The CIO Role, etc.

Thanks to all who submitted topics and questions. The pipeline is healthy and I believe that there is a good mix of technology, management and leadership subjects for your consideration. Please keep the suggestions and comments coming!

Today’s topic comes from an old (old in the sense of having known him for a while, not in the sense of “aged”) colleague. He writes:

“I have a topic for your site that might be of interest – The role of the CIO.  I have noticed that the CIO role is becoming a prerequisite to the COO or CEO position.  It appears many CIO’s are coming from the business vs. growing up through the ranks of IT, and take the role to bolster their resume.  With IT such a critical component of today’s businesses, the CEO is expected to have a strong understanding on how to direct the expensive and limited IT resources.  I see the role CIO of old shifting to that of the CTO for IT careerists.  Assuming this premise and carrying it on to the next level what are the critical skills in managing technology going forward.  It would seem that outsourcing and integration expertise would be at the top of the list. – your thoughts?”

There are a few subjects here that are interesting to ponder.

•    First, is there really a CIO to COO or CEO career path?
•    Second, are more CIO’s coming from the business versus growing up though the IT ranks?
•    Third, is the CTO role more of the “top IT leadership” job for IT folks than the CIO role?
•    And lastly, what are the critical skills for IT leadership going forward?

It’s not clear to me that there is a CIO-to-CEO career path, although I do believe that there is or was a CIO-to-COO executive career path. Because of the heavy reliance of operations on technology, it makes sense that the two would become one over time. In some companies, I’ve seen this sensible progression give way to the CIO reporting to a “Head of Shared Services” function, along with Finance, HR and Procurement, which I do not think of as a traditional COO role.

Why is this being done? In those organizations that have adopted this model, I believe that it is because the value proposition of IT has not been delivered upon and the information technology contribution to competitive advantage is perceived by the business as relatively low. Therefore, the IT organization is seen in a similar role as the Finance and HR support organizations and managed accordingly.

There have been some instances where business executives have been given responsibility for IT and either added or taken the CIO title. In the cases that I am aware, it seems to be born from IT being perceived as being out of alignment with the business for an extended period of time. Attempts to address the situation with new CIO’s have either had little or no success, so a successful business executive is then brought over to IT or is given responsibility for the function in addition to their current role.

In the cases that I have seen where the titular CIO is a business executive, the CTO or head of IT Service Delivery is responsible for the IT “factory” and is accountable for delivering on the IT value proposition as defined by the CIO. The role is that of a CIO, despite lack of the formal title.

This leads to another question – can a business leader effectively lead the IT function without any background in it?

If  you were a CEO, would you have a CFO who didn’t have a background in Finance?

If you were a CEO, would you have a COO who didn’t have a background in Operations?

I could go on, but I think that you get the point.

Why should IT be any different?

Whatever the title, if the CIO role is indeed to maximize the value of Information Technology to the business, I believe that knowledge of technology and its application thereof, is essential to success. The question of who has the title is more of a level-based question driven by the role of IT and its value proposition to the business. Therefore, whatever the title, I still see the CIO role as executive level for the IT careerist.

In terms of critical skills for managing technology going forward, I believe that knowledge and understanding of a services-based model (reference link) and how to apply it in the real world is a prerequisite for any successful executive in a CIO role.  That opens up the possibility of effectively multi-sourcing services in an efficient manner as the value proposition for IT services dictates. Please note that the service-based model is not only for what you would think of as IT Commodity Services, but also includes IT Solutions Delivery and the IT Business Relationship Services.

To support the managed services and multi-sourcing strategies, outsourcing and integration are two important capabilities for any CIO and to that short list I would quickly add deep skills in Organizational Change Management. With change as a constant, the ability to lead through it is essential to the success of any IT executive.

The Next Few Topics

Hello Everyone,

Now that the Business Executive Services (BES) is completed, I’d like to again solicit your thoughts on subjects of interest for me to discuss on ITST.

As always, both topical and situational requests are fine, just please stay away from company particulars unless you are requesting a non-published return email with some advice.

Thanks to all who have responded with suggestions to-date. I’m already working on the posts for two of them and want to ensure that the pipeline remains robust.

Thanks!

Eric

Business Executive Series #9

Representative goal statement – “I want IT to increase shareholder value (share price as influenced by business growth and EPS growth).”

One of my favorite technology books is The Squandered Computer by Paul Strassmann. It’s a bit of a skeptic’s view of the historical ROI for information technology and should be required reading for any business or IT executive.

Mr. Strassmann has developed a formula for “Information Productivity” to determine how well a company uses information technology. The Information Productivity score is used by Baseline Magazine (www.baselinemag.com) to determine their annual “Baseline 500” of the companies who are best at using information technology.

Why am I telling you these things? Simply to establish that there exists a credible, publicly available measure of how effectively a company uses information technology. I’m also going to reference an article that appeared on a similar topic in Baseline to address this representative goal statement.

On February 19, 2008 Kevin Fogarty wrote an article published in Baseline entitled “Baseline 500: Wall Street (Almost) Doesn’t Care About CIOs.”
The Article

In this article, he makes the opening argument that there should be a positive correlation between a company’s effective use of IT (by inclusion on the Baseline 500) and their share price.  He then proceeds to examine the supporting data and finds that this is indeed not the case.

Strassmann is quoted in the article, as is Chuck Pappalardo of Trilogy Search. They agree that IT is more of a secondary enabler than a primary cause of business success (my summary). This is consistent with my experience as well, with IT investments enabling cost savings and business capability.

Does this mean that IT cannot influence the share price of a company? No.

We’ve all seen examples of where a technology failure can negatively influence share price (eBay comes to mind) and would therefore argue that technology success should influence it upwards. However, given the supporting nature of IT, it doesn’t appear as a direct cause-and-effect relationship.

I’d take that a step further and say that from my own not-blindingly-successful forays into the stock market, that there are so many other factors directly influencing share price, that effective use of IT becomes negligible in the equation.

This particular representative goal statement may be aspirational, but not practical. I don’t believe that it can be measured with any degree of accuracy, given the existence of so many other more important factors influencing share price, and would suggest that it is “Mission: Impossible” for any CIO. There are much better gauges of  success for IT performance and would negotiate to implement those well before any positive correlation to share price.

Business Executive Series #8

Business Imperative, New Investments
Representative goal statement – “I need IT to merge 5 acquired companies into one, requiring all new, state-of-the-art IT systems across the board.”

This particular representative goal statement really gives me pause for thought.

The statement contains a goal, “to merge 5 acquired companies into one,” the way to achieve the goal, “all new, state-of-the-art IT systems,” and the group responsible for achieving the goal, “IT.”

Let’s look at the situation.

We have five acquired companies. Check.

We want them to be one company. Check.

The way to do that is for IT to merge them together by implementing “all-new state-of-the-art IT systems across the board.”  Pause.

While I’m perfectly willing to agree that IT will do lots of the heavy lifting on this program of work (as in any Merger, Acquisition, Divestiture, and Integration activity), there is nothing that can make me believe that they are solely responsible for the actual merging of the entities from virtually any standpoint – especially business process. Furthermore, I find it very difficult to believe that the best IT solution to merge the companies would be to implement a completely new, leading edge set of systems (that item actually maxed out my risk meter).

Perhaps I’m just cranky today, but this whole thing makes me wonder if IT was involved at all in whatever process was used that led to these conclusions.  I’m going to presume that the answer was “yes” and take this opportunity to discuss the roles of IT organizations and how this goal statement could occur with each type.

I’ll begin by reviewing how the different roles were classified. The url in the Library for reference is:

IT Roles

There are two dimensions in the classification, creating a 2×2 matrix: IT Capability and Business Value of IT. IT Capability is defined as the breadth of competencies in the IT organization (note that this is not IT performance, which is assumed to be adequate for any competency). Business Value of IT is defined as the extent to which information technology itself (not the IT group) can add competitive advantage to the business.

In this model, there are four roles that the IT organization can play: Utility, Advocate, Order Taker and Business Partner. Please note that this discussion is not intended to be critical of any particular role, but simply to explain the role and its dynamics.

Where both IT Capability and Business Value of IT are low, the role that the IT organization plays is that of a Utility. The business recognizes the low potential for information technology to add competitive advantage and the IT organization provides the limited set of capabilities needed to “keep the lights on” for the business.

If this was the role of the IT organization, IT probably had little meaningful participation in the MADI discussions. It couldn’t because it lacked the capability to do so. The story that I would make up to support the way that the business executive came to his conclusion is that a strategy consulting firm played a large and influential role in the MADI process. The solution leads to heavy dependence on external resources to implement. I doubt that this was the scenario that led to the goal statement.

Where IT Capability is high and Business Value of IT is low, the role that the IT organization plays is that of an Advocate. The business recognizes the low potential for information technology to add competitive advantage, however for whatever reason, the IT organization provides far more capabilities than needed by the business and continues to advocate “spend more on IT” as the answer needed for virtually any business solution. There is a mismatch here and this type of organization tends to be short-lived unless they are future-focused and can make an R&D-based case to justify their cost.

If this was the role of the IT organization, IT probably had significant participation in the MADI discussion. IT could because it had the capability to do so and would be looking for the opportunity to expand its role. The story that I would make up to support the way that the business executive came to his conclusion is that the IT organization showed IT as the savior in the situation. The solution leads to IT overly influencing the solutions space at a critical time. Again, I doubt that this was the scenario that led to the goal statement.

Where IT Capability is low and Business Value of IT is high, the role that the IT organization plays is that of an Order Taker. The business recognizes the high potential for information technology to add competitive advantage and the IT organization provides less capabilities than needed.  In this situation, the business is pushing IT forward and usually is in the position of suggesting (or demanding) a particular capability. In this situation, IT is in a reactive role, positioned to be constantly asking the business ”What do you need?”

If this was the role of the IT organization, IT probably had limited participation in the MADI discussion. IT would  participate because it was asked to do so. The story that I would make up to support the way that the business executive came to his conclusion is that the IT organization “showed up” and took the order as usual. This solution leads to IT over committing and setting itself up for failure – and a critical one at that. I believe that this was the scenario that led to the goal statement.

Where both IT Capability and Business Value of IT are high, the role that the IT organization plays is that of a Business Partner. The business recognizes the high potential for information technology to add competitive advantage and the IT organization provides a broad set of capabilities. IT is recognized as a thought partner and is fully engaged in business discussions, with the business desiring IT to help in the “Let’s think about that” process of value discovery.

If this was the role of the IT organization, IT probably had very significant participation in the MADI discussion. IT could because it had the capability to do so and was part of the process since its inception. The story that I would make up to support the way that the business executive came to his conclusion is that the IT organization was fully engaged in the discussion, offered options and trade-offs for solutions in terms of time, cost and risk, and came to a joint conclusion with the business that this was the best way to accomplish the business objective. Because of that, his solution leads to the right outcome, however, I question if IT would be given responsibility for the merger as a part of that process. Given that, I doubt that this was the scenario that led to the goal statement.

The bottom line for this particular goal statement is that an inappropriate conclusion was reached because of the mismatch between the role played by the IT organization and the current needs of the business. Both the business and IT will suffer as a result.

Savvy business executives are cognizant of the different roles played by IT and ensure that that the role of their IT group is consistent with their business need (and that their CIO is on the same page).

Delay of Game, Part III

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. I was traveling all last week and Max had a soccer tournament in Madison this weekend, so I didn’t have a lot of time to put on my blogging hat and get to work.

BES #8 should be posted in a couple of days – and drop me a line to let me know what topics you may be interested in following BES #9 (the final one in the series).

Thanks!

Business Executive Series #7

IT Value Proposition, Strategic Focus
Representative goal statement -  “I want IT to have superior service/cost positioning on a long-term basis and focus critical domain knowledge and expertise on high value initiatives.”

I would love to work with the CEO  who made that statement. In one simple sentence, s/he captured the essence of the CIO mission.

What this Business Executive is saying that IT should always be delivering services that optimize their value proposition and putting the right people on the most important business initiatives.

The representative goal statement implicitly recognizes the different IT roles (ref. Library – IT Roles Matrix) and explicitly requests that IT become a partner to the business by focusing the right resources on critical business opportunities.

Honestly, I’m not sure where to go with this one. The answer is as broad as I can imagine. I’d have to write a book to cover it. On the other hand, the subtitle of this site is “The Business of IT, Simplified” so I wouldn’t be delivering against that promise if I couldn’t post something on it.

Perhaps this is the time to talk about the right people and how to get them in the right place to be focused on the high value business initiatives. I’ll address “Right People” and “Right Place” separately.

Right People
Critical domain knowledge comes in two flavors – business and technology. One side knows more about the “what” of the business or business process, the other knows more about the “how”. The union of their knowledge is where the value is highest to business initiatives.

The “what” skill set  is found in the Business Value Discovery Function (ref. Library – IT Functions & Definitions). Organizationally, this is usually found in a dedicated “Business Relationship Management” group or  as part of an “Application Development” group.

The “how” skill set is found in the Infrastructure Management and Information Management Functions, respectively (ref. Library – IT Functions & Definitions). Organizationally, this can be found almost anywhere – and usually is. Likely groups are “Application Development,” “Operations,” “Engineering,” or “Architecture.”

Whichever skill set we are discussing, finding the Right People is easy. In the former, they are the IT people that the business folks always want to be on their important projects. In the latter, they are the people that the business-facing IT folks want to be on their important projects. They are the same names that keep coming up for stretch role assignments in talent management discussions. You are aware of them and know how immensely valuable they are to both the company and to IT.

Now that we know who these people are and what their skill set is, let’s discuss the Right Place for them to be.

Right Place
In BES #6, I discussed the Business Value Discovery function and making it an independent group, so that if could be an area of focus and specialization. I suggest the same here as the right organizational home for the “what” skill set.

In keeping with my advocacy of a service-based strategy for IT, here is an illustrative list of services that this group (let’s call it Business Relationship Management) may provide to their business customers:

•    Business System Analysis
•    Rapid Cycle Prototyping
•    Business Rules and Modeling
•    Business Process Mapping
•    Solution Delivery Management
•    MIS
•    Program Support
•    Quality Management (IT)
•    Financial Management (IT)
•    Portfolio Management (IT)

It will take some initial work with HR to create new job descriptions with roles and responsibilities, levels and career path/progression for this group. There will also be some necessary process changes for Solutions Delivery, plus a good bit of Organizational Change Management work. It will pay off quickly as this group becomes a partner in business thought and provides valuable insight to IT as to where the business is heading – and perhaps help shape that.

The second place that your Right People need to be is in Enterprise Architecture, specifically on the Solutions Architecture/Business Process dimension. I structure  my Enterprise Architecture groups with two dimensions, Technology Architecture (Application, Data, Infrastructure, Security) and Solutions Architecture (Business Processes/Domains).

The Technology Architects are accountable for developing the “to-be” state for their respective technology areas. The Solutions Architects are accountable for developing the “to be” state for their respective business process domains and making certain that each project that is delivered brings IT one step closer to the realization of the future state.

The development of these future states is a collaborative effort, as is the development of Business Technology Roadmaps, supported by – you guessed it – the Business Relationship Management groups.

Once again, if this role does not currently exist in the Architecture organization, it will take some work with HR to create new job descriptions with roles and responsibilities, levels and career path/progression for this role. There again will be some necessary process changes for Solutions Delivery and the Enterprise Architecture process, plus Organizational Change Management work. This will be particularly vital, as you will be pulling some of the most knowledgeable folks from their current groups.

The payoff will be in the positioning of these valuable resources in a high-leverage position where they create the technology plan for a business domain and influence project delivery for it. They interact with the Business Relationship Management team so that the plan is grounded in the business strategy and with the Technology Architects so that it is consistent with the technology strategies.

For consistency, here is an illustrative list of services that this group (Enterprise Architecture) may provide:

•    Technology Planning and Roadmaps
•    Technology Research
•    Business Solutions Development
•    Business Process/Domain Roadmaps

They are also accountable for EA Governance and EA Processes.

Now that you have the right people in the right places, the chances are greatly in your favor that IT will be able to “focus critical domain knowledge and expertise on high value initiatives.”

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.