What to make of enterprise IT in a digital world?

We – technology stakeholders, executives, consultancies and analysts –  are wrong about enterprise IT.

Since the early days of the internet boom, enterprise IT has been criticized for not being responsive, transparent, flexible, and innovative. We believed that leadership, organization, workforce, culture, and vendors were the culprits. We were convinced that a fix had to do with elevating the CIO role, acquiring new skills, outsourcing tasks, aligning strategies, knowing customers better, and running IT like a service company. After so many years of religiously applying these recipes, enterprise IT is still facing the same criticism. Moreover, there is a growing trend of taking technology spending away from enterprise IT into the business and out to the third-parties with a hope of stimulating innovation, improving agility and reducing costs.

From technology investments to realized business outcomes, the enterprise IT value chain is a way more complex system than our current technology management frameworks can handle. Let me illustrate with a few examples:

1. Elevating the CIO role is not as simple as CIOs writing their job description. The role of the CIO is defined by the prevailing school of thought among corporate leaders whether technology spending is a cost of doing business or a source of tangible returns.
2. We are yet to quantify business outcomes and associate them with technology investments.
3. We are not good in measuring what we want, i.e., responsiveness, transparency, flexibility and innovation. Hence, we define success by what we can control, e.g., the input efficiency such as $/hr or $/server, and by what we must avoid, e.g., budget overruns, major outages and breaches.
4. We manage the entire technology value chain like a linear assembly-line. Consequently, we suffer from the same problems over and over as we miss patterns of mistakes. We also forfeit the advantages of non-linear behaviors of a complex system, e.g., an increased allowance in cycle-time could deliver immediate cost savings, relaxing productivity targets may improve business outcomes.
5. In everything we measure about enterprise IT, we rely on averages and ignore variances. This oversimplification eliminates the possibility of true portfolio management and risk diversification within the system, which leads to un-managed contingencies spread across the operating environment in the form of lowered expectations, budget and schedule buffers, overused dedicated resources, oversubscribed specifications and redundancies.

Sounds abstract and theoretical? I agree. After experiencing the handicaps of the traditional IT management framework first-hand at hundreds of mid-sized to global organizations, I was convinced of the unclaimed value of enterprise IT, but equally aware of the difficulties of ‘making it real’ for the decision makers. Hence, I took an unconventional route: I started building a computer model of a modern enterprise IT, where the decision makers can observe various scenarios of management practices and their impact on business outcomes, technology outputs, productivity and throughput, cycle-time, and cost efficiency within their very own organizational settings. A secondary goal of mine was to prove, or disprove the efficacy of the traditional and emerging best practices in technology management. Initial focus areas included technology investment planning, demand prioritization, supply and demand balancing, application development deployment and benefits realization.

Today marks the completion of the 1,000^th year of operations at simulated IT organizations with thousands of FTEs and tens of thousands of demand items, annually. The results are simply eye-opening:

• There is a clear performance gap between the traditional practices (e.g., ROI based demand prioritization, backlog management in lieu of demand management, project management by lagging indicators, static estimation factors, and rudimentary dependency management) vs. emerging approaches (e.g., Cost of delay, Weighted Shortest Job First, predictive KPIs).
• Due to the overlapping nature of policies concerning ROI, productivity, throughput, cost efficiency, and time-to-market, most IT organizations are living in a local optimum, and not aware of better opportunities outside. For example, in pursuit of higher utilization of resources, an organization may be clogged, and continuously destroying business value due to delays.
• Local optima often change due to demand and supply fluctuations, technology advancements and changes in the operating environment. Most IT organizations must figure out a new local optimum through trial and error — a costly process in a digital world where progress hinges on the ability to fail fast and iterate forward.
• Traditional KPIs can be misleading. For example, if you are focusing on throughput and productivity only, you couldn’t catch cycle-time challenges, as long as there is an adequate fresh demand coming in to keep teams busy.
• Shortcomings of traditional practices are amplified as the average size of demand and time-to-market shrinks. Hence the pain is further growing with the proliferation of agile, iterative development and continuous delivery amid digital revolution.

Earlier, I had estimated that a lean IT operating model could deliver 9 – 15% additional productivity. The results to date overwhelmingly support this prediction, if not more. This value is hidden across many corners of an IT organization in various forms of contingencies and wastes. Furthermore, it is now possible to isolate the impact of a specific practice, and observe its effect on key performance indicators at the lowest level of the enterprise IT system. You will see more on this in my subsequent postings.

In conclusion, the performance of enterprise IT may be disappointing, but it is performing as designed. Due to the ubiquitously used, and gracefully aged traditional technology management practices, we haven’t seen the true value of enterprise IT yet. By taking a system’s perspective, it is possible to minimize contingencies and wastes hidden in today’s IT operations; and thereby, significantly improve business outcomes.

Moving technology spending away from enterprise IT into the business and out to the third-parties is not a panacea for the aging management practices, unless those providers are well advanced in upgrading their own management practices than your internal enterprise IT organization is.