In Part 1, I discussed the importance of IT Organizational Clarity, the symptoms when clarity is compromised, and the challenges of trying to address those symptoms rather than the root causes that lead to compromised clarity. Part 1 closed with a discussion of the two key dimensions along which IT Organizational Clarity can be tackled – scope (units of IT Capability) and meaningful and assessable characteristics for evaluating and improving IT Capabilities.
In Part 2, I discussed ways to define IT Capabilities and provided guidelines on the manageable number of IT Capabilities and appropriate depth of decomposition. In this post, I will describe three different types of IT Capability.
Not All IT Capabilities Are Born Equal
It is helpful to classify IT Capabilities into one of three different types, as illustrated in the graphic above.
At the core are those capabilities that take inputs, add value, and deliver outputs to a customer or end consumer (in the world of IT, these tend to be services and products). Think of these Value Chain Capabilities as those that the end customer appreciates (hopefully!) and is willing to pay money for.
For example, as a business user, I may have a business problem I’d like IT help to solve. That problem (or opportunity) is the input to a Value Chain. The first Capability that will approach that problem adds value by analyzing the problem, identifying and proposing a solution. As the business user, I appreciate that value has been added – drilling into my stated problem and offering (and perhaps demonstrating via a prototype) one or more proposed solutions. The next Capability in the Value Chain might take the chosen solution and develop and deploy that solution. Again, as the business user, value has been clearly added – taking a proposed solution and delivering it. The final Capability where value can be added is supporting and maintaining that solution – again, a recognizable way of adding value for me, the customer.
Ultimately, as the business user or consumer, these are the only Capabilities I care about and am willing to pay for (directly or indirectly) because of the value they add for me. Unfortunately, while these Value Chain Capabilities are necessary, they are not sufficient.
Value Chain Capabilities typically draw upon other Capabilities that enable them. Think of these as Shared Services that are common to other Capabilities, or to other instances of problems/solutions working their way through the Value Chain. Examples of IT Services that might enable the Value Chain Capabilities include Project Management, IT Operations, and IT Supply.
Alignment and Governance Capabilities
Value Chain Capabilities also typically depend upon other Capabilities that ensure that the work they are doing is aligned and governed to ensure they are operating effectively and in the interests of the enterprise. For example, determining which business problems will be addressed, which solutions will be selected, how staff and resources will be allocated are all important control that Value Chain Capabilities will be subject to.
Why These Distinctions Matter to IT Organizational Clarity
The distinctions between Value Chain, Enabling and Alignment/Governance Capabilities are significant:
- Different types of IT Capability tend to be optimized towards different value propositions, with implications for how they are organized. For example, Enabling Capabilities tend to be optimized for Operational Excellence (as shared services, they need to deliver predictable, consistent, quality services at the lowest possible cost). Value Chain Capabilities tend to be organized for Customer Intimacy, delivering what specific customers want; anticipating customer needs. Alignment and Governance Capabilities tend to be more about decision-making – rather than delivering services, they make decisions or provide decision-making frameworks – think Enterprise Architecture and the mechanisms and structures that support it as Alignment and Governance Capabilities. As such, these tend to be networked, linking stakeholders and decision makers, and optimized to maximize the business value delivered or enabled by IT Investments..
- Some types of IT Capability lend themselves to alternate sourcing more than others. For example, Aligning and Governance Capabilities lend themselves the least to straight outsourcing approaches (do you want to pass decision rights to an external vendor?)
- Different types of IT Capability lend themselves to different funding models. For example, Value Chain Capabilities lend themselves to direct business funding, whereas Enabling Capabilities lend themselves better to indirect funding models (e.g., overhead charge).
IT Capability Model Example
As an illustration, below is a ‘normative’ IT Capability Model.
The Fractal Nature of IT Capabilities
Note, that as you decompose any IT Capability, you will generally find that the decompositions will have a similar structure – a primary Value Chain, drawing upon underlying Enabling Capabilities and influenced by Alignment and Governance Capabilities.
For example, Manage Business-IT Portfolio & Programs might decompose into the following sub-Capabilities:
In the following post, we will look at the assessable characteristics of any IT Capability as a means of determining Capability Maturity and determining how to increase maturity and thereby improve performance.