Your To-Do List for Managing Demand: The Strategy Behind Strategy-Making

As your business clamors for more and more IT, you need a strategy for determining value.

Let’s convene another session of CIOs Anonymous. Ernest, a CIO at a large company, stands up and says, "My group has too much to do and we are going to fail." The audience feels his pain; Ernest sits down, at a loss for what to do.

Yet Ernest is in many respects an exemplary CIO. He has improved IT-business alignment significantly by delivering on projects as promised, establishing IT councils to set priorities and increasing communication across and among the IT and business organizations. In his gut, however, Ernest knows that his success will be short-lived if he doesn’t get a handle on the demand for IT services. Delivery will start to suffer, communication between the business and IT will turn negative, and the positive cycle he has worked so hard to establish will be reversed.

This article is the second in a series examining promising concepts to improve IT-business alignment. Overwhelming demand is a universal issue for CIOs, a problem for which there are no easy solutions. CIOs can establish internal mechanisms to allow IT capacity to flex with varying levels of demand and encourage business leaders to say no to their own unreasonable demands for IT services. These mechanisms help to incorporate IT into business strategy and make IT value a practical matter.

The strategy behind strategy-making

Ernest’s company doesn’t have a formalized strategy process. But that’s not the problem. It’s unlikely that any strategic plan would reflect a company’s reality in a form that could be used to drive IT decision making. I support the approach outlined by Marianne Broadbent and Ellen Kitzis in their book, The New CIO Leader. They recommend that strategy making be incorporated into the IT governance process by convening an IT Council for a one-day session to "shape and inform expectations for an IT-enabled enterprise."

The output of this session is in the form of business and IT maxims. Business maxims, according to the authors, identify what needs to happen if the organization is to successfully execute its strategies, and IT maxims identify how the enterprise needs to connect, share or structure information. For example, a business maxim might be that a company manage its global customers through a single point of contact. The corresponding IT maxim would be that the company have common, shared data on customers, products and financials.

Don’t worry about perfecting your strategy-making process. Just make sure it includes the right people and is efficient, so that you can ensure an ongoing dialogue. In their MIT Sloan Management Review article, "The Real Value of Strategic Planning," Sarah Kaplan and Eric Beinhocker emphasize that the highest outcome of strategic planning is not the plan per se, but rather the learning that occurs through the process. This results in prepared minds that "have a solid understanding of the business, share a common fact base and agree on important assumptions."

The true value of IT

Moving on to Ernest’s next opportunity for improvement, his process for IT value management is form over substance—like so many of yours. Ernest’s cost-benefit analyses and other justifications are filed and forgotten once a project is approved. Many CIOs profess that IT value is a critical matter, but they don’t know how to make it real.

It’s certainly easier to continue with the paperwork exercise. CEOs typically hold their CIOs, rather than their business executives, responsible for IT value, even though the participation of business executives is necessary for companies to truly capture IT value. What’s more, many organizations don’t have the financial and measurement discipline that is necessary for realizing IT value. But don’t let the difficulty of the journey keep you from moving forward. Investment governance falls apart without a three-stage review of value:

  1. Before project approval (resulting in better investments)
  2. During project implementation (leading to tighter scope management)
  3. After project completion (providing critical learning and necessary adjustments)

IT’s influence and ability to align with the business are only as strong as the link between IT investments and enterprise performance. Otherwise, IT really is an expense to be managed, and it will continue to come under attack from the "IT doesn’t matter" types.

To make value realization practical, use nonfinancial value targets—for example, operational metrics such as cycle time or service levels—to supplement or substitute for difficult-to-correlate financials. Make sure that the nonfinancial value targets are ones that are important to your organization. If your company already uses a Balanced Scorecard, you can draw the targets directly from that. Otherwise you can derive them by asking your business counterparts how they define success.

With his value targets in hand, Ernest can then set up organizational mechanisms to handle IT demand. Project sponsors (from both business and IT) should

  1. Include the value targets in the project justification statement.
  2. Perform baseline measurements at the beginning of the project.
  3. Design the project approach to incorporate and influence the value targets (for more information, see the benefits chain concept in The Information Paradox by John Thorp).
  4. Screen requests to change the project scope based on the changes’ impact on the targets.
  5. Repeat the measurement process after implementation.
  6. Understand the reasons for any shortfalls in the value goals and figure out what actions are necessary to close the gaps.

Once these process changes are in place, your IT Council will learn over time to link value commitments to IT project approval—and to tie value realization to individual and organizational performance management.

With a focused strategy process in place and the establishment of business accountability for IT value, Ernest will be better positioned to handle the challenge of IT demand. Yet that’s hardly everything he must do to be a successful CIO. His ability to deliver new IT-enabled capabilities is hampered by the fact that 70 percent of his costs consist of nondiscretionary expenses, and he has an installed infrastructure that puts roadblocks in front of each project.

The next article in this series on IT-business alignment will transition from demand management to supply management. We’ll explore the use of actionable pricing and agile technology to help manage IT consumption and ensure adequate IT capacity.

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Copyright © 2005 IDG Communications, Inc.

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