #2. It is now posted in the Library.

BES #6 should be posted today or tomorrow. There will be three BES posts following that, after which I’ll be getting to a few of your requested topics.

Thanks for your continued interest!

Business Executive Series #5

Business Imperative, Access to New Capabilities, Avoidance of IT CapEx

Representative goal statement -   “I need IT to enable short-term independence from (previous Parent company); put in place a flexible mechanism to address future requirements and avoid competing for capital with critical business investments.”

Business Merger, Acquisition, Divestiture and Integration activities are huge programs of work for both the business and IT. Different MADI scenarios will vary on where they are along the scale of work continuum, but I’ve never been a part of one that wasn’t complex and intense.

In this post, I’m going to focus on the Business Imperative (New Company “Newco” as a result of a divestiture), with a few synergistic opportunities to gain access to New Capabilities and Avoid IT CapEx (similar topics as covered in BES-3) during the process. Also, this post will only deal with a scenario where the “spin-off” is either an IPO or a sale to a financial buyer (there would be more integration with a strategic buyer or a joint venture partner, and a much longer post).

Divestitures are inherently detailed and time-consuming activities for both the Parent and divested entity. The Parent has plenty of work to do to unravel the new enterprise from existing systems and operations and help it stand up on Day 1 with services. As the new CIO of the divested entity, you however, have the mirror situation, plus the added bonus of your loving ex-Parent company now making decisions based on what is in their best interests, not those of Newco.

To frame the discussion, I’ll offer a few themes:

•    Be ahead of the curve
•    Keep it simple
•    Directly manage the change

Be Ahead of the Curve
Whatever consultants have been hired to assist with the activity probably have IT playing a limited role in setting up a data room and assisting in satisfying due diligence requests. That is insufficient.

IT needs to be an early and important player in the due diligence process. Because of its unique view of the way in which the business functions of the company operate, IT brings the ability to identify potential issues and opportunities that could significantly change the value proposition of the deal (cost, timing, risk).

If IT hasn’t been involved in the due diligence or if it was not conducted sufficiently, you are now behind the curve in having to figure out what needs to happen, how it needs to happen (but unfortunately, probably not when it needs to happen).

The connection to the program team is vital to understanding the strategy behind the creation of Newco, and how the business and business functions are thinking about operating. Obviously, they will be counting on IT services being in place to support their plans. They may, however, not understand how tightly the integration is with the old company from an IT perspective.

For example, if the Parent has a single, integrated ERP environment (application, database, infrastructure), the split will be more complex than if Newco is currently on its own instance. Data and access also become interesting intellectual property and security problems, particularly if Newco is planning on leveraging existing Parent company systems for an extended period of time.

This example illustrates what IT can see that will in some way impact the cost, time or risk involved with the divestiture. Being a full partner in the diligence efforts will pay dividends in speed of execution, more realistic costs and operations impact to the business.

Keep it Simple
As much as I’d like to recommend implementing a fully services-based IT strategy, unless the Parent is currently operating with one, there are practical limitations as to how much can be done in the time frame for the divestiture of Newco. There is already enough change on the plate for the organization.

Nonetheless, because of the realities of your IT services situation, there are some parts of the model that will need to be implemented. The options for provisioning Newco shared services are driven by how they are currently sourced by the Parent, the existing level of integration, and the time constraints of the divestiture. In the short run, tightly integrated functions have little choice other than to be supplied via the Parent process (internal or third party). Less tightly integrated functions may have some other options, however, focusing on pursuit of these may not be the optimal use of resources right now. Day 1 the business will expect to have IT capabilities capable of supporting not just business-as-usual activities, but also critical projects in-flight for new solutions delivery. To simplify and solidify these basic services, I’d opt for provisioning via Temporary Services Agreements with the Parent or 3rd party provider.

This will, of course, require that the Parent, 3rd party providers, and Newco have some sort of Managed Services infrastructure standing up and functional. If the Parent is currently using 3rd party providers, then there is already some of this capability in place and that will need to be extended to the directly provided Parent services, with a mirror capability for these services to be managed by Newco IT.

If the Parent provides services through 3rd parties, those contracts must be extended to Newco across geographies and corporate entities (this can be a big deal on a global basis, with companion agreements, etc.). New scale and volumes may become issues for both companies. The Parent strategic sourcing group will need to take point to work this through with you and the 3rd party providers. Note that continuity of services is necessary and not sufficient for normal business and IT operations. Additional governance mechanisms will need to exist between service providers to ensure that both basic operational processes and existing project deliverables and timelines are supported.

Under this scenario, on Day 1 of Newco operation, IT services will likely be provisioned as follows:

•    Commodity services (data center, end user, network) provided by the Parent directly or via 3rd party.
•    Business process services (ERP and shared systems/services) provided by the Parent directly or via 3rd party.
•    Business analyst and business-unit specific systems hired as Newco IT.
•    Service delivery managers and service management hired as Newco IT.

Be aware that this scenario will place extra burdens on the information/network security teams to allow appropriate access to data and shared capabilities. Depending on the sophistication of the current environment and the ability of the Parent and Newco to come to logical and practical solutions, this activity could easily be more time-consuming than planned.

There will be the need to develop a “Day X” agreement and attendant program of work for the weaning of Newco from Parent services. While this is an important program of work for both companies, it needs to be considered in the context of the complexities driving the initial provisioning, with realistic expectations set for the completion of the work.

As a reality check for Newco IT services, ensure that you have a macro level benchmark of your costs versus that of your industry and/or Parent (IT as a % of revenue for example). If your projected IT costs are over the benchmark, you might successfully argue to the Parent that this situation is putting Newco at a structural disadvantage and the deal economics or cost of IT services need to be revisited. If that is not successful (higher costs could be driven by loss of scale or new functions), programs will need to be developed with the business to drive to the benchmark (as balanced against other business needs).

Directly Manage the Change
For your staff, Newco has been an open secret for some period of time. You probably have already had to address rumors about the path forward for IT staff working directly or indirectly for the Newco business unit. Your people want to know as soon as possible what career choices they will have, what decisions they will need to make (if any) and when they will need to make them. The decisions that you make now about provisioning services will determine the answers to those questions.

Your commitment to implementing a managed services model has already been balanced with business risk. Unless the Newco business unit was run independently, there are some shared business functions and some shared IT services. The resources that will be first hired into Newco IT (usually business-facing and development skill sets) are easily identified and can be protected early in the Day 1 planning process*. Resources providing shared ERP-type functional, analytical and infrastructure services are the ones with the most ambiguity and uncertainty to deal with during the process and need to be a special focus of the organizational change management activities by the Parent, Newco and any 3rd party vendors who may have a role (consistency of message, focus on the groups).

During all of this change, you and the rest of your leadership team will have the critical job of hands-on change management. The job of creating and communicating a vision that will be somewhat of a work-in-process is difficult at best and will be extremely time-consuming. Now is the time you need to engage most directly with your organization to be effective in addressing their issues and concerns. Keeping in touch and getting first-hand feedback in a timely fashion will help accomplish that.

I’m not going any further in addressing OCM activities, as that was the subject of an earlier post (ref. Organizational Change Management).

As you are now going to be part of a new business (defined earlier as either an IPO or investment by a financial buyer), it stands to reason that your primary goal will be to increase the value of the business to the shareholder(s). To directly support that goal, your job is to create an IT capability that optimizes the IT value proposition to the business (ref. FAQ: IT Value Proposition). Based on your background with the Newco line of business, you probably have a good idea of how to segment services between the value proposition categories. Post-Day 1 is the time to build the full services-based IT strategy to align with your map of services. This can then be worked into a more complete vision for your organization.

Finally, during this transition period, every business function will now be thinking along service lines and looking for some thought leadership – and an enabling partner. IT will be in a position to make that offer due to the existence of the initial Newco IT managed services framework and take advantage of the opportunity for thought leadership and potential synergies down the road. This will position IT well as a business partner in the future.

*”protected” in the sense that these people may have a more directly visible path to Newco and mechanisms to retain key folks may be put into place quickly, along with restrictions to prevent them from being poached by the Parent.

Business Executive Series #4

Business Imperative, Corporate Alignment

Representative goal statement – “I need IT to spearhead a strategic business initiative replacing the new (core processing) system and align IT with our cultural values.”

This particular theme is one that I’ve encountered a few times in my career, where the delivery of a new technology engine was the major enabler of  critical business objectives. The cultural values dimension was added to emphasize that the delivery would be done in a way that was consistent with the values of the company.

Why was this necessary? By definition, aren’t all programs at a company executed in a way that is consistent with its values?

It was necessary primarily to mitigate risk. A large IT program has different sourcing options, with widely varying impacts on the people in IT. Therefore, potential attrition, performance and morale issues posed a significant risk to the success of the program. Making the statement at the highest level of the organization that the program would  be consistent with cultural values made a commitment to the people in IT that the impact on them would be considered and they would be treated right.

To make this commitment explicit and credible, both the business objectives and cultural values need to be made explicit and integrated from the beginning (“Get it Right and Do it Right”). Simultaneous engagement of the executive team is required for their articulation of business objectives and cultural values and to jump-start the immensely important Organizational Change Management workstream.

In thinking about the differences between this specific theme and other “merely” major projects, the creation of  this set of integrated objectives stands out as the most important one and that is where my focus will be, along with some thoughts on Organizational Change Management.

As an investment (albeit a large one that seldom has a positive NPV), this process begins via the IT Business Value Discovery function meeting with executive business leadership. The good news is that the business already knows that there is a problem. They are suffering because of the insufficiency of a legacy system to respond to changed business needs. There is already consensus by executive leadership that the business will be unsuccessful unless the system is replaced.  The challenge is to articulate what the new capabilities need to be – not what they aren’t – so that the gap can be clearly defined.

Given that core systems generally aren’t “owned” by one executive, this process requires a broad set of conversations to capture all the dimensions of business objectives. Also, this circumstance also makes it difficult to find a single executive sponsor – although I strongly suggest that this be the case (the COO or a line-of-business President will do nicely). The addition of  a company culture Subject Matter Expert as a resource for the conversation about core values with the business execs is also recommended.

In these conversations, the three main goals are as follows:

·      Solicit high-level business objectives

·      Validate core values and behaviors

·      Obtain input on program governance

The high-level business objectives may come from a common set at a company level or may be at the function or line-of-business level. In either case, the objective of the conversation will be to drill down the next level of the value discussion around service quality, cost, risk and time-to-results. These should be able to be explicitly linked to the overarching goals.

Based on the representative goal statement, I am presuming an existing set of core values, with specific behavioral dimensions for each. If none exists, the executive leadership team will need undertake a program of work to create one (not a trivial amount of work) and may choose to introduce it to the organization as a part of the major business initiative being undertaken.

The governance topic should be fairly straightforward. The executive committee has to have oversight, with the senior IT and business operations resources partnered as the program leads. The close involvement of the executive team in this process establishes program legitimacy and decision-making at the highest level of the organization. This will be particularly important when questions or challenges arise, particularly those related to behaviors and core values.

From this information, a first-cut scorecard should be created and socialized with the executive leadership team to validate the business goals & objectives, the specific behavioral dimensions of culture with which the effort will be consistent and how that will be measured.

It will be quite a bit of work to get this right and there will be several iterations. The sample scorecard in the Library illustrates the sort of information and structure that is recommended. Remember that this will be used to determine the solution rankings later and form the basis for the metrics by which the overall success of the program will be judged.

A brief note on the scorecard itself. As a past mentor of mine was fond of saying, “All models are wrong; some models are useful.”

The same is true of scorecards. The challenge is to develop them to a point that is suitable for purpose – not to perfection. The sample scorecard was derived from qualitative executive interviews and evolved to a point that was more quantitative. More metrics were eventually added, along with a weighting for each attribute. The weighting by the executive team was a particularly important effort because it determined the relative importance of each category and drove the final decision.

From an OCM perspective, direct linkages between the dimensions of value of the solution and business objectives, and the solution and cultural values will need to be made and clearly communicated. Initially, the communication simply commits to following the cultural values and the dimensions that are particularly applicable and then can explain how they are manifested in the scorecard as it matures. This provides the transparency that IT folks will be looking for in the decision-making process and set the standard for future communications.

Ongoing, this program will leverage OCM techniques and program management methodologies that I have described in other posts, so I won’t rehash them here.

I will, however, note that there will be questions and challenges – not necessarily from a business goals perspective, but from a cultural one. It’s particularly important that senior leadership encourages this and takes an active role in the discussions. It is though this process that variations on the cultural values and behaviors that have evolved over time can be re-connected to their original intent and strengthened.

 

 

Delay of Game, Part II

Once again, I wanted to insert an note of apology for not having put up the next post for the Business Executive Series in a timely fashion. Between travel and an untimely ISP issue, I only had my BlackBerry to work with all week. The next post will be up tomorrow (with a comment response). 

Thanks for your patience!