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increasing budgets, redeployment allows an overall higher impact from all
IT dollars, while supporting more “strategic” projects that might otherwise
go unfunded.

By starting with and answering the Affordability Questions, we set the
ground rules for spending and resource allocation, and provide the basis for
using the Impact Questions to drive the right actions from IT.

The Strategy-to-Bottom-Line Value Chain is a series of connected management
processes that produce projects and project budgets and ongoing operations.
In the processes, management makes decisions about strategies, projects, and
plans; those decisions are then implemented in terms of the projects and oper-
ational budgets. The result is a roadmap for getting the right IT actions. See
Exhibit 2.1.

EXHIBIT 2.1 The Impact Questions

Do our business strategies
drive our IT actions and produce
bottom-line impact?

Effective Planning
Appropriate Resource Decisions
Business IT Business
Strategies Action Results
Workable Budgets and
Operational Plans

Are we getting
bottom-line impact Are we investing
from our lights-on Are we balancing our IT resources
resources? our strategic and in the right places?
IT investments?

Senior managers know they need effective and timely information technol-
ogy support for their key business strategies. What the Impact Questions do is
allow them to drive IT actions directly from those business strategies, and focus
IT and business line management on using resources to deliver bottom-line

1. Are we investing IT resources in the right places? Given a company™s strate-
gies and operational issues, are the IT resources devoted to the most impor-
tant things? This can mix resource allocation questions (which investments
should we make?), impact questions (are we spending on and supporting old
IT activities that are no longer important?), and planning questions (are we
generating the best ideas for using IT in the business; are we contributing
solutions to our business strategies?). Business and IT management teams
must answer this question together, with a clear view of the business strategies
Impact Questions: The Roadmap for the Right Actions

being supported and an equally clear view of the opportunities that IT pres-
ents to meet those strategies. (Typically, management disconnects between
IT and business get in the way. If business and IT management are not work-
ing from a common philosophy, and a common set of cultural values in
making these decisions, they simply add to the problem rather than answer
the questions.)
2. Do our business strategies drive our IT actions and produce bottom-line
impact? The question implies that management agrees on a common state-
ment of business strategy and understands the kind of actions IT is taking
to support that strategy. In many companies, merely asking the question
forces a rearticulation of the strategies, in terms that are actionable by line
management. IT is then able to understand more fully what management is
intending and what actions it can take to support those intentions.
We often see companies that do a good job of connecting their IT plan-
ning to business strategy but then fail to implement the best projects. The
culture forces projects with high short-term ROI to the top of the prior-
ity list, or emphasizes short-term operational goals in setting budgets and
choosing projects. This illustrates the importance of having a common basis
for answering the question: “Do our business strategies drive our IT actions?”
The answer is important, but the culture and practice to do something about
the answer are important as well.
3. Are we getting bottom-line impact from our lights-on resources? This ques-
tion implies that we know in detail what our current IT resources are, and
how they are being used. Additionally, the answer depends on the intended
outcomes from the investments in IT assets and resources. For example, if
they are competitive in nature, then the question is about the impact that
the investments have on competitiveness, market share, customer retention,
and so forth. If the outcomes relate to cost or productivity, then the ques-
tion is about the impact that the investments will have on costs and on oper-
ational performance.
Disagreements about IT value can occur when business and IT man-
agement have different views on the actual business outcomes needed. For
example, business management may look for substantial ROI or, alterna-
tively, substantial competitive edge, as the basis for IT™s value. If IT looks
for competitive edge, and business is marching to the ROI drum, a serious
disconnect exists. Disconnects can also occur in culture, which may resist
changing existing business practices or focus on immediate bottom-line per-
formance. Disconnects can also exist in management processes, where noth-
ing in the annual planning or budgeting activities requires connecting the
business strategies to the IT planning practices.
4. Are we balancing our strategic and tactical IT investments? People typically
think of lights-on budgets as tactical, and “new” projects as strategic. How-
ever, in most IT activities there is a mix of tactical and strategic spending in
both lights-on and new project budgets. The question for management is bal-
ancing the amount spent on each so that the strategic needs of the company

are met, as well as the tactical needs (usually meaning productivity and cost
reduction). The answer to this question also demands a clear and common view
of overall company objectives and strategies. IT managers need a common
view with the senior manager team, and typically this is difficult to achieve.
For example, in a large consumer products company, the IT manage-
ment team works closely with individual vice-presidents who are responsi-
ble for the major functional areas of the business. These functional managers
do not have a clear consensus among themselves or with senior management
on what the enterprise strategies are or, more importantly, the implications
of those strategies for each functional area and their use of IT. Without a
clear and common view of the company™s strategic directions, IT does the
tactical things demanded by the individual vice presidents preventing the
productivity and competitive advances the company needs. (We will pay
close attention to the ideas of balancing investments in our portfolio man-
agement discussions in subsequent chapters. The notion of “balance” covers
not only strategic/tactical but also back-office versus front office, infrastruc-
ture versus applications, and risk management.)

These questions have been around in one form or another since IT entered
mainstream business discussions. In the past, senior management teams looked
to IT management for answers to the IT Impact Questions, but the questions
are not simply about IT; they are connected to business as well. This is the core
problem for the senior leadership team. While it may be convenient to look at
IT as the silver bullet to produce results for the company, it is clear that IT is
merely an enabler. For significant bottom-line results to occur, business man-
agement has to be intimately engaged. IT produces value by enabling business
to make transformational changes ” in internal processes, in products, and in
outreach to the customers. In every case, the underlying business process has to
change in order to produce value. Business and IT management have to work
together on a common vision and in tandem to produce the technical solutions
and business process changes. This is how value is produced.

Consider the example of a company that defines its strategic intentions2 as: (1)
growing sales and revenue through market share increase, (2) reducing product
manufacturing cost, and (3) strategic acquisitions in its industry. In analyzing the
company™s IT “lights-on” budget, the result was shown to management with
Exhibit 2.2.
The chart shows that only 42 percent of the ongoing lights-on budget strongly
supports the company™s three strategic intentions, while 39 percent of the
budget has from no support to weak support of the strategic intentions. (This
is in response to the question: “Are we getting sufficient value from our current
IT resources?”)
Examples: Answering the Questions

EXHIBIT 2.2 Application Portfolio
This also means that only 42 per-
Support for Strategic
cent of the actions IT takes, in dollar
terms, strongly support the company™s
three strategic intentions, while 39 per- Weak Support Strong Support
cent weakly support those intentions. $12M, 39% $13M, 42%
What we see here is a company
that is not taking the right actions and,
therefore, not getting the right results
from its IT investments. The manage-
ment team now has decisions to make
Moderate Support
and actions to take. These decisions
$6M, 19%
can take the form of reviewing where
those poorly performing IT activities
are and how they could be improved or abandoned or, alternatively, how the
business units could improve their utilization of the IT resources being provided.
The key is that questions are asked, answers are provided, and action can result.
Of course, if no action actually occurs, then the exercise is not helpful.3
Consider another company that asked the question: “Are we investing our
new IT resources in the right places?” In this case, the question focused on the
new development budgets for projects. Exhibit 2.3 shows six strategic intentions
for the company, and shows their relative importance to one another (expressed
as a “weight”). The exhibit then shows the project investment dollars that strongly
support those strategic intentions.

EXHIBIT 2.3 Investment Dollars in Strong Support of Strategic Intentions

35 33





11 10
9 11
5 5
Strategic Intention Weight
$M Strongly Supporting
ral Cos
Structu Costs
stomer ice
er Serv
Custom Improv ces
ic Allian
Quality zation
Strateg ce Utili

The interpretation is that the most project dollars, in terms of strong sup-
port of business strategic intentions, occurs for the middle two strategic inten-
tions, and that the most important ones are not getting as much support. The
good news is that the projects are supporting the company™s strategic intentions.
The bad news is that the proportion may not be as appropriate as company man-
agement might wish.4
One consequence is that the set of IT actions represented by the projects and
their impact on strategic intentions is not optimally established. Management
may wish to take action on the mix of projects to be undertaken. Another con-
sequence is that management does understand what the IT actions will accom-
plish, in terms of bottom-line impact.

Management teams generally focus on IT when it comes time to plan and budget
for IT spending. This comes to a head during the annual planning and budget-
ing cycles. As we ask the Affordability and Impact Questions, we must provide
answers by working within the context of planning and budgeting, and link the
process of answering the questions to those processes.

Planning Processes
As management establishes strategic and annual operating plans, IT affordabil-
ity and impact is an important factor. From each business unit™s perspective, it
is a question of what IT will do for that unit with new projects and ongoing
operations. From the enterprise perspective, it is a question of whether the over-
all costs are appropriate and affordable and how well IT supports the business.

Workable Budgets and Plans


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