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- 1. Executive Brief Moving the Needle There is never enough time or money to satisfy all the technology demands of an organization. Executives need to ensure that limited resources are directed towards initiatives that really ”move the needle” and make an impact on business results. DENIS PICARD MANAGING DIRECTOR ALVAREZ & MARSAL 30+ YEARS OF TECHNOLOGY LEADERSHIP FORMER CIO
- 2. So many technology demands, so few resources Few companies are satisfied with the return on their IT investment. Leaders are frustrated that technology initiatives take too long, cost too much and under deliver. At the same time, companies are increasingly dependent on technology for all aspects of their business. Whether they are looking to grow revenue, increase customer loyalty, reduce cycle times or dramatically reduce costs, technology is most often at the center of the strategy. With limited resources, executives must prioritize where to invest their IT resources to get the most business value. In a typical company, nearly 80% of IT spending goes towards maintenance of existing systems. That leaves little time or resources to pursue new strategic initiatives or leverage emerging technologies. Leaders need to think hard about where to direct their best people’s efforts then attack those priorities relentlessly. The challenge is for executives to be deliberate about future technology investments, minimize non-strategic maintenance spend and find discretionary dollars to pursue strategic priorities that will enhance technology capabilities and provide a competitive advantage. Follow the Money… where does it all go? The first challenge most executives face is limited visibility to where the money goes and what business value they are getting for it. In large organizations, financial systems report technology spending in broad categories such as labor, software and telecommunications. Little insight is provided about the systems or projects supported, the underlying activities that drove spending, the business results produced or other information that would enable executives to evaluate returns and take action to improve results. Technology costs can show up on any number of cost line items and in a many different departmental budgets. Increasingly, companies are spending money on third parties and cloud service providers in business units and functions outside of IT. A&M TAKES ON: THE TECHNOLOGY GAP MOVING THE NEEDLE Case In Point: A&M worked with a client that thought it was spending $50 million a year on IT. When we dug in, we found an additional 25% of software, hardware and telecom charges that was hidden in departments outside the purview of IT. Much of the hidden spend contributed to complexity of maintaining systems and unplanned difficulties in data management. Additional opportunities for simplification and savings became apparent when management had transparency and visibility to the true spend. 2
- 3. What are they REALLY working on? Another challenge is to analyze the technology spend based on activity as opposed to the general ledger/ chart of accounts reporting. With labor generally being one of the largest cost components, it’s critical to know what projects and activities people are actually working on. If you don’t drill down behind the expense line item to understand the activities that drive costs, you don’t have a chance of changing them. Simplify and Clarify Success is dependent on a clear, easily understood technology strategy and effective execution. As Leonardo da Vinci famously put it, “Simplicity is the ultimate sophistication.” Yet executives struggle to create a clear technology strategy that highlights the vital few initiatives that will truly make a difference to the company. Even the best technology strategy can be torpedoed by poor execution and communication. Sometimes, senior management is clear on the strategy, but the message gets distorted as it’s communicated through layers of middle management. Other times, the strategy sounds impressive but is too high level to be actionable. In either case, the strategic messaging gets diluted or is misunderstood by the “doers” who must implement it. A&M TAKES ON: THE TECHNOLOGY GAP MOVING THE NEEDLE Case in Point: Recently, a global Fortune 500 company hired a new CIO. The new CIO wanted to strengthen the IT governance framework to ensure that the IT organization was focused on the right projects. Many people in the organization were skeptical about the need for a new framework, believing the current approach to managing projects was effective. A&M created a cross-functional/cross-line business inventory of all in-flight projects. We found nearly 150 projects in-flight. The Top 10 projects accounted for 2/3 of the approved spending, and were expected to generate nearly 80% of the anticipated benefits. Unfortunately, when the new CIO probed the status of these Top 10 projects with his team, he was dissatisfied by the depth of their answers and the progress made on these key initiatives. In their defense, the team cited the high number of in-flight projects. On further review of the remaining 140 projects, we identified that 50% were unapproved and many were intended to enhance systems that were going to be retired or replaced. The team quickly streamlined the list of projects and shifted resources to accelerate completion of the Top 10 projects. Case in Point: A large financial services organization was struggling to implement a complex IT strategy designed by a well-known consultancy. The strategy was very complex, with nearly 100 projects planned or underway. Employees were confused about where to focus their time, overlapping project meetings were rampant, and a small army of consultants was employed to track project status (most of which were falling further behind schedule each week). A&M was asked to make the strategy actionable. We did so by working with senior and middle management to clarify the definition of success and value to be realized. We then worked with business leaders to define and prioritize a dozen end-to-end initiatives that were properly staffed. Project management overhead was simplified, project leaders focused on execution, and the expected benefits were achieved in a shorter timeframe that believed possible. 3
- 4. Create Small, Accountable Teams Don’t waste precious resources by asking them to multi-task on too many projects. People can be bottlenecks, especially if they are involved on multiple project teams. Keep core project teams small and charge them with driving progress; use advisory teams to expand the number of participants who have a voice (but not a vote). Understand where each individual can maximize their contribution, and eliminate distractions where possible. Once you have the ‘right-sized’ team, organize for success. Use a RACI chart to quickly identify key participants and clarify responsibilities. Focus and Prioritize We often use a simple framework to stimulate discussion around strategic technology priorities. Start with a 2x2 model that compares “Investment” (could be measured in time, labor, dollars or risk) on the horizontal axis and “Return” (as measured as to what is important to your business – revenue growth, cost reduction, reduced cycle times, increased cash flow) along the vertical axis. Plot each of the identified technology initiatives in the framework and discuss as a team. It will create debates. People will argue as to what’s high return or high risk and what’s not. The value of those conversations comes from the insights gained about what’s really going on and what distractions or assumptions are keeping the team from making better progress with your “move the needle” projects. A&M TAKES ON: THE TECHNOLOGY GAP MOVING THE NEEDLE BANG FOR THE BUCK BIG BET TRANSFORMATION MAINTENANCE MODE LOW RETURN DISTRACTIONS RETURN LOW HIGH LOW HIGH INVESTMENT Circle size indicates relative size of project Case in Point: After being carved-out from a Fortune 100 company, the new company formulated a strategy to terminate a transitional services agreement (TSA) by implementing a new ERP system. As we reviewed the project team structure, it became apparent that two people were especially critical to the success of the effort. Both were highly skilled individuals who were sought out by multiple teams for their advice and support, which they were happy to provide, often to the detriment of completing their assigned work. We challenged the project manager to know what these two people were doing at all times, and to eliminate distractions. The result was we found other people who were willing and able to step up, thus expanding their contribution and allowing the critical people to stay focused on their assigned tasks. The system was implemented on time, allowing management to terminate the TSA and avoid significant penalties. ? 4
- 5. Summary Clear visibility into how and where technology resources are used is essential to powerful decision-making. Our framework helps leaders create focus on projects that really move the needle and prune distractions. Senior leaders need to ask questions and drill down to some very basic, yet critical questions: • Where is the money going? • What are the business benefits? • Are our best people focused on the most important priorities? Resources are always scarce. Finally, here are five tips for ensuring your technology organization is focusing on projects that will really move the needle. First, “follow the money” and understand how your company creates value. Is IT actively engaged with increasing revenue, reducing cost, improving working capital or strengthening regulatory compliance? An effective IT strategy supports business objectives and creates new capabilities. Set clear technology strategies and communicate frequently and consistently. Resist the urge to create a ‘flavor of the month’. Keep stategy simple and consistent. Leaders need to reinforce priorities often. Create small teams staffed by people who are willing to be accountable for results. Let them participate in developing and executing the strategy, and resist the urge to overcommit them to multiple initiatives or stifle them with bureaucracy. Focus on priorities. Review the portfolio of IT projects regularly, and understand where/how resources are used. Ruthlessly prune distractions and non-strategic initiatives. Excel at execution. Strategy is meaningless if you don’t produce results. A&M TAKES ON: THE TECHNOLOGY GAP MOVING THE NEEDLE 1. 3. 2. 4. 5. 5
- 6. Follow us on: LEADERSHIP. PROBLEM SOLVING. VALUE CREATION. Companies, investors and government entities around the world turn to Alvarez & Marsal (A&M) when conventional approaches are not enough to activate change and achieve results. Privately-held since 1983, A&M is a leading global professional services firm that delivers performance improvement, turnaround management and business advisory services to organizations seeking to transform operations, catapult growth and accelerate results through decisive action. Our senior professionals are experienced operators, world-class consultants and industry veterans who draw upon the firm’s restructuring heritage to help leaders turn change into a strategic business asset, manage risk and unlock value at every stage. For more information, visit www.alvarezandmarsal.com. © 2016 Alvarez & Marsal Holdings, LLC. All rights reserved. Denis Picard Managing Director dpicard@alvarezandmarsal.com +1 212 328 8573 Denis Picard is a Managing Director with Alvarez & Marsal in New York, with more than 30 years of technology leadership experience, including roles as Chief Information Officer (CIO) of privately held companies and interim CIO for a multi-billion dollar financial services carve-out.