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.