Align IT with corporate strategy: When every IT dollar must count, what was once a pipe dream has become a critical imperative. Portfolio management could give you the means to deliver.
by Jim Love
What a difference a few years can make. Not long ago, IT expenditure growth rates were in the double digits. Investors were lining up to funnel money into dot-coms. Strategy was little in evidence or, at best, on life support.
Every period of excess has its hangover. The last decade ended with the revenge of the nerds, but this one begins with the revenge of the accountants. The free-flowing cash is gone, and resource-strapped companies have found themselves struggling to make every dollar count. No corporate division has paid a greater price for past excesses than IT. Whatever the CIO proposes, the CFO opposes unless there's clear return on the investment. Now more than ever, business is demanding value for each dollar.
The return-to-value movement has rekindled an interest in strategic thinking. Companies are beginning to see value in focused and well-executed corporate strategy. Well-executed is key: Good ideas are no longer enough. Strategy has always been about "Where are we going?" But now it must also address "How are we going to get there?"
Robert Kaplan and David Norton's The Balanced Scorecard (Harvard Business School Press, 1996) provided one of the most important strategic planning breakthroughs of the 1990s. The duo has begun discussing the importance of tying strategy to measurable outcomes, favoring execution over simple planning. The introduction to Kaplan and Norton's The Strategy-Focused Organization (Harvard Business School Press, 2000) mentions a study of 275 portfolio managers who reported that the ability to execute strategy was, in fact, more important than the quality of the strategy itself.
Value results from the execution of a well-chosen and focused strategy. Accordingly, IT value results from alignment with business strategy
and is measured by the success (or failure) of that alignment.
Risk And Reward
The interest CIOs are showing in business value and alignment is a positive step toward delivering value from IT investments, but some caution must be observed. Any IT investment is uncertain. In fact, John Thorp points out in his landmark book, The Information Paradox (McGraw-Hill, 1999) that failure rates (in terms of not achieving projected benefits) can be as high as 60 or 70 percent.
Even before the dot-com meltdown, technology investment decisions were moving into the hands of business and away from technology management. Recent events have accelerated this migration, with concepts such as "value management" and "portfolio management" gaining prominence in the boardroom.
The risks are high, but the rewards are compelling. Industry analysts such as META and Gartner cite cost savings in excess of 30 percent using portfolio management techniques to align the business and IT spending. One Fujitsu Consulting client identified and cut 30 percent of its projected IT spending within 90 days of starting its portfolio management program. Keep in mind that such rapid results aren't guaranteed.
Barriers To Alignment
In an old Groucho Marx routine, a man goes to his doctor and waves his arm saying, "Doctor, doctor, it hurts when I go like this." The doctor, mimicking the movement, replies, "Then don't go like this." Similarly, strategic alignment sounds like common sense, but it's a lot more difficult in practice.
As Peter Senge points out in his book, The Fifth Discipline (Currency/Doubleday, 1994) an action rarely has a simple reaction in large corporate environments; cause and effect aren't that straightforward. Actions tend to have unintended and unpredictable consequences. Because corporate processes rarely consist of a single step (cause) and outcome (effect), this complexity grows exponentially.
Consider how many steps are involved in the act of applying for a mortgage or a loan in a financial institution. How many systems must function correctly? How many different data sources must be interrogated? How many variations are there in credit worthiness, ability to pay, collateral, and similar components? And how many times does the process require human intervention?
While front-line departments facilitate customer service, another equally valid objective is being served by those who design and operate the processes and systems by which credit is evaluated. A customer service objective may consider one set of actions or processes to be common sense, while those who protect against significant loan losses or fraud might dictate a totally different - and possibly conflicting - set of actions.
Organizations have always had to face these types of problems. But old models of cause and effect, dating from the time of Frederick Taylor and Henry Ford, are becoming unworkable in today's complex, networked organizations. We need new ways of looking at problems that arise - a way of creating what many call complex sense.
article source: http://www.intelligententerprise.com/030513/608feat2_1.jhtml?/imp3
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