Managing the business of IT

Results that make a difference

 

This brief will explore current success trends in  managing the “business” of IT based on industry research, aggregated and interpreted from my own experience.


Value Proposition

There is a common theme around evolving from the historical view of IT as a “cost center” to one that provides significant and acknowledged business value.  Part of this shift requires the focus on business outcomes as measures of success that are equally important as operational
measurements like availability and response time.  It is interesting that despite this emerging theme, surveys of IT leaders indicate a disconnect, with high ranking of operational measures versus those identified as being key to demonstrating the value of IT.  Although business alignment ranked first in a Society of Information Management (SIM) survey[1], developing revenue generating projects ranked tenth. 


An IDG IT leadership survey[2] on the top five potential benefits created by the IT organization reports that 52% felt “improving employee productivity” was a top benefit, while only 22% felt “driving top line growth” was also in this category.  The report indicates that while CIOs may be on board about the need to establish a more compelling IT value proposition, their organizations are not.


A recent article in CIO Magazine[3] states this proposition in most fundamental terms: when delivering a project proposal to the CEO, do we answer the questions “Will this sell more stuff?” or “Will it cut costs?”  The most compelling proposals lead with the former, making cost saving aspects an important, although secondary, priority when business growth and innovation are enterprise priorities.

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The SIM survey also illuminates that while IT leaders rank their priorities focused on optimizing benefit to the business (alignment, agility, productivity, cost), other factors that “keep them up at night” are the arguably more tactical but still mission critical imperatives like security, talent acquisition/retention and DR.  A successful CIO knows how to balance both strategic and tactical needs.  While it’s easier to build a business case for a project the business considers strategic, the successful CIO is equally adept at building the business case for tactical projects that communicate clear value to the business (e.g., security measures that prevent loss of revenue streams, protect proprietary content, etc.).

 

Key factors in demonstrating IT value include: improving effectiveness by delivering stable and secure services, increasing business productivity, and investing and delivering on IT projects that generate revenue.  Any project that is classified in such a way should have clear, measurable outcomes attached to it.  Also, be mindful that optimal value from IT will be diminished if the primary focus is cost reduction in and of itself.


Operational Effectiveness

It is important to keep a focus on maintaining a solid IT infrastructure.  Investments in projects that stabilize and secure the infrastructure provide a heightened level insurance against significant business disruption and loss of revenue such as product outages and cyber-attacks.  There are many examples in 2013 of major outages caused by failed infrastructure in the largest and most revered technology companies, Microsoft, Google and Amazon.  Revenue impact was significant in some cases.  While investment in infrastructure isn’t “sexy” and may be expensive, the cost associated with lack of solid infrastructure can be catastrophic. 

Sourcing

Business is driving toward more managed services for core infrastructure and measurements based on business outcomes, rather than effort (e.g., number of help desk calls).  These services are not considered strategic but are necessary to run the business effectively and with minimal risk.  Multi-sourcing is a preference versus all-in, or all-out.  This strategy is not universal however, and is highly contingent on the priorities of the
business.   As an example, security is a major priority for the highly regulated financial industry, so there is caution as to how much those companies source externally.

Governance

Most companies have some level of IT governance practices in place.  The real question is whether and by how much those practices are bringing optimal value.  A recent report by Computer Economics[4] notes there is high adoption of certain IT governance practices such as strategic planning, steering committees and security.  This adoption, however, is generally only at a “minimum price of entry” level as considered necessary by the business. 


In other categories typically considered vital to governance, there is significantly lower adoption.  Activities such as financial management,

portfolio management, PMO, enterprise architecture and performance measurements are noticeably less prevalent.  Unfortunately, these are some of the primary activities that can bring heightened IT value to the organization.  Improving IT governance maturity is clearly an opportunity in most organizations.  


One impact of this imbalanced approach to governance is that while there is a high adoption rate for steering committees, there is lower implementation of PMOs and portfolio management.  As a result, the value proposition for an IT steering committee is compromised due to diminished ability to make prioritization decisions effectively and monitor and control IT investments without the tools and analysis provided by these other supporting processes.

 
IT Organization Structure

The SIM study noted that 65% of the companies surveyed had a centralized IT organization.  Only 27% had a federated/hybrid structure.  The trend from 2006 to 2013 has seen a shift from centralization to federated/hybrid models, however.  New business models that draw IT closer to
the customer contribute to this shift.  As well, ongoing cost optimization priorities drive IT leaders toward shared service organizations for functions like infrastructure with business specific application development and support within business units.  This trend is validated by the high usage of shared services; 70% of respondents delivered some IT services through a shared model.

 
Key to Successful Execution of Change Initiatives

All of these trends are solid practices employed by successful businesses.  Optimal execution, however, is highly contingent on the culture of the
company.  Does executive management understand the value proposition of their IT organization, or is it looked at as a budget item?  Do business segment leaders see the benefits of good IT governance and the value of shared services?  Does IT staff understand their role as more than delivering technology, but also delivering business outcomes?
 

CIO Success Factors

Understanding current state and looking ahead based on trends, these are what I believe to be the key success factors for CIOs in a changing business and technology environment.


  • With the focus on transforming IT from the perception of being a “cost center” to being a key value contributor, CIOs should consciously strive to promote IT’s value proposition through communications and measurements that resonate with the business.  Key stakeholders are internal staff (to the IT organization), executive leadership (including the BOD), business leaders and external partners.  Measures for project and operational performance must be stated in terms the business understands and relates to.

  • Be cautious not to let enterprise, cost-saving initiatives like ERP consume the CIO agenda.  Optimal IT value is defined by more factors than solely cost containment and reduction, which many ERP initiatives tend to focus on.  Now more than ever, technology plays a key role in business innovation.  Sacrificing innovation to a myopic focus on enterprise initiatives (typically accomplished over a span of multiple years) will diminish your opportunity to push IT into a critical strategic role.

  • Take time to think.  The CIO’s day-to-day operational issues, dealing with politics and delivering on corporate responsibilities is consuming.  With rapid fire changes in business strategy and evolving technology, a CIO requires thought time to reflect on how to best capitalize on emerging opportunities.  Another objective should be to check your work/life balance.  A high priority should be family, friends and other personal pursuits to avoid the tunnel vision that tends to accompany a complete consumption with work. 
  • Lastly, but possibly most important, build trust with all your key stakeholders.  The CIO must be considered a valued business partner and vital contributor to the achievement of enterprise strategies.  Although organizational politics can “test the mettle” of even the most driven CIO, building trust and earning the respect of colleagues in the business is absolutely critical to installing IT as a strategic imperative rather than a functional necessity.  

 

General References

John Mahoney and Mark Raskino, CIO New Year’s Resolutions, 2014, Gartner Research, December 30, 2013


Bard Papegaaij and Leigh McMullen, CIOs Build Better Brand by Building Trust, Gartner Research, October 14, 2013


Eveline Oehrlich, Five Concerted Steps to Maximize the Business Value of IT, Forrester Research, December 10, 2013


Adam Hartung, CIOs Should Learn the Two Metrics That Matter, www.cio.com, December 17, 2013


Richard Hunter and Sanil Solanki, Game Changers: Five Ways to Help the CIO Move IT from a Culture of Cost Cutting to Generating Value, Gartner Research, January 30, 2014


Francis Karamouzies and Claudio DaRold, Predicts 2014: Business and IT Services are Facing the End of Outsourcing as We Know It, Gartner Research, January 24, 2014


Sharon Florentine, Tech Performance Issues Plague IT and Business, www.cio.com, January 10, 2014


[1] IT Key Issues, Investments and Practices of Organizations & IT Executives: Results and Observations from the 2013 SIM IT Trends Study, Society for Information Management (SIM), October 15, 2013


[2] Transforming IT: Getting to Business Value, joint white paper by CIO Custom Solutions Group/KPMG


[3] CIO Magazine, “CIOs Should Learn the Two Metrics That Matter”


[4] IT Management Best practices 2013/2014, Computer Economics