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A basic premise of this book is that plans and resources mean little until IT man-
agement takes the right actions, either by implementing new capabilities or
supporting the directions the business takes. The rubber meets the road when
budgets are available and actions are taken. For development projects, this means
effective prioritization and project selection. For ongoing IT activities, it means
appropriate support levels, infrastructure maintenance, and maintenance and
support of the existing applications.


WHY ASK AFFORDABILITY AND IMPACT QUESTIONS?
The questions we posed above look at the company™s strategies, ask about whether
the strategies are being supported, and result, generally, in redressing gaps in
spending. The questions™ thrust is strategy first, then decisions, and then action.
27
Why Ask Affordability and Impact Questions?


IT is approaching 50% of many companies™ capital budgets.5 The propor-
tion of corporate resources devoted to IT is rapidly rising, to 15% or more of rev-
enues in some industries.6 In many industries, IT-enabled services and processes
have the capability to change the competitive landscape: consider the experiences
of Wal-Mart, FedEx, and Charles Schwab. IT can remain a dominating issue for
the senior management team for years, as evidenced by the experiences of many
companies struggling with ERP consuming enormous amounts of money and
,
staff energy, and yet promising an impact across the board on business practices.
Even in difficult economic times, IT is on the agenda, if for no other reason than
when the economy is down, there is increased interest in controlling the costs of
IT, which gives rise to assuring the most efficient use of IT resources, cost reduc-
tion, and validation of IT™s value. In today™s competitive and rapid paced econ-
omy, companies simply must get the maximum value from their IT investments.
There are also other views in the industry that we should consider. Nicholas
Carr introduced a new point into the relationship between IT and the business,
in an article in the Harvard Business Review titled “IT Doesn™t Matter.”7 Carr
suggests that IT is a commodity in most businesses, rather than a unique com-
ponent of the company™s strategic position in the industry. IT remains important,
to be sure, as most businesses completely rely on IT for the conduct of their core
business activities. But every business has access to IT, and the competitive,
“strategic” advantage to be obtained from IT may no longer be a realistic objec-
tive for most management teams. In other words, there is no substantial reason
for major investment in IT except to further enable the basic conduct of the busi-
ness. Carr essentially recommends that management treat IT as a commodity
and manage it accordingly. Among other things, this means “spending less” rather
than spending more as a starting point for the management of IT. It also means
focusing on cost and resulting efficiency of business processes, as well as address-
ing the risks.
This really is not a completely new idea. For example, Paul Strassmann
wrote persuasively about his research that found little correlation between the
level of expenditures competitors make in IT and their relative profitability. His
“shotgun” charts documented, by industry, where each company stood in plot-
ting bottom-line performance against IT investment levels. The charts were
completely random.8
Jack Keen and Bonnie Digrius wrote an excellent book9 that focused on
finding ROI in every IT investment. As Keen and Digrius put it, for an individ-
ual project, everything is in the ROI. As a practical matter, this means finding
the specific way the IT commodity (in project terms) reduces cost, finds some
direct impact on revenue, or finds a connection to management goals.
We do not believe that “IT doesn™t matter.” IT is vital to most companies.
The things IT enables ” effectiveness and efficiency, new products, new means
to markets ” are certainly critical to the competitive health of companies. What
does matter is that a company™s investments in new IT projects and ongoing IT
operations are consistent with management™s strategies and effective in carrying
them out.
28 ASK THE RIGHT QUESTIONS


We propose that, to be effective in managing IT, companies need good
answers to the questions about IT™s affordability and impact, especially when IT
is such an important part of senior management™s agenda.
But what if the answers to the IT Impact Questions are “no” or “we don™t
know”?
This often happens in even the most successful companies, when their man-
agement processes do not focus sufficiently on the questions and their answers,
or fail to deal with their implications. This book is about five management prac-
tices that address the IT Impact Questions. These five NIE practice areas cover
planning, innovation, prioritization, alignment, and performance measurement,
and apply concepts of value, portfolio, and culture management.


TAKING ACTION
We have developed a simple business/IT stage model that describes where a
company is in its management and use of IT. Our view is that the “right ques-
tions” depend on whether the company management can do anything with the
answers, and this depends on the stage at which the company finds itself.
Briefly, companies move through five stages with respect to IT. Stage 1, where
the performance of ongoing IT activities such as the infrastructure and running
existing applications, is at an acceptable service and quality level. If current
infrastructure or applications are unreliable or of low quality in terms of accu-
racy, then asking questions about strategic support or affordability are irrelevant.
This is because management will not be capable of responding effectively to the
answers to the questions. The Stage 1 performance issues must be addressed
first. See Chapter 4 for the ideas on how assessment of Operational Processes
and Tasks can be done.
Stage 2 has to do with the performance of systems development. If current
development efforts are substantially behind schedule or over budget, or if the
results of development are ineffective in meeting business requirements, then
asking questions about strategy are largely irrelevant, and questions of afford-
ability are limited to operational tasks. See Chapter 6 for ideas on how to assess
Development Processes and Tasks.
Stage 3 deals with the capability of the IT organization to respond to cur-
rent tactical requirements, making the changes and doing the projects necessary
to respond to those changing tactical requirements. If IT is unable to respond
effectively, then asking questions about strategy is not relevant. Affordability
issues are not helpful either, if the work being paid for cannot respond to tac-
tical requirements.
Stage 4 deals with the ability to articulate and respond to strategic require-
ments. This includes the dimension of process change and change management.
Again, if IT is not performing this well, then issues of strategic alignment are
not as helpful as when they can perform well.
29
Chapter Summary


Stage 5 deals with IT™s leadership in providing new strategies and directions
to the company.
Filtering the “right questions” through the stages laid out helps define the
agenda for addressing Right Decisions/Right Results. The goal is to control IT
spending, and spend on the right things that will produce bottom-line impact.
The Impact Questions should drive down from the top of the model. We
cannot get to the strategy-level issues (Stages 4 and 5) without dealing with the
first-level questions. If IT is not performing, then asking about strategic invest-
ments is a waste of effort.
The Affordability Questions should drive up from the bottom, starting with
operations, then development, then the tactical and strategic projects under-
taken. This is because, first, that™s where the money is, and second, that™s where
actions can be taken.


CHAPTER SUMMARY
Companies achieve great things when IT actually supports what company man-
agement thinks is important. This is critical, because it is not just IT acting alone,
it is IT enabling what management thinks it wants to accomplish. This is the
heart of what we want to accomplish in finding consistency and connection in
management activities ” to connect business strategy to IT action.
Our thrust is to connect IT investments to what is important to man-
agement, in ways that actually connect to the bottom line by consistently and
persistently applying key ideas from planning through to performance manage-
ment. By seeking the answers to the right questions, management is able to con-
trol IT expenses and improve IT™s bottom-line impact.

Impact
We translate our business strategies into IT actions that produce the right
results.
We invest in new IT resources in the right places.
We get results, and sufficient value, from our current IT assets and re-
sources.
We balance our strategic and tactical investments.

Affordability
We spend what we can afford.
We reduce unnecessary IT costs.
We redeploy unnecessary expenses to support needed projects.

The Strategy-to-Bottom-Line Value Chain and the NIE practices enable man-
agement to produce these answers to the right questions.
30 ASK THE RIGHT QUESTIONS


ASK THE RIGHT QUESTIONS: MANAGEMENT AGENDA

If No, What Is
Yes or Our Plan for
Questions No? Correcting This?

Are we investing new IT resources in the right places?
Right Decisions




Do we know what we can afford?

Can we reduce unnecessary IT costs?

Can we redeploy expenses to suppor t needed projects?

Are we able to reduce the cost of poorly performing
Right Actions




activities?

Are we able to translate our business strategies into
IT actions that will produce the right results?
Right Results




Are we getting results ” and sufficient value ” from all
our lights-on resources?

Are we able to effectively control our IT costs?




ADDITIONAL READING
The book™s website contains additional information related to Chapter 2:
Website Note 1: IT and Economic Cycles
Website Note 2: IT™s Value ”A Definition
Website Note 3: IT, Bottom-Line Impact, and Government
Website Note 18: ROI and the IT Value Life Cycle


NOTES
1. We are indebted to Joe Barkley for putting words and meaning to this issue.
2. “Strategic Intentions” is a framework we use to define a company™s objectives
and strategies. The framework is described in detail in Chapter 3. See also Appen-
dix C, “The Development of Strategic Intentions, with Examples.”
3. This example is from the Alignment practice, described in Chapter 8.
4. This example is from the Prioritization practice, described in Chapter 8.
5. Capital spending data from Morgan Stanley Technology Research, March 2002.
6. Percentage revenue data from META Group and Metricnet 2002.
7. Nicholas G. Carr, “IT Doesn™t Matter,” Harvard Business Review, vol. 81, no. 5,
May 2003, pp. 41“ 49.
31
Ask the Right Questions: Management Agenda


8. See, for example, Paul Strassmann, The Business Value of Computers (New Canaan,
CT: Information Economics Press, 1990), and, by the same author, Information
Productivity (New Canaan, CT: Information Economics Press, 1999).
9. Jack Keen and Bonnie Digrius, Making Technology Investments Profitable: ROI
Road Map to Better Business Cases (Hoboken, NJ: John Wiley and Sons, 2003).
3
CHAPTER

Connect to the Bottom Line



M anagers improve IT™s impact on the company™s bottom line by controlling
IT spending and evaluating all parts of the IT spend according to bottom-
line impact. We define three basic ways that the total IT spend connects to the
bottom line.
First, and most obviously, com- Control Spending and Maximize
pany money expended on IT is a cost Impact on the Bottom Line
to the company, so eliminating project 1 Define the Goals
work or reducing lights-on costs affects 2 Ask the Right Questions
the bottom line. Business-driven pri-
oritization and alignment exercises can ¤
3 Connect to the Bottom Line
4 Understand Costs and Resources
achieve this.
Second, a new IT investment can 5 Focus on the Right Things
directly produce revenues or reduce 6 Adopt Effective Process to Produce Action
expenses, and thereby directly con- 7 Tackle the Practical Problems
nect IT to the bottom line. The finan- 8 Make the Right Decisions
cial analyses on project business cases
9 Plan for the Right Results
highlight this direct financial return.
10 Keep Score
If management increases directly
measurable ROI by choosing the right 11 Deal with Culture
projects, the result shows directly on 12 Char t the Path to Implementation
the bottom line. Doing so requires 13 Define What™s Next
selecting only those projects with 14 Answer the “So What?” Question
achievable cost reductions or revenue
enhancements. Business-driven prior-
itization can achieve this, with appropriate selection of prioritization factors.
Third, and most critically, an IT expenditure can enable or support a busi-
ness activity that itself impacts the bottom line. There also can be a direct cause-
and-effect relationship between an IT expenditure and the success or failure of
management™s efforts to change the business in some way. This is the most pow-
erful bottom-line connection, because to the extent that IT enables the success
of management™s strategies, it becomes a direct contributor to the overall efforts
of the business to impact the bottom line.

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