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The Basis for the IT Strategic Planning: Questions to IT Governance

By Dr. Eugene Nizker
CIO

A lot is being said lately about the importance of strong CEO/CIO relationship and IT-business alignment. This relationship is often tested when IT prepares its strategic plan. It is apparent that the IT strategic plan should be aligned with the strategic plan for the entire company, otherwise efforts to align IT with the business would fail and CEO/CIO relationship would get strained. But does a corporate strategic plan always contain sufficient information for IT planning?

CIOs of entrepreneurial companies know that the challenges they face are somewhat specific, and that lack of an adequate corporate strategic plan is one of them. These companies do not have much experience with strategic planning, nor do they feel the necessity for it until certain point of company growth. This is understandable since the leaders of these companies have been busy establishing and growing the business from ground zero. Strategic planning has not been their focus yet.

However, when these companies mature and transition from the entrepreneurial stage to the professionally managed stage, the requests for “IT strategic plan”, “IT roadmap”, “IT delivery schedule” become more and more vocal. The CEO of this growing company may be oblivious to the fact that an adequate IT strategic plan should be based on the corporate strategic plan, which may be missing or inadequate. These problems are best described in Dr. Flamholtz’s book “Growing Pains: Transitioning from an Entrepreneurship to a Professionally Managed Company” (John Wiley & Sons, 2000).

Is there a way to resolve the problem without demanding too much from the business? How can IT help? What specific information is the key for successful IT strategic planning?

It is our belief that the description of so called “target state” is of paramount importance for the IT strategic planning. Where the company is going to be in five years? What shape its business will take? How its business model and customer base are going to evolve? Defining “the way to get there” is also important, but a clear understanding of this “target state”, is vital. Indeed, lack of clear understanding of the “target state” deprives IT from the very fundamentals required for strategic planning. Yet for entrepreneurial companies drawing a picture of a “target state” can be challenging.

Hence the important task CIO should set for himself or herself: to help the business to shape this “target state” at least to the point sufficient for IT management to plan how technology organization is going to enable the company future.

One way to approach this task is by asking the right questions. The rest of this document offers a set of initial questions that the CIO can put before the CEO of an entrepreneurial company. These questions can also be organized as a table, a survey or answered during interviews with senior executives. CIO should champion this process with full support from CEO.

The questions are arranged into seven categories that reflect different aspects of corporate growth.

  • Company Growth Strategy
  • Products and Services Strategy
  • Volume Growth Strategy
  • Mergers and Acquisitions Strategy
  • Partners and Channel Strategy
  • IT Growth Strategy
  • What did we fail to ask?

Each question is relevant to one or more aspects of IT planning, and this relevancy is outlined for every question.

Obtaining the answers to some of the questions below will not be easy and will require CIO to put lots of her soft skills in use. Moreover, it would be unreasonable to expect obtaining answers to all the questions. CEO sometimes does not have all the answers, or his guesses are as good as CIO’s. Chances are the CIO will have to make do with the answers she managed to get. The exercise is worth it though. The answers would create some basis for the IT organization to come up with a strategic plan that is aligned with the company’s goals. In addition, the process of searching for answers itself has positive side effects: better understanding of the business and corporate future and strengthening relationships with business. Another important side effect likely to be achieved is the push for strategic thinking that might improve overall planning process in entrepreneurial organization.

Of course, every company is different. It would be unreasonable to expect that the questions below can be applicable to every organization since the real life cannot be reduced to a procrustean bed of any particular theory. We would be happy if the list below serves CIOs as a guideline, a template, or simply food for thought.

Acknowledgement: Author would like to thank members of IT management team at Custom House Global Foreign Exchange for their thoughts that helped initiate this work.

Company Growth Strategy

    • What kind of company growth do we plan to achieve:

(These questions provide basis for environment capacity planning and enterprise architecture planning)

      • Number of employees, types of users worldwide
      • Overall number of users
      • Number of users per business service/application.
      • What revenue split do we expect between different products (gross & net)?
      • What revenue split (gross & net) do we expect between different business models (online vs. bricks and mortar, direct sales vs. channels, etc.)
      • Are our business models going to be changed? If yes, then:
        • When?
        • In what jurisdiction?
      • Are we going to appeal to the same or different type of customer? What will be the ratio between corporate or individuals customers? What kind of corporate customers we expect to serve (size of the company, industry, etc.)

For each of the above we would like to see expected trends for the next five years.

    • What kind of relationships is the company likely to enter with third party partners and technology vendors? (This question is important for system integration and information security planning)
    • What geography are we likely to expand to and when? (This question is important for capacity, disaster recovery and information security planning)
    • How is our internal portal going to evolve? (This question is important for planning and providing adequate support for HR and Internal Communications)
    • Going public / selling in year…? (This question is important for capital investment strategy and business analytics planning)
    • How can IT improve the decision making process in the company? (This question is important for business analytics and enterprise architecture planning)
    • What areas of internal operations we are going to automate? (This question is important for enterprise architecture planning and the development team’s capacity planning)

Products and Services Strategy

(The following five questions provide basis for enterprise architecture planning and the development team’s capacity planning)

    • What kind on new products and services would the corporation like to offer to its customers?
    • What supplementary products and / or services are we going to add to our value proposition?
    • How will the existing products evolve?
    • What foreign languages are we going to support?
    • What is required from IT to support Compliance and Risk Management:
      • Regulatory compliance (including SoX and similar regulations in new jurisdictions)
      • Risk management including disaster recovery, business continuity and business resiliency
      • Records management

(The following two questions provide basis for IT Operations planning)

    • Are we going to offer 24 x 7 service? If yes, then how soon and in what jurisdictions?
    • What are company’s expectations for service level for different services (example: to achieve 3 ‘9’s in 3 years):
      • Systems up time:
        • Internal applications (major only)
        • Customer facing applications (system by system)
      • Systems response time:

(This question is also important for application development planning)

        • Internal applications (major only)
        • Customer facing applications (system by system)
      • To what extent is IT expected to support third party applications that are acquired and installed for the internal users?
      • Is IT help desk expected to provide support for foreign customers?
      • Are we going to enter into Service Level Agreements with our customers that would require IT service above and beyond of what is currently provided?
    • What will the Sales department require in terms of IT support? (CRM integration, Live demos, specific products for Tradeshows, etc.)
    • What level of IT support does the Marketing department expect? (subjects like patenting and trademarks, marketing campaigns, marketing analysis, and branding may all contain significant technological part)
    • How will our external website be modified: do we want to create a customer portal and/or resource website? (This question is important for internet activity planning and information security planning)
    • Are we going to have best business practices developed per each business model/division? If ‘yes’, then should they be enforced by a correspondent IT solution? (This question is also important for enterprise architecture and application development planning)

Volume Growth Strategy

(Questions in this section provide the basis for enterprise architecture planning, environment capacity planning including capital investments, and development team capacity planning. These questions are specific for every organization, so what is presented here is an example only)

What kind of volume growth do we plan to achieve?

    • Overall number of items produced by corporation per year (transactions processed, products or services sold, etc.)
    • Number of items produced by type (online or manual transactions, product or service types, etc.)
    • Number of customers serviced per type of items produced
    • Customer types in terms of size
    • Customer types in terms of vertical market, industry
    • Do we expect steady, seasonal, or volatile demand for our products and services? What are the highs and lows in terms of percentage growth comparing to “regular” demand and length of time?

Mergers and Acquisitions Strategy

(Questions in this section provide basis for enterprise architecture and integration planning as well as for capacity planning in IT Operations)

    • What type of companies do we expect to merge with or acquire in the next 5 years?
    • What would be the expected size of companies we would merge with?
    • What would be the expected size of companies we would acquire?
    • What would be the set of objectives we would seek to achieve:
      • Tax-related benefits
      • Acquiring larger market share
      • Breaking through into a new market
      • Acquiring the team
      • Acquiring the technology
      • Acquiring a competitor
      • Others (please specify).
    • What is the expected level of system integration, data aggregation and cross-organizational reporting for each of the above:
      • Move parallel functions of an acquired company to our unified technological platform? If yes, then how soon after business integration?
      • Aggregate data and create one data warehouse for future business intelligence analysis? If yes, then how soon after business integration?
      • Provide an overall view on information across the corporation (for example, provide reporting based on data distributed between two or more different systems)? If yes, then how soon after business integration?

Partners and Channel Strategy

(Questions in this section provide basis for capacity planning, capital investments planning, software development planning, and integration planning)

We expect that our corporation may enter into four major types of partnership:

    • Professional partners that help us to produce or deliver our products and services like those included into our production business process
    • Partnerships that provide supplementary support for the business like banks, suppliers and vendors, etc.
    • Channel partners that sell our products and services to their customers
    • Marketing partners that promote our brand
    • We would need to know the following with regards to (a) type of partnership:
      • How can IT help with supporting this type of partnership?
      • What is the projected number of relationships we will need to support in a year?
      • Do we need to further split this type, because it contains partners that would require different types of help?
    • We would need to know the following with regards to (b) type of partnership:
      • What areas of business will require this type of partnership?
      • What is the IT role in supporting this type of partnership?
      • What is the expected “rate of acquiring” this type of partners: one a year, 10 a year, etc.
    • We would need to know the following with regards to (c) type of partnership:
      • What business models are we going to use in dealing with this type of partners (profit sharing, fixed fee, etc)?
      • What is the expected “rate of acquiring” this type of partners: one a year, 10 a year, etc.
      • What is our vision on licensing or selling the software we built in-house to partners?
      • Do we expect a potential partner to subscribe to particular products and services of ours?
      • Do we consider hosting certain applications for this type of partners?
      • If the answer to any of 5.3.3, 5.3.4, or 5.3.5 is “yes”, do we expect to “white label” our applications in one of the following ways:
        • Partner uses general application with different “skin” specific to this partner
        • Partner uses the application with generic functionality, but both the “skin” and user interface are specific to this partner
        • Partner requires a new “skin”, new user interface and modified or additional functionality

What is our vision on the split between these three types of white labeling? Do you see other types?

      • What kind of reporting (both operational and analytical) is expected for this type of partnership both by our internal users and by partner personnel?
    • We would need to know the following with regards to (d) type of partnerships:
      • How do you see IT’s role in supporting this type of partnership?
      • What is the projected number of relationships we will need to support in a year?
      • How long will each promotion last?
    • Should IT expect that our corporation will enter into more than one major strategic partnership at a time or will start implementing a new one before the previous one has been completed?

IT Growth Strategy

(Some of the questions in this section are awkward, but it is more important for IT management to provoke explicit answers to these questions in order to avoid surprises in the future. Questions in this section will probably require some explanation to business people, although more and more business execs think and talk in these terms now)

    • What relative budgetary constraints IT can expect? (Examples: do not exceed 8% of revenue; the limit of IT budget is calculated as number of employees in the company multiplied by $8,000 per year, do not exceed revenue growth year to year, etc.)
    • Should IT operate on P&L basis or introduce project budgeting?
    • Should IT be centralized or decentralized?
    • Should IT be auditable? If yes, then
      • When?
      • To what extent / in which areas?
    • Which areas of IT are of a concern from growth point of view?
      • Handling change in business process, company direction or company culture.
      • Integration:
        • Enterprise Architecture and overall cohesive technological backbone
        • Integrating systems built in-house with off-the-shelf systems
        • Integration between several third-party systems that we use
        • Supportability for off-the-shelf systems
      • System robustness, performance and scalability:
        • Responsiveness including peak times both for internal and customer facing application.
        • Ability to sustain growth including peak times both for internal and customer facing application.
        • Uptime for customer facing applications and internal applications
        • Supportability and extensibility for the systems built in-house
        • Data integrity
      • Product development including specifying new products, feature implementation, product quality, downtime during installations, system documentation and user training, customizing and enhancing products
      • Development team throughput
      • Computing environment:
        • Network environment worldwide and global connectivity including Telecom systems across the company
        • Risk management including network, application and database security, social engineering, disaster recovery and business continuity
        • Archiving and backup, data warehousing, data mining and business intelligence
        • IT-related policies and enforcement
      • Regulatory compliance
      • IT support for third-party and cross-vendor applications including problem diagnostic and change management
      • IT processes in conjunction with business including project acceptance processes
      • Internal IT risks including team culture, cohesion, morale and retention; “Key person” syndrome; keeping pace with technology; IT marketing, communications and feedback (both internal and external)
      • External IT-related risks

  Dr. Eugene Nizker

enizker@shaw.ca, Oct 2006