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EXHIBIT 7.2 Process Disconnects in the Value Chain


Plans: Establish business requirements and IT
solutions based on business strategy
Business Resources: Justify and prioritize programs IT Business
Strategies and projects based on business strategy Action Results
Operationalizing: Establish budgets, plans,
and metrics based on business strategy


Performance Measurement Metrics



Process
Disconnects




Regardless of the cause, few companies are making the best use of their IT
investments and resources.
A second reason is that the people who perform each management practice
are in different parts of the company™s organization and do not routinely work
together. Those who prepare company budgets and company management per-
formance systems are not the same people who conduct strategic planning, who
are different yet from those who make resource prioritization decisions. With-
out explicit connections built into consistently applied management practices,
business strategies are not reflected in IT plans, resource decisions, and budg-
ets. The result is that senior managers do not understand what the company gets
from its IT investments and do not understand IT™s alignment and affordability.
A third reason is the business and functional silos that exist in almost every
company. The silos can be business units, such as the life insurance business in
an insurance company, or they can be functional areas, such as finance or mar-
keting or even IT. Silos can get in the way of common business strategies and,
in particular, impede cross-silo IT solutions, making connecting IT action to
business strategy very difficult.
A fourth reason is that significant disconnects occur in the way business and
IT management work together in planning, innovation, prioritization, alignment,
and performance measurement. Additionally, management culture, in both IT and
business, presents significant hurdles to overcoming the disconnects. In many
cases, culture reinforces the disconnect between business and IT management.
For example, in one large commercial bank, the CEO saw the operational
and strategic importance of IT. He encouraged new investments to enhance
the bank™s infrastructure and applications for strategic and competitive objec-
tives. Unfortunately, the existing management culture did not acknowledge the
strategic importance of IT in the bank™s business. IT was important to the lead-
ership operationally, but the leadership did not see that new IT initiatives were
potentially important to the bank. The bank™s CEO became frustrated by his
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inability to get the leadership team to adopt IT as a major contributor to their
individual annual plans and strategies. In spite of evangelistic leadership on his
part and the focus on IT in the strategic planning cycle, he simply could not get
his managers to take IT action driven from the business strategy.
The problem was not CEO leadership or attention. It was the disconnects
that lay between the vision of applying IT and the individual manager™s actions
needed to accomplish it. These disconnects were in the culture, which encour-
aged existing business practices and immediate bottom-line performance, and
in the processes, where nothing in the annual planning or budgeting practices
required connection to the strategy statements. Without a process, the culture
could not change. Without culture change, there was no incentive to put IT in
the business plans.
This is a problem facing companies whether or not the context is IT growth
or IT cost control. Even though the strategy statements may be direct and sim-
ple, getting business leadership to include strategy-driven IT initiatives in its
annual plans and budgets, and getting IT management to connect its IT strate-
gies and plans to those strategies, is hugely problematic. As with the bank, no
one disagreed that IT was operationally important or that budgets and plans for
the operational activities should be adopted. The management disconnect was
about the IT™s business importance and opportunities, including new budgets,
initiatives, and actions associated with supporting business strategy.

IT Impact Management™s Approach to “Process Disconnects”
A practical solution has three elements:

1. Connect and coordinate with existing non-IT company practices such as
business planning and the annual budget practice.
2. Connect and coordinate the people and organizations that perform these
practices.
3. Engage managers across the company in the execution of the integrated and
connected NIE practices.

We discussed the first two in Chapter 6, where we identified the process
connections between corporate processes and the information in the Value
Chain. The additional element introduced here is the concept of directly engag-
ing managers in all areas affected by the new practices in their execution, and
directly approaching the process owners of the relevant corporate practices to
get their involvement and input into the proposed practices. The three solutions
are part of IT Impact Management.

Practical Problem 2: Legacy and Entitlement Mentality
The company™s existing IT applications, infrastructures, and project backlogs are the
legacy of the existing strategy-to-bottom-line management practices, which prevent
starting with a clean slate. Managers feel entitled to “their” systems and support.
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Practical Problems Getting from Strategy-to-Bottom-Line Impact


While we may need to assess the alignment of the lights-on application port-
folio against business strategy, we have the problem that the current portfolio
was produced as a result of previous, probably unconnected, management prac-
tices. Similarly, prioritization of the project backlog is useful but, again, the
backlog was produced through the existing practices. Prioritization of projects
does not assure that we will have the right projects in the backlog to prioritize.
We need better projects, driven from business strategy.
The influence of legacy extends to organizational relationships between IT
and the business units and business management expectations. Particularly with
the lights-on budget, everyone behaves as though the current cost base will con-
tinue into the future and as if current commitments to continue supporting each
manager™s applications will also continue, if not increase. In many ways, the IT
culture has grown up saying “we do what the user needs.”
What this translates into is a generally unexamined commitment to support
everything that is currently being supported. This entitlement also applies to the
relationship; business managers come to expect to be served by the individual
in IT with whom they have built personal relationships. Again, this leads to serv-
ice requests and support expectations that ignore business strategies. It is a clas-
sic case of an entitlement mentality: Managers come to expect what they have
always had, irrespective of changes occurring around them. We are confronted
with the old way of doing things and the old way of thinking.2
Ideally, we need to begin every budget cycle with business strategy, develop
the most effective IT strategies and projects to support that strategy, and then
go from there in terms of prioritization, budgeting, and measuring performance.
We need to reexamine every IT expenditure, whether for new projects or old
lights-on support. This works to break through the legacy mindsets and the sense
of entitlement.
Though ideal, in practice this result may require several planning cycles to
accomplish.

IT Impact Management™s Approach to the
“Legacy and Entitlement Mentality”
Although not ideal, applying New Information Economics practices immedi-
ately, through alignment and prioritization, can lead to considerable progress in
changing the management culture. Achieving ideal management practices, from
planning and justification through budgeting and performance measurement, is
a worthy goal but difficult to achieve in the short term. However making imme-
diate and real (though possibly limited) progress toward this goal is critical.
By using portfolios and portfolio management, all elements of the ongoing
IT spend are on the table and subject to discussion. Again, engaging manage-
ment in aligning IT spend against strategic intentions and assessing service and
quality levels can start to address the entitlement culture.
One of our important themes is “affordability.” Engaging managers in
the holistic, 100 percent view of the IT spend makes it clear that a company™s
commitment to IT is not open-ended. Rather, it is bounded by the limits of what
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can be afforded. Consequently, assessing where money is spent, and to what
impact, causes considerable increase in awareness that business-as-usual for IT
spend has its costs and that choices have to be made.

Practical Problem 3: Management Roles
The company™s management culture prevents business and IT management from
playing the management roles needed to effectively direct and apply IT resources
to achieve maximum bottom-line impact.
For most companies, the solution to driving IT action from business strat-
egy requires a revision to existing management practices and the introduction
of new ones. The key change is driving from strategy, but the key consequence
is the change in the role that business managers play in directing IT. A difficult
part of this change is dealing with the legacy of existing management practices
and management culture about the governance of IT. But the real challenge is
dealing with the change in the relationships between business and IT, and the
consequent change in the roles business and IT managers play. New Informa-
tion Economics practices work when these roles and relationships change.
Changing roles and relationships, of course, runs up against culture. This
can put significant limitations on the change in management behavior needed.
As a result, dealing with this practical problem requires considerable pragma-
tism and, in particular, a learning process. The principles and practices will be
successful, but taking management culture into account will be important in
determining how rapidly, and how broadly, the changes can occur. Moreover,
the very process of applying the principles and practices will accelerate the man-
agement culture changes.
The company needs the right management culture to connect strategy to IT
and IT™s bottom-line impact. As suggested in the previous section, culture and
culture disconnects significantly inhibit the ability of the company and the man-
agement team to successfully carry out the five management practices.
We introduced the specific roles expected of managers in Chapter 6. They
are summarized briefly in Exhibit 7.3.
Note that the list in Exhibit 7.3 includes all elements of the Strategy-to-
Bottom-Line Value Chain and the roles in all five NIE practices. As we men-
tioned above, companies do not typically adopt all practices at once. Note also
that company managers no doubt perform most or all of these activities in exist-
ing practices. The problem here is to get these things to happen in a connected,
coordinated, focused-on-business-and-bottom-line fashion.
The practical problems center on getting the business and IT leadership
teams together; getting them to agree about how to do planning, innovation,
prioritization, alignment, and performance measurement; and, most importantly,
overcoming the people and cultural hurdles to getting things done. In part, the
problems are motivating change: The pain of the proposed Right Decisions/Right
Results solution needs to be less than the pain of the problems the management
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Practical Problems Getting from Strategy-to-Bottom-Line Impact


EXHIBIT 7.3 Management Team Roles
Senior Leadership Team Technology Leadership Team
• Approve and weight strategic intentions • Contribute to portfolio information,
especially costs
• Review or approve deliverables at
several steps • Assess portfolio for technology
• Make decisions on and approve • Participate in development of the
funding Strategic IT agenda for the use of IT
Business Leadership Team • Develop IT plan
• Revise and review strategic intentions • Participate in IT requirements process
• Assess portfolios for alignment, • Establish projects and business cases
service, quality, intensity of use
• Establish annual project plan and
• Develop IT agenda for the use of IT schedules
• Review IT plan • Advise business leadership
• Develop requirements for projects, • Develop IT plans and establish IT
based on Strategic IT requirements budgets
• Prioritization of requirements, project, • Participate in budget planning
annual plan portfolios
• Initiate action plans
• Recommend decisions on funding
• Establish IT performance metrics
• Establish business unit plans for the
use of IT
• Develop budgets
• Establish business performance
metrics



teams currently experience. Practices and frameworks will not, by themselves,
solve them. People must understand their roles and responsibilities, and under-
stand how their participation contributes to the solutions.
We find that management culture presents the single most pervasive hurdle
to successfully getting from business strategy to IT action. It is a difficult prob-
lem to deal with directly, since a company™s culture comes from its history and
developed over a long period of time. Culture makes changing management
practice most difficult, because culture sets the boundaries on what is accepted
by managers with respect to the roles they play, the decisions they make, and
the acceptance of roles and decisions made by others.
If existing processes do not effectively engage business management in a
continuous and consistent way, the company cannot produce the best use of IT
resources. By integrating the strategy-to-results chain and establishing consistent
roles and information, management will be more willing to invest themselves in
the process. Each NIE practice deals with this problem of integration and con-
nection to the rest of the strategy-to-results, or Strategy-to-Bottom-Line Value
Chain.

IT Impact Management™s Approach to “Management Roles”
We approach management role change, and the underlying culture challenges,
through the five New Information Economics (NIE) practices. These practices
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make necessary adjustments in the roles that managers are asked to play, and
they affect the decisions that managers make or participate in.
The basis for changing roles is directly engaging managers in the processes.
Working with a management group, with a common and holistic view of 100
percent of all IT projects and expenditures, changes the roles. This begs the
questions of how to get managers to agree to participate and how to get them
to believe in the results.3


Practical Problem 4: Company Processes
The new or changed management practices that connect business and IT will
have to coexist and work with many other existing company management prac-
tices (e.g., capital budgets, HR, management performance/compensation, corpo-
rate budgets, purchasing, and so forth).
Planning, prioritizing, and operationalizing IT do not occur in a vacuum;
they operate within the legacy of existing management practices. This is a signif-
icant problem because, in most cases, companies cannot change all management
practices at once. The practical problem is doing what is needed to sufficiently
connect the business-strategy-driven management practices to the other prac-

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