FRAMEWORK Strategic alignment results from structuring t.docx
- 1. FRAMEWORK Strategic alignment results from structuring the IT organization around the needs of the business. To explain how this is done, let me break the operations of the IT organization down into four basic functions. Two are delivery functions: support delivery and project delivery. The other two are management activities: value attainment and strategic alignment. All activities of the IT organization can be categorized into one of these four functions, although, as we will see later, these functions are typically spread out across multiple teams, which is the source of much of the misalignment IT organizations face (see Figure 8.1). img FIGURE 8.1 IT Strategic Alignment Framework These functions layer on top of each other such that failure at one level affects everything above it.
- 2. Strategic alignment is achieved when all functions operate in harmony to achieve business results. However, how these functions are managed directly impacts how strategic an organization is. A tall skinny pyramid will generate far more value for a firm than a short fat one. For the rest of this chapter, we explore each function in more detail and highlight the management issues the CIO and the IT management staff must address to achieve strategic alignment. Support Delivery Support makes up all of the break-fix activity of the IT operations. It is the most fundamental and, in many respects, the most important activity the IT organization engages in. Support includes the help desk and monitoring organizations but also aspects of technical operations, such as system administration, database administration, development, and business process analysts. All aspects of the IT organization provide some level of support back to the business. Support delivery is critical not because it is strategic but because it is the foundation from which
- 3. everything else is built. Put in simpler terms, if you are in the CEO’s office and her personal computer is broken, what do you expect you will be discussing with her when you meet: supply chain strategy, or why her PC has been down for the past four hours? Support is the function that all IT organizations are engaged in regardless of size. In some IT organizations, support is all they are engaged in. Support delivery involves several management decisions including scope, service levels, and overall investment. A widely circulated metric asserts that most IT organizations spend 70 to 80 percent of their budget sustaining existing systems. Whether this is the right level is the subject of some debate, but the metric highlights the fact that support delivery is not only the foundation of all other aspects of the IT organization, but it is also the dominant expense. The key support delivery management challenge is to provide the right level of support cost effectively. This balance is subtle but important. Although a corporation might enjoy IT support levels so high that
- 4. any time a PC failed, an IT representative was there in person instantaneously, the cost of providing such support far outweighs the benefit. Therefore, the CIO must find ways to provide the maximum amount of support for minimal cost. Benchmarking is an effective technique to determine where an IT organization falls on its support investments as support costs are fairly easy to compare across companies. Formal and informal customer surveys are an effective way to determine whether the right level of support has been achieved in the eyes of the IT organization’s customers. In my experience, when support delivery is spread across multiple teams in an organization, it dilutes the effectiveness of those teams. Support activity is urgent and requires immediate attention, while most other IT activities require planning and coordination. Centralizing support activity enables an IT organization to separate out proactive from reactive activities, allowing it to specialize in both. In addition, most support delivery activity is commoditized, which has enabled outsourcing as one of the most common ways of achieving balance between capability and investment. The right outsourcing
- 5. partner brings economy of scale, geo-economic process, or some other efficiency that cannot be achieved within the IT organization. Centralizing also facilitates outsourcing by concentrating all functions likely to be outsourced under one structure. Project Delivery Once a company has its support issues under control, the next function the IT operation is engaged in is project delivery. Although IT organizations typically have a broad-ranging definition of what constitutes a project, for the purposes of this framework, a project is defined as any structured IT deliverable that is not part of support delivery. (Note: I exclude from this definition management deliverables such as metrics or quarterly executive reviews.) Projects are the basis of how value is delivered from an IT organization. For example, if a company is looking to streamline its sales operations, it will employ a customer relationship management and/or enterprise resource planning solution to accomplish this. However, the decision is not simply a purchase decision, much as the company may wish this were the
- 6. case. Implementing any enterprise software or even technologies based on software as a service requires an implementation project complete with a scope, timeline, and a set of resources (including financial resources). System implementation, merger activity, cost savings initiatives, and infrastructure upgrades are all examples of projects an IT organization might take on. The entire set of projects an IT organization is engaged in defines its project portfolio, while the set of projects the company plans to implement in the future represents the IT organization’s road map. The sum of all resources for its portfolio represents the IT investment decision for the company. With project delivery, the operational challenge for the CIO is to get the greatest bang for the buck in the most predictable fashion. Whether the investment is spread across one project or 100, a company will want the most output possible from its IT organization relative to how much it invests in IT. As one of my staff members used to say, “It needs to cure cancer, taste like chocolate, and cost less than a
- 7. buck.” In addition to efficiency, to build trust with the business, it is also important that IT organizations be predictable in their project delivery. An IT organization’s credibility rests on doing what it said it would do. When an IT project delays or goes over budget, it not only takes resources away from the rest of the company, it also pollutes the decision-making process as executives will discount the forecasts of an IT manager who has been unreliable in the past. I have seen many CIOs fail not because they chose the wrong investments, or failed to deliver them, but because they consistently overcommitted and underdelivered. The most important challenge with project delivery is determining what is in the portfolio itself. The portfolio of the strategically aligned IT organization directly links to the company’s strategic plan. Accomplishing this requires an effective demand management process. Over the years, I have experienced many different approaches to demand management. Some IT organizations employ IT
- 8. steering committees, others make the decisions at the executive staff, and some leave the decision up to the CEO. Each approach has its own relative strengths and weaknesses that are highly dependent on the company’s culture and overall decision-making process. The CIO simply must ensure that sufficient input from the business on what IT should work on is gathered and that a process exists for determining what the IT organization will work on. Whatever the decision approach is, I have found that the most successful demand management process requires that the business bring its own money to the table for new IT investments. Business functions are well positioned to determine the trade-offs of an IT investment when they are financially committed to them. When a business function provides input on a portfolio that it does not fund, trade-offs are not internalized, and it leads to overallocation of IT resources. Key to addressing all of these challenges is to have the right management team and processes in place. A project management office (PMO) is a key function in strategically aligned IT organizations for
- 9. governing the project delivery process. A well-functioning PMO will identify projects that are at risk of missing commitments so the IT management team can address the right issues. A PMO can also lead the portfolio planning process to help identify project dependencies and resource conflicts that must be addressed before an IT governing body can decide on the portfolio. Another key issue for project delivery is where IT resources are sourced from. IT projects are technical, and the technologies evolve very quickly. Therefore, a sourcing strategy is important to ensuring that an IT department has the right skills available to it when it needs them so as to minimize resource conflicts and maximize utilization. The strategically aligned CIO will specifically define which skill sets to develop and retain on staff and which skill sets to outsource or hire on a staff augmentation basis. The business itself is also a great source of talent for IT for both process analyst and management roles. Demand management in particular is a role where I have been very successful in bringing business resources into
- 10. the IT organization to manage the process, as this puts resources with the right business context and relationships in control of the process. Project delivery and support delivery are functions that nearly every IT organization has. The next two functions are less common and differentiate the strategically aligned IT organizations from the rest of the pack. Value Attainment Companies invest in IT to achieve a business result. Although many organizations implicitly include this activity as part of project implementation, I call it out separately here because it is a different activity. In fact, many IT organizations do not even attempt to ascertain whether the desired business result has been achieved. In these organizations, determining whether or not a system initiative achieves the expected results is either relegated to the business, or it is not done at all. Failing to assert the value of past IT investments almost certainly dooms a company to fail to achieve these results. Just as purchasing a system is insufficient to implementing it, completing a project
- 11. does not guarantee that the business value expected is achieved. Only if a company monitors the value from its IT investments will it know if that value has been attained. More important, monitoring will help a firm determine what adjustments are necessary to achieve the expected value from an investment. Failing to monitor value attainment also sets the stage for companies to improperly set the investment level for IT. If the perception is that IT investments have not yielded results, the company will underinvest in IT in the future. If the perception is that IT investments have achieved results when in fact they have not, the firm will continue wasteful spending. Neither is desirable for a CIO. One of the best examples in my career of why value attainment is so important was an international travel and expense solution I implemented at a major Fortune 500 company. The desired business result of this solution was the reduction in overhead from processing paper expense reports. The solution was implemented exactly to the business requirements on time and on budget. At the end of the project, the
- 12. project team and the business were ready to pat themselves on the back and move on. However, I required that the team assess whether the value proposition for the project had been achieved. They were shocked to learn that not only had no operational savings from the project been realized, but the additional overhead from using the new system had actually created additional cost! While the finance organization was spending less time processing paperwork, there had been no staffing reductions as a result of the system. Moreover, the employees using the system spent twice as much time filling out the online forms as they did the paper forms. What had seemed like success was in fact a total failure, which had resulted from an overemphasis on the requirements to the exclusion of the business results for which the project had been funded. However, by assessing whether the business results had been attained before ending the project, we were able to make adjustments to the system to reduce the overhead on employees and provide better reporting to the finance organization that enabled it to achieve its staffing targets. In short, by monitoring value
- 13. attainment, we ensured that the value from the project was attained. A successful process for value attainment is a subject worthy of its own book. However, in its most basic form, it requires three things: An intimate understanding of the business Proper oversight of projects A commitment by both IT and the business to manage to results, not just requirements As such, it is a crucial element in aligning the IT organization with the business. The IT organization that leads the value attainment process will find itself asking the question: “What can be accomplished with an additional 10 percent?” rather than “How can you cut an additional 10 percent?” Strategic Alignment IT organizations that have successfully led value attainment within their firms will almost automatically find themselves strategically aligned. Nevertheless, what got you here is not what keeps you here. With
- 14. value attainment, the objective is achieving a specific desired result with a specific investment. Strategic alignment involves defining what those results and investments should be. In other words, everything discussed to this point will get you a seat at the table. However, once at that table, your responsibility is to define business strategy from the perspective of IT. There are many exceptional examples of the accomplishments of CIOs and IT managers operating at the strategic alignment level. In each, the managers define the desired result and necessary investment rather than waiting for the business to define it for them. An example from my experience was a strategic change to the services organization of a major supplier to the semiconductor industry. I had been tasked with developing an upgrade strategy for the organization’s case management system. The service organization had been running on the same version of Clarify for over seven years, and the business knew it was time to upgrade the system. I was tasked with developing a plan for accomplishing this.
- 15. I chose to approach this problem purely from a business perspective. I began by asking several questions: Why did the business want the system upgraded? What result were they trying to achieve? Why couldn’t they be achieved with the existing system? What were the limitations of the existing system? How were these limitations tied to operational issues in the service organization? How might an investment in systems enable the long-term growth strategy of the services business? Working with the staff of the general manager (GM) of service, I developed answers to each of these questions in both business and technical terms. I developed a business case not only for a systems upgrade but for a complete overhaul of the organization’s business processes worldwide that would lead to improved efficiency, higher customer satisfaction, and ultimately greater profitability. I aligned the proposal with the strategic plan the rest of the GM’s staff had developed, and together the GM of service and I pitched the initiative to the chief financial officer. The resulting initiative, once implemented, transformed the
- 16. capability of the service organization, helping it to exceed $500 million in sales, at record levels of profit. What started as a maintenance investment became a transformative initiative for one of the largest business units in the company. Operating at the strategic alignment level, I defined what needed to be done not just for IT but for the business as well. Strategic Plan 1. Create a Human Resource Strategic Plan for the CEO using the information listed above and the details you have regarding the refurbishment. The manager requires the plan to be completed and implemented within six weeks. Your HR strategic plan must include the following: · An introduction or purpose for the plan · At least four goals. · A justification for each of the goals that outlines the relevance of each goal to the business strategic goals. · At least two objectives for each of your four goals. · A timeline for completion including any resources required · A risk management plan including identification, risk rating and mitigation plan for each risk. Example for Risk Management Plan Risk Identification Risk Rating Mitigation Plan
- 17. Lack Customer Satisfaction Medium The risks can be reduced by developing and growing staff.The staff expertise will be improved by giving training to them; all- rounder training will be given to them that customer attending staff can also act as a rider when required. Ethical Challenges Low In order to attain ethical and legal status the pizza Napoli will involve in more and more societal work such as local hiring’s will be made from Sydney, however, cross functional teams would be made to assist it’s working in different areas, this will reduce unemployment. Supervision Lack Medium Stronger supervision will be required thus new managers from local areas would be appointed so that they can have better control of the locally hired persons. Eligibility of candidates must be made tougher. Competitors Higher Innovation can help beat competitors. The skilled human capital will be appreciated like innovation in products used in the kitchen to increase output and taste, thus training process will be given every now and then. Staff must be innovative. · Include in your risk plan a possibility that skilled staff may be difficult to recruit. · A process to monitor and review the implementation of the plan. The CEO of a Brisbane International Hotel has come to you as the Human Resource Manager to develop a new Human Resource Strategic Plan. The Plan is needed because there are going to be significant changes in the Hotel because of the
- 18. following: · Restaurant and bar areas figures have increased by 35% and need enlarging. · The 300 rooms require an upgrade costing $2,000,000 and the refurbishments will be carried out floor by floor, there are 15 floors with 20 rooms on each floor. · Telecommunications in all area of the hotel will require upgrading. This includes a new support program for the HR department, bookings and restaurant. · 25% of the people staying in the hotel are now coming from the Asia and the Middle Eastern countries with 50% from Europe and America and Canada, and the remainder from the local market. 2. How will the plan be monitored and reviewed? 3. What steps should take to adapt your plan if conditions change during its implementation? Pg 57 Four IT Business Management Domains Distributed computing sent shock waves through IT and system management from which IT has yet to fully recover. Industry analysts, system management vendors, niche vendors, and IT management all have perspectives on partial
- 19. solutions, but none of the stakeholders espouses a complete model or the means to integrate all the perspectives. The essential management pieces are obviously missing and must come from new management approaches. This section explores the four IT business domains of capacity optimization, service level management, financial management, and business alignment as they apply to the current IT industry environment. SAS established these four domains based on ITIL version 3, our own thought leadership, and industry analyst feedback to form a hybrid model with invigorated focus and emphasis. The enhancement of these four domains will help lead to the transformation of IT system and business management into a stable, available, and business-aligned model. This section discusses the four domains in terms of the current state and emerging opportunities to expand the management of each IT business domain, to fulfill its promise and enable the other domains to fulfill their strategic promise. Capacity Optimization Current State: When discussing capacity management, people often misunderstand the term capacity. As an essential IT management domain, capacity in this context means maintaining enough infrastructure to meet business
- 20. computing requirements where infrastructure means network bandwidth, connections, server capacity, data storage space, even power and cooling. Capacity management does not refer to human resources, office space, desks, or parking places. From the SAS perspective, capacity optimization is a desired state for capacity management in terms of demand management and availability management. IT organizations have long been hampered in this area by their inability to create an enterprise view of servers, networks, and end-to-end enterprise business applications performance and metrics. A direct result of the rapid acceptance of distributed computing in the early 1990s, a heterogeneous, extremely complex infrastructure is now spread out across the globe, and managed and monitored by heterogeneous systems tools. Large companies generate vast amounts of performance and utilization metrics data, which they are unable to consolidate into a single enterprise view. Without enterprise views, it is nearly impossible to forecast capacity and business needs or to synchronize capacity with service views. The end result is that capacity management is usually done poorly—machine-by-machine or location-by-location—or not done at all. A broader problem emerges when capacity management is
- 21. performed server-by-server, location-by-location, or through educated guesswork. Inadequate capacity management acts to prevent business alignment by improperly sizing applications, burdening service management, and destroying financial projections. Capacity managers either buy too much infrastructure or undersize capacity, only to make a panic buy later. Most often, capacity managers either overbuy pooled infrastructure or buy oversized infrastructure to host a single application. Capacity managers work under the premise that oversized infrastructure will deliver the necessary performance and stability while preventing service disruptions during production times. Buying infrastructure sized for cost efficiency can lead to disruptions if managers can’ t assimilate the views needed to manage for performance. Opportunities: Beyond the inherent promise to provide adequate infrastructure to run the business, capacity management presents business management opportunities in terms of both cost management and alignment to the other three business domains. Armed with end-to-end views of servers, capacity managers can provide a quick and large ROI by eliminating excess server capacity through server consolidation. Server consolidation requires both a
- 22. current utilization baseline and a time series forecast of utilization extending out a year. Consolidation is a solid maturity approach utilized by forward- thinking businesses. In addition, many IT organizations look to virtualization as a cost reduction initiative, and are correct in looking to virtualization for cost gains. Best practice capacity managers properly size virtualization allocations to maximize the cost management opportunity (i.e., not too big nor too small) by studying the allocation utilization rates and forecasting their growth. Not involving capacity managers in virtualization projects is a missed opportunity. After determining the optimal capacity, managing to that level wrings out the costs of idle capacity and also eliminates panic infrastructure buys. Buying in panic mode never results in a smooth, cost-efficient implementation, and enterprises often come dangerously close to impacting service levels. A recurring theme in this section is the interconnected-ness of the processes across these four management domains. Capacity management should not be performed in the isolation of an engineering silo. To achieve greater levels of IT maturity, capacity managers must cross-pollinate and be cross-
- 23. pollinated by performance measurement information flowing into and out of the four other IT business management domains. For example, capacity managers need financial information beyond budget allocations for capacity buys. Determining the cost of capacity not only promotes more effective capacity management but also provides foundation costs for service management and service management contracts. The cost of capacity includes the cost of utilized capacity, reserve capacity, and unused capacity. Attacking unused capacity without distressing service levels is a combined capacity, service, and financial management exercise. Capacity managers must also determine capacity in nontraditional ways. Predicting the exhaust rates of standardized services and the growth of business services create other ripe opportunities. Service Management Current State: From thirty-five thousand feet above the landscape where fine details are obscured, the various approaches to service management appear more alike than different. The differences sometimes appear to be more of a marketing exercise. From that altitude, service managers
- 24. appear to build catalogs of IT services (Premium Web Service, Bronze Network Access, etc.) and assemble those components into business service contracts that specify service parameters in terms of availability, response time, throughput, and service hours. System management and niche vendors sell this approach, which appears to also follow the engineering focus of Gartner IT Infrastructure and Operational Maturity Model. Only a small minority of IT organizations has achieved this level of maturity. Best practice service managers remain vigilant for several issues while implementing this large and very necessary IT business management domain. Service managers ignorant of the true cost of service are driving in a thunderstorm without windshield wipers. It ’s hard to see, and the risk of collision is unacceptably high. For example, service managers run into cost mismanagement issues when they enter into service contracts with business users who cost more than specified by the contract. Some niche vendors already address a portion of this issue, but service managers generally fail to make the connection between IT operational budgets and the planning process for new and ongoing services, as well as the connection between capacity management and service level
- 25. management. Opportunities: The capacity management section discussed the value of forecasting for optimizing infrastructure over time. Forecasting provides equal value for service management. Service reporting and financial measures are inherently reactive. Forecasting service level performance, future capacity needs, and cost of service growth augment service management practices. In addition to forecasting, a management structure that contains value measures is another essential opportunity for more mature service management. Reporting cost and service results are inadequate without knowledge of the degree to which the IT organization succeeded in terms of key enterprise strategic objectives and the metrics that track them. Meeting business goals and objectives are the ultimate measure of IT value. Forecasting performance is engineering; applying intelligence to enabling and meeting business strategy is a new level of business maturity for IT management. Financial Management Current State: We don’t need to discuss IT financial management from thirty-five thousand feet. So neglected is the subject that I doubt it would even be visible from that altitude.
- 26. Most CIOs and their IT organizations need to get down on their hands and knees at weed level to see the primary problems. Most IT organizations manage their budgets in spreadsheets. Spreadsheets are easy for individuals to use, inexpensive, and most everyone already has one. But as widely distributed spreadsheets quickly lose their effectiveness, they become very expensive. Difficult to consolidate into department views and then into an enterprise view, widely distributed spreadsheets result in inaccuracies, and a large percentage of expense planning is lost. The wide use of spreadsheets for IT budgeting can be traced to adoption of corporate budget systems that are not tailored for IT organizations and resource management. In addition, IT also budgets in another management area where the spreadsheet inaccuracy is even higher: planning and managing the portfolio of new and existing business service projects. Large corporations have hundreds and hundreds of such projects trapped in spreadsheets that they ruefully call “the swamp.” With the utmost difficulty and many complete failures, financial managers attempt to reconcile the hundreds of spreadsheets into an accurate, consolidated view, and then reconcile the consolidated portfolio view to the operational budgets.
- 27. Trapped within this swamp are the answers to essential IT management questions with enterprise-wide strategic implications: On whom are we spending, and what are we spending it on? Was the spending justified? Optimized? How are we prioritizing IT support, service, and spend? How do we plan future IT resources and services? How do we minimize unused IT resources? How does this information inform overall decision making for IT, business units, and the bottom line? Opportunity: The opportunity is to create an IT financial management system for a service-oriented IT organization. IT financial managers may continue to use a spreadsheet for individual operational and portfolio project planning, but they put all the data in one foundation to preserve its integrity. Financial managers then combine financial data with capacity and service data, which provide financial intelligence to the other IT business management domains in a usable format for optimizing their own strategic management decisions. Capacity managers need to know the cost of capacity, including unused capacity, and cost of the support processes
- 28. necessary to manage the infrastructure. Service managers need to know the cost of service, unused service, and who consumed the service, including relevant support processes for both the standard service catalog components and each business service. Business Alignment Current State: True business alignment, or in Gartner terms, business partnership, is still an illusion as borne out by Gartner statistics. They report that less than one percent of IT organizations achieve their Business Alignment stage of maturity—a very small number in any survey sample that includes best practices. Two factors account for the lack of business alignment in the IT industry. First, vendors do not supply IT organizations with the support they need for developing portfolio management and system management tools that span metrics collected by various enterprise and IT monitoring and management systems. IT vendors focus on building maturity from the infrastructure management up—a purely engineering focus. What tools exist for financial and business management are neither integrated nor applied by IT managers seeking to solve their business challenges. Second, despite IT analysts pointing the industry toward aligning visions and
- 29. techniques, the most important alignment achievement must include participation by the business intelligence community for new IT strategies with supporting applications. Opportunities: Because true examples of business alignment are rare and few people in the industry have actually seen a single example, the opportunity for business alignment is far greater than most CIOs realize. This IT business management domain opportunity means that as a key strategic enabler for most enterprises, CIOs would manage the IT organization like a business with a business. CIOs and their IT organizations will a create value axis for every IT product and service from the performance metrics in each of the four IT business management domains. Business objectives that IT products and services must enable will be traced back to overall business strategy through these metrics. Enabling these strategic business objectives will carry a negotiated price tag to build and support after implementation. That negotiated price tag must fit within the ROI calculation of each business objective. CIOs will determine support costs through business user volume and service estimates, which IT will translate into service and capacity levels. Once built and implemented, the applications
- 30. and their related IT services will be measured, forecasted, and optimized from business objectives, service results, costs, and business strategy. The IT transparency illustrated here requires a different set of tools and processes that have yet to be broadly discussed in the IT market. While the rest of the enterprise is either already using or receptive to strategic performance management (SPM), many IT organizations have yet to reach this stage of business maturity. The utilization metrics increases in value when associated with strategy, initiatives, goals, and objectives that are mapped to other IT management domains. Instructions: Do not combine topics. Answer each letter separately. All answers (letters) must be at least five (5) sentences. Label each answer individually. Include any references. 1) "Developing a More Agile Approach" Please respond to the following: • A) Speculate on why corporate culture plays a critical role in developing a more agile product development approach.
- 31. Provide one (1) real-world example of the role that corporate culture plays in agile product development to support your response. 2) "The Four IT Business Management Domains" Please respond to the following: · A) Determine the interconnectivity of each of the four IT business management domains as discussed in Chapter 2 of the Stenzel textbook on page 57(see below). Explain how each domain impacts the other. · B) From each business management domain, identify the two most important areas a CIO should accept responsibility for in order to strategically lead the organization. Support your answer with a rationale for why you believe these are the most important areas. 3) "Framework" Please respond to the following: · A) Evaluate each of the approaches to applying the framework as discussed in Chapter 8 of the Lane textbook. Determine how each approach would align to the organization for future growth and success. Give your opinion as to the validity of each approach. · B) Identify three aspects of portfolio management that allow the CIO to strategically align IT with organizational goals and discuss why these aspects are important.