Tag Archives: IT strategy

Financial Forensics as a Clue to Dysfunctional IT


“To understand a crime, follow the money” is a familiar principle of detective work.  Over the years, I’ve found that principle to be extremely useful in the world of IT management.  In fact, my spin on it is, “If you want to understand dysfunctional IT behavior, follow the money!”

Of course, this principle helps detectives to not only catch criminals, it helps to get the criminals punished.  Similarly, in the IT world, I’ve used the principle to both understand what is leading to dysfunctional IT behavior, and to help correct that behavior by fixing the money-related drivers.  Let me provide an example and the application of this principle.  The example is, of course, fictitious, though based on real life situations I have worked over many years of management consulting and research.

First, a caveat.  Clearly, not all human or organizational behavior is motivated by money.  However, I have found that collective organizational behavior is significantly shaped by money – by the sources of funds, valuation of returns, and measurement inherent in financial reporting.

Scenario

Higgins-Smithbottom is a global fashion designer and retailer.  The company culture values the creative geniuses who come up with the hallmark designs, and places great freedom and authority on the heads of business units.  In common with the industry, success is seen to be all about great design, brilliant merchandising and effective management of the brand – three disciplines that seem to have little to do with IT.  As such, IT is an “expense to be minimized,” a “necessary evil,” and something that the IT organization is expected to “take care of with minimal disruption to the business” so that business leaders are “free to design, merchandise and manage the fickle fashion business unencumbered by IT.”

The executives at Higgins-Smithbottom are vaguely aware of contemporary success stories such as Zara and Li & Fung, but don’t recognize the role that information and IT have in these companies success stories.

Financial Forensic Clues

  1. All IT capital and expense is managed out of an IT budget – the IT resource is essentially “free” to the business unit leaders.
  2. There is no enterprise-wide IT prioritization and allocation process.  Resources are essentially allocated on a first-come, first-served basis, with the regulator on business demand being total supply – when all available supply is tied up, no other demand is accepted.
  3. Because IT is “free” there are no attempts to measure and track the return on IT investments.

Dysfunctional Behavior

The perspective on IT is that it costs too much and delivers too little.  Even though business heads do not “pay” for IT, they know that the bottom line is impacted by it – IT saps profits and eats into the executive bonuses.  As a result, business leaders try to minimize their involvement in IT, invest no time or energy trying to understand it, or figure out how it can improve the business.  Consequently, IT contributes relatively little to the business.  It responds as an “order taker” acting on low value requests from business silos, without an overall IT strategy or architecture.  Each response to a business order adds more complexity to the patchwork of IT systems.  More time and money is spent on inter-system interfaces than on business enablement.

When a meaningful business request surfaces for management information or business analytics, IT finds it virtually impossible to respond, due to the complex patchwork of systems and lack of data standardization.  Lack of adequate IT resourcing and responsiveness leads business units to hire their own IT resources – sometimes as consultants and contractors, other times as permanent staff.  These “shadow IT” groups exacerbate the complexity of the systems environment, and mask true IT spending levels.

IT eventually finds itself in a vicious cycle – low business demand maturity begets low IT supply maturity.  When IT does get engaged by the business for a new system, it fails to “push back” on the business demand to “automate the manual process as is – don’t make us change the process!”  IT does what it’s told, even if that means customizing the heck out of an off-the-shelf package.  The customization triples the implementation costs, and sends subsequent maintenance costs through the roof.

Lessons Learned

  1. When IT is “free,” it is not valued.  When someone else is footing the bill, there’s no sense of accountability from those who should be turning the investment into a valued return.
  2. Without enterprise-wide prioritization and allocation, IT optimization takes place at the business unit level, leading to sub-optimization at the enterprise level.
  3. Lack of enterprise-wide prioritization and allocation is typically accompanied by a lack of an overall IT strategy and road map.  This leads to islands of automation, and over time, the number of interfaces (and costs associated with building and maintaining those interfaces) increase exponentially.  After a few years, the vast majority of IT spend is related to interfaces – i.e., it’s all cost-added, without any value-added.
  4. When IT is sub-optimized for the enterprise, IT “vacuums” get created throughout the business, and nature’s abhorrence of vacuums leads them to be filled by “shadow IT” groups.  This adds to actual IT spend, even though the shadow spend is not visible in the IT budget – i.e., IT is costing you more than you think it is.
  5. Being “cheap” with IT usually ends up being very expensive!
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You Know You’ve Reached Level 3 When…


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Back in mid-December, I posted “You Know You’ve Reached Level 3 When…“   As the BSG Alliance multi-company research project that has been examining Reaching Level 3 Business-IT Maturity shifts gears from its research to its reporting phase, I want to revisit that headline.  Here are some ‘one-liners’ that are being discussed in today’s WebEx session for the participating companies:

You know you’ve reached Level 3 Business-IT Maturity when…

  • There is no separate IT Governance structure – it is converged with Business Governance
  • There is no separate IT Portfolio – it is integrated into the Business Portfolio
  • There is no separate IT Strategy – it is integrated into the Business Strategy
  • There is no separate IT Architecture – it is a component of the Enterprise Architecture
  • There are no separate IT Relationship Managers – Relationship Management is a widespread and diverse Role

How do those statements feel to you?  Are you already there with any of them?  All of them?  If you reached those conditions, how would things be different around IT decision making and value extraction?

The End of IT Strategy


I closed the last post by postulating that by 2017, IT strategy as a distinct entity with its own strategic planning process will be history.  Let me expand on that thought.

In the early-90′s I had the privilege to be a partner in Ernst & Young’s Center for Business Innovation, in Boston, involved in many enlightening research studies into business innovation, IT effectiveness and organizational change.  When first established as a research organization, we were called the Center for Information Technology and Strategy (CTAS).  We quickly realized that people would read that as “Center for Information Technology Strategy.” (Leaving out the “and” makes a big difference!)  Even back then we held a position that over time, IT strategy would be totally integrated into business strategy – one process, one plan (with, of course, many sub-plans).   So the very idea of a research center/think tank focused on IT strategy was short sighted and doomed to be short lived.  The name was promptly changed to the Center for Business Innovation – a more noble purpose for IT!

My point here is that evolving towards level 3 business-IT maturity means integrating the business and IT strategic planning processes into one common process – IT creates business possibilities, IT impacts the strategic context, and business strategy depends upon IT for implementation.  All the discussion of Next Generation Enterprises (Enterprise 2.0) call out new forms of collaboration as a key.  We can therefore anticipate that strategic planning for HR, Six Sigma/Process Improvement/OD, and other global services will also become fully integrated into business planning – they typically are not even coordinated today!  Note that by bringing these planning processes together, the relationships between the “magic 3″ of people, process and technology are all addressed in a collaborative, simultaneous, and ultimately continuous process!

The IT Organization c2017 – Part 1


This blog has been active since mid-September, and thus far I’ve focused largely on a discussion of Business-IT maturity, and particularly on the so-called “sticking points” that seem common in mid-Level 2 – the halfway point between the earliest, tentative uses of large scale computing to support business processes and activities, and a nominal end-state, where the majority of what can be learned about business automation through IT has been learned.

I believe these sticking points are important topics for discussion.  Over the course of a year, I get to work with a dozen or so major corporations, and to talk to CIO’s from many more, most of whom are dealing with one or more of these sticking points, and trying to increase the business value of their IT investments.

However, other than hinting at some of the characteristics, I have not come out and described what the IT organization might look like 10 years from now, and it’s time to begin addressing this question.

Clearly, there is tremendous variability in the shape, structure and characteristics of IT organizations today.  I believe there will be more homogeneity 10 years out, but still lots of variation.  One important factor in the shape of today’s IT organizations (and their shape 10 years out) is the nature of the business and its markets.  For many companies, IT today is largely a support tool.  If your business is manufacturing, it is tough to say IT is strategic – all the time, everywhere!  Certainly, any competitive manufacturing business today is highly dependent upon IT.  Companies such as Dell have in many ways redefined what it means to be a “manufacturing” company by using IT to manage a supply network across hundreds of global business partnerships.  They have used IT to redefine order processing, and the customer’s role in customizing their configuration.  But, even given all that, and the competitive advantage it afforded them, Dell does not make money on its IT capability.

Contrast a manufacturing business with an on-line bank, ING Direct, say.  Here is a business where almost everything they do is web-enabled and digitized.  They have created a bank with similar basic services to any high street bank (or at least the most commonly used subset of those services) without any customer facing tangible assets.  Their IT is their ‘factory,’ their marketing and their distribution channel.  As a result, they offer interest rates that beat most (all?) traditional bricks and mortar banking institutions.   For ING Direct, and businesses like them, IT has been strategic, and represents a much higher IT spend relative to less information-intensive businesses.

Such distinctions of information-intensity and the role of IT capability in the business aside, I believe for most businesses, by 2017 there will not be separate and distinct business and IT strategies – they will both be part of a common strategic planning process.  More on this in the next post.