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Today™s
Same (current) Cost
Situation
Cost Higher Impact
IT Improvement
Zone

Sweet Spot:
Lower Cost
Reduced Cost: Higher Impact
Lower
Lower Cost
Cost
Same (current) Impact


Lower Higher
Bottom-Line
Impact Impact
Impact



3. A “Sweet Spot” Objective ”This combines cost reductions with better
bottom-line impact. IT can both lower its cost and also improve its per-
formance in terms of bottom-line impact.

A fourth “Higher Growth” Objective (mentioned in the previous section)
may apply to companies experiencing rapid change and/or growth. In this case,
the higher IT costs, though controlled, are justified because they produce even
greater bottom-line impact. Even in these cases, we can reduce the overall cost
increases, thus increasing the bottom-line impact even further.


THE STRATEGY-TO-BOTTOM-LINE VALUE CHAIN
What does it take to control IT costs and produce higher bottom-line impact?
Simply, we need effective planning processes, appropriate resource decisions,
and workable budgets and plans. We need them to work together consistently.
But companies already do this, managers may say. They work to improve
the bottom-line performance of their company.5 From year to year, they set
budgets for ongoing operations and invest in projects or initiatives to change or
add to the business. Managers then expect that new budgets will support better
bottom-line performance than prior-year budgets, and that investments in proj-
ects or initiatives will produce better bottom-line performance (see Exhibit 1.4).
The practical problem is that most companies carry out planning, prioriti-
zation/resource decisions, budgets, performance measurement, and so forth, in
silos or stovepipes. We mean this in two ways. First, in management process
terms, business planning, IT planning, prioritization, budgets, and performance
6 DEFINE THE GOALS


EXHIBIT 1.4 Strategy-to-Bottom-Line Value Chain

Effective Planning Processes
Bottom-
Appropriate Resource Decisions
Business IT
Line
Strategies Actions
Results
Workable Budgets, Projects, and
Operational Plans

Performance Measurement Metrics




measurement are poorly connected. For example, a company may have strate-
gies, but its management performance measurement is not consistent with those
strategies. Similarly, business and IT planning may not be coordinated. These
management processes operate, but not consistently or from a common base of
information, and are disconnected. Second, many companies are organized in
silos or stovepipes, and the various management activities ” such as planning,
prioritization, budgets, and so forth ” do not take an enterprise perspective nor
do they coordinate across the barriers between silos or stovepipes. The business
units are disconnected.
Yet, IT has many aspects that, to control costs and assure IT™s bottom-line
impact, have to operate across silos or stovepipes. IT™s infrastructure is a sim-
ple example, but the idea extends to the coordination/integration of informa-
tion systems across silos and to the exchange and integration of information
across silos. Certainly, planning, prioritization, budgeting, and so forth have to
connect across these silos to be effective.


DISCONNECTS
Although we need effective planning, appropriate resource decisions, workable
budgets, and so on, whether we get them depends on how well the management
processes work across silos, both process silos and organizational silos. Opera-
tional budgets and future projects result in an improved bottom line only when
managers and staff perform budget-setting and project selection well. Budgets
and projects themselves are only as good as the planning that produces them.
Budgets and projects produce results only when managers and organizations
perform effectively, without silos and disconnects getting in the way.
Most companies and organizations have a loose collection of disconnected
management processes around IT. For example, in a large consumer products
company, business planning does not directly connect to IT planning, which
does not connect to company budget processes and management performance
assessments. The consequence is that the company™s IT investments and ongo-
ing expenditures do not clearly support business strategies; the CEO cannot tell
what the company is getting for its investment; and IT managers are frustrated
at their inability to communicate what IT is up to and why, to business managers
7
Critical Success Factors


and the CEO. These disconnects are the problems we need to solve in order to
put the necessary management practices into action.6
As it has been more than three decades since these problems first became
apparent, there must be more to the problem than management process dis-
connects. We often find:

Business plans do not drive IT plans.
IT plans focus on technology rather than directly addressing business strat-
egies.
Business managers do not see IT as supporting their strategies.
IT projects do not support business strategies. IT spending on infrastruc-
ture and application maintenance does not support strategy.
Company budgets do not reflect the results of IT planning.
IT plans are shelfware that does not guide management decisions, projects,
or budgets.
IT governance practices do not direct IT from a business perspective.

These symptoms are characteristic of companies with disconnects. What gets
in the way, fundamentally, is different views among business and IT managers
about the role that IT plays in the business, the value that IT can bring, and the
management practices that are needed to effectively bring IT to bear on business
strategies. These different views result from, and in, the failure to plan, align,
prioritize, innovate, and measure performance for IT consistently from a business
strategy perspective. This failure results from management cultures in business
and IT that are incompatible with using a business perspective to manage IT.
Companies need their own version of a Strategy-to-Bottom-Line Value
Chain. Readers may recall Michael Porter™s work on competitive analysis.7 He
proposed that enterprises have a value chain of connected, coordinated activi-
ties that individually and in concert add value to the products and services that
an enterprise produces. We take that basic idea and apply it to the management
processes that connect the company™s planning and strategies to IT planning,
budgets, and actions, and to performance management that tracks the results.
This is a Strategy-to-Bottom-Line Value Chain where, as in Porter™s model, each
individual management process both adds value and, working consistently with
the other processes, works in concert to reduce or control IT costs and simul-
taneously improve IT™s contributions to the company™s bottom line. By exam-
ining each management process and applying the tools and practices contained
in this book to those processes, a company can “connect the dots” in terms of
its processes and optimize its Strategy-to-Bottom-Line Value Chain.

CRITICAL SUCCESS FACTORS
Effective planning processes, appropriate resource decisions, and workable budg-
ets, projects, and plans are the foundation, working consistently across process
8 DEFINE THE GOALS

and organizational silos. Based on these, we can produce the right IT actions to
control costs and, in turn, impact the bottom line. We can control costs at the
same time as improving IT™s contributions. The problem is, these three elements
are bound up in the existing management culture and processes.
We can tell how well a company does in producing our five outcomes (bet-
ter projects, right project choices, reduced nonperforming spending, improved
performance of existing spending, and right management actions) by examin-
ing whether:

Business and IT planning processes are fully connected and integrated.
IT-enabled innovations impact business planning and result in new business
strategies and improved ways to implement current business strategies.
IT investments are prioritized against business strategy.
The entire IT spend ” including development, operations, maintenance,
and services ” is aligned with business strategy.
IT business and technical performance is tracked.
Business and IT management teams consistently execute the management
processes that improve IT™s contribution to the business™s bottom-line per-
formance.
Planning and management processes focus on the entire IT investment,
including both Lights-On and Projects.
IT and business managers participate effectively in these management
processes.

To the extent that the above statements are not true in a company, its effec-
tive planning processes, appropriate resource decisions, and workable plans sim-
ply will not be effective, appropriate, and workable. The IT actions will not be
connected to business strategy, and costs will not be controlled, nor will the right
results be produced.
These are the Critical Success Factors8 for getting Right Decisions/Right
Results. We want better projects, we want to choose the best projects, we want
to eliminate nonperforming and poorly performing assets and resources, and we
want to improve the performance of existing assets and resources. Overall, we
want to reduce costs and, at the same time, improve IT™s contribution to bottom-
line performance. To do this requires attention to these critical success factors.


COMPLETING THE PICTURE: THE NEW INFORMATION
ECONOMICS PRACTICES
We have developed five basic management practices that flesh out the Strategy-
to-Bottom-Line Value Chain. More specifically, these practices create “yes”
answers to the eight CSF questions stated above. These five practices, shown in
Exhibit 1.5, are the basis for connecting strategy and results.
9
Completing the Picture: The New Information Economics Practices


EXHIBIT 1.5 New Information Economics Practices
1: Demand/Supply Planning
3: Prioritization
4: Alignment
5: Performance
5: Measurement
2: Innovation

Plans: Establish Business Requirements
and IT Solutions based on business strategy IT
Actions
Business Resource Decisions: Justify and prioritize Programs ”
Strategies and Projects based on business strategy Business
Results
Operationalizing: Establish Budgets, Plans,
and Metrics based on business strategy
Portfolio Management
IT Impact Management
Culture Management


Supporting Practices




We call this set of five practices “New Information Economics” (NIE) to
reflect that they are outgrowths of the original Information Economics work
described in our first two books. Briefly, we have had almost two decades of
experience in applying Information Economics in companies in the United
States, Europe, and the Pacific Rim. This experience and our research has led
to the five practices, which have been applied in business and government envi-
ronments.
The five practices in NIE make up a set of tools for IT and business man-
agers to use, embedded in management processes, to translate a company™s busi-
ness strategies into programs and initiatives that IT can implement. This book
describes each of these practices in detail, and gives the reader complete details
about what is needed to implement these practices, in whole or in part, in the
reader™s company. The five practices are briefly defined as:

NIE Practice 1: Strategic Demand/Supply Planning ”Translates business
strategies into terms that give IT clear direction on what the company intends
to do (the company™s “strategic intentions”). Business and IT managers achieve
consensus on where the company is going and what IT can do to help. They do
this by establishing the business drivers as expressed through management™s
strategic intentions, and translating them into the strategic IT requirements
needed to fulfill the strategic intentions. Management™s strategic intentions
establish the drivers for IT; the strategic IT requirements establish the business™s
strategic “demand” for IT, for which IT strategic planning must deliver tech-
nology solutions as the strategic “supply.” The result is a strategic agenda for the
use of IT in the business that can be translated into IT plans and, ultimately,
action.
10 DEFINE THE GOALS


NIE Practice 2: Innovation ” Changes the business strategies through IT
capabilities. IT usually responds to business needs. Less frequently, business
changes its directions based on the things that IT makes possible. This practice
explicitly drives business management to uncover the business opportunities
that IT makes possible and also provides a way to feed those opportunities into
business strategic and tactical planning. The result is a more robust and com-
petitive set of business opportunities.

NIE Practice 3: Prioritization ” Assesses the business impact of proposed
IT initiatives, prioritizes those projects, and assigns resources to the highest
value projects. The company should spend money only on projects that directly
relate to its strategic intentions. This practice tells managers which IT projects
strongly support strategic intentions, ranking them by future business impact.
As a result, money is spent in the right places, for the right reasons, with busi-
ness and IT managers agreeing on the decisions.

NIE Practice 4: Alignment ” Assesses the business impact of existing IT

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