IT Strategy development is not an easy process. It takes a lot of effort from IT Leaders, architects and business stakeholders. Even after a huge amount of effort, we often hear that within a short time the strategy is forgotten. In some organisations, one or two new initiatives can be triggered as a result of the strategy. But soon the rest of the strategy is put on the back burner. Continue reading “Ten Tips for an Effective IT Strategy”
What is the problem?
Many companies are finding that 60-80% of their IT budget is required just to ‘run’ the business. As a result, growth and innovation initiatives struggle to get the required funding. Most CIOs know this high costs is a result of complexity in the IT environment. Because of this complexity, it costs a lot to support current IT, and costs of implementing new projects increase.
Simplifying technology environment is necessary to create the financial capacity to support growth initiatives.
Why is IT so complex?
Most CIOs struggle to answer a simple question like ‘how many applications do you have? A typical IT shop can have hundreds of applications. Large application portfolios result from legacy systems, mergers and acquisitions, organisational silos, urgency leading to tactical solutions, and vendor over promising.
The issue is then further complicated by multiple technology platforms, some new and others legacy. There is usually a proliferation of servers with unique configurations to run these applications.
Strategies such as ‘best of breed’ can also increase complexity. As different solutions from different vendors (using different technologies) are acquired and integrated over time, the overall complexity keeps growing.
Duplicate or multiple systems
Companies go through mergers and acquisitions. Each acquired company brings some unique business processes, and rules and systems, which support these. This invariably creates an increase in applications that do similar functions, but are different or need a different technology platform. New interfaces are needed to bring the information together from these systems. In these cases getting accurate stock information is very difficult. Complexity thus leads to reduced accuracy.
At other times, different departments have their own sales tracking or customer management systems, which largely do the same function. In large organisations, due to silo decision-making processes there can be multiple such duplications. A company I worked in had 26 different payroll systems.
In some companies there are many applications, but only a limited funding for maintenance. As a result of budget and inertia, most applications are not upgraded for years. They become unsupported, and the company must rely on old technologies. By avoiding or deferring the upgrades, we create a ‘technology debt’, which increases over time like a snowball. This means that when upgrades are required (e.g. year 2000) these become expensive. Application functionality also gets out of date and new functionality cannot be quickly leveraged. Newer applications and more interfaces are then created, thus compounding the problem.
Abundance of Interfaces
No CIO intentionally wants to increase the complexity of IT. New applications are acquired for new initiatives and business expansion. Many start as stand-alone applications, however, over time interfaces are built between new and existing applications.
As the increase in interfaces is proportional to the square of the number of applications, the total number of interfaces quickly multiples. Many of these interfaces are inefficient, as they are trying to connect two systems with different processing rules, data structures. and data meaning. As the number of interfaces increases, their quality decreases further. Daniel Lebeau – Group CIO of GlaxoSmithKline has called interfaces the ‘cancer’ of IT.
High cost of complexity
Other than the high IT cost to run a company’s business, complexity brings about other costs. When business processes are fragmented across multiple applications, it becomes difficult to get right data. Unsupported technologies increase the risks of failure.
Perhaps the biggest cost of complexity is the reduction in a company’s ability to take advantage of new opportunities presented by the new digital economy. Taking advantage of these opportunities needs streamlined business processes, accurate master data, and a robust foundation of systems. An IT environment that is complex and fragmented with a mix of technologies, and applications is vulnerable to hackers.
Complexity can be justified in some cases. It is usually justified when complexity allows the business to differentiate its offerings to create value.
Three benefits of simplicity include reductions in operating costs, increases in agility, and the lowering of risk. As Tim Schaefer, CIO at Northwest Mutual, explains:
“There are actually three types of value that we are generating out of the simplification effort. First and foremost, we want to create dollars that can be invested in growth opportunities. Second is the value we get around risk reduction, and in particular, how we can increase the agility of the company. Finally, by simplifying our technology environment, we are actually opening up room and capacity for newer technologies.”
Strategies for the Simplification of IT
It is not easy to cut IT complexity, a sustained and multi-pronged approach is needed. We recommend three key strategies. These are
1) Rationalisation of applications;
2) Standardisation of infrastructure; and
3) Effective governance.
1. Rationalisation of Applications
For many companies scope for application rationalisation is large. Boston Consulting Group (BCG) estimate that reductions of up to 40% in the number of applications, and 15-20% of IT costs is often possible.
Application rationalisation involves consolidating duplicate/redundant applications and the progressive decommissioning of replaced applications. Without decommissioning, the cost reductions will only be minor.
Successful rationalisation has three prerequisites:
- Top team agreement – As the rationalisation is a longer term initiative and not a quick fix, strong commitment from the top team for the simplification agenda is necessary.
- Proper funding for the job – Often the business case for the rationalisation does not seem attractive in the short-term. Ensuring proper and sustained funding is necessary.
- Tracking progress – Disciplined measurement of progress is necessary to make sure that goals of rationalisation are being achieved. Aligning IT Executive incentives to the reduction in applications is also recommended (e.g. 5% reduction each year).
2. Standardisation of Infrastructure
BCG suggest that reducing “infrastructure patterns” (configurations of software, hardware, and middle-ware) should be reduced to a smaller number of standard configurations. Typically the patterns can be cut down by more than half. The recent growth in the adoption of virtualization technologies has broken the ‘one application, one server’ rule, which makes the rationalisation process somewhat simpler. Reductions in these patterns cut maintenance costs, enable better deals from the vendors, and cut provisioning time.
BCG reports that one company had 9,000+ applications and over 1,700 technology patterns. All of these required maintenance. This company eventually determined that just 7 patterns would support 80% of the application needs. This level of standardisation enabled cost savings of 40% over three years.
3. Effective Governance
Effective IT governance is needed to make sustained reductions in complexity. If business units continue to make decisions in a silo way, and little thought is given to impact on other systems or other business units, complexity will start to grow again.
A clear governance framework and agreed blueprint describing target architecture are essential. Simplification principles should become part of this governance framework to prevent building new complexity. Strict governance enables effective portfolio planning and the optimisation of IT architecture. This is a key to reducing complexity in the longer term.
In most companies IT complexity grows with time. Tactical systems, mergers and acquisitions, and new technologies all lead to a more complex IT environment. The result is fragmented business processes, lack of correct business data, higher costs and risks, and lower agility. The bulk of the IT budget then gets consumed in keeping the business running.
IT simplification is not easy, but the benefits are large. It frees financial resources, reduces risk, and improves agility. Reducing the number of applications in the portfolio and reducing infrastructure patterns will simplify the IT environment. Success depends on a strong commitment from the top team and effective governance.
Written by: Hemant Kogekar
Most CIOs would claim to have an IT strategy, but what makes some IT strategies ‘good’ and others ‘bad’? Recently there was a discussion on LinkedIn on this topic. Here are some noteworthy comments from that discussion about what makes a good IT strategy.
‘A great IT strategy that sits on the shelf is useless, and a bad IT strategy that gets executed can be even more harmful.’ Continue reading “What Makes an IT Strategy Good or Bad?”
Most companies and many IT organisations have a head of strategy development or they hire consultants to help develop the strategy. However, once a strategy is developed many leaders are not clear of their own role in executing the strategy. Often, the execution of the strategy is delegated to the head of strategy. At other times, the leader expects that once the strategy has been agreed upon the direct reports would pick it up and run with it or integrate it into their operation. Continue reading “How to Turn Your Strategy into Execution?”
CSC has recently published their top technology trends for enterprise IT in 2012. CSC predicts that consumer technology innovations will continue to drive the agenda of enterprise IT. While the economic uncertainties in the world continue, the momentum behind business growth and technology innovation remains strong.
“As the service economy matures, enterprise is changing its view of IT from a choice between lower costs and more value to a new norm of better and cheaper.” In this new world, CSC suggests that IT needs to reduce its focus on the back-office and keep up with the technology explosion at the front of the company.
Cloud Bandwagon Rolls on
The cloud offerings are continuing to mature. The five key elements of cloud (scalability, on-demand, pay-per-use, shared infrastructure, and web access) are now becoming norms of IT service. Both IT and business desire the increased agility and reduced costs promised by the cloud services. According to Gartner, cloud represents the industrialisation of IT capabilities and a new disruptive business model. Just as improvements to supply chain revolutionised manufacturing to become interconnected and global leading to just-in-time manufacturing; cloud services have the potential to do the same to IT.
While the promise of cloud computing remains great, there are a number of issues that are still worrying large enterprises. Issues around transparency and governance, data sovereignty and trust are gradually being addressed by voluntary industry codes of conduct. Enterprises are currently leaning towards ‘private’ clouds that are provided by reputable suppliers.
The digital age has stretched legacy systems to their limits. These legacy systems are holding businesses back from fully utilising innovations, such as clouds, mobility, and consumer technology. More and more businesses are starting to consider legacy replacement / transformation strategies. The benefits of modern legacy systems are beginning to exceed the costs and risks of replacing legacy assets.
Greater Data Visibility
Due to the demands of the digital economy, more and more business data is becoming available online. In the era of the internet, business processes need to be agile. Customers, partners, and suppliers at the other end of these processes also demand that companies’ data have greater visibility. Enterprises can no longer lock their data in internal silos. Instead, enterprises need to consider whether confidential data and information can and should be made available online.
Consumerisation of IT
As more people are using smart-phones, tablets, context aware devices, and applications, interacting with a PC/Laptop are increasingly considered old fashioned and limiting. Almost 90% of new phones sold in Australia are smart-phones. Mobile devices are becoming pervasive; there are already more smart-phones than PCs in Australia. Companies will increasingly need to reach people using these mobile devices. Build-in location awareness, augmented reality, and sensors are redefining how we interact with technology.
Enterprises can differentiate themselves, by leveraging these new consumer technologies, and designing enterprise applications and lightweight ‘App’ libraries that improve productivity and customer experience. Leveraging these new technologies will also enable developers of applications to acquire new skills.
Many businesses are gradually beginning to understand the value of gaining useful insights from vast amounts of unstructured data. With 1.2 billion consumers participating in social media via blogs, Facebook, Twitter, there is a lot of information about customers and businesses on the internet. There is also a lot of data from other sources on the internet, such as YouTube, videos, and podcasts. This large amount of unstructured data presents a challenge and an opportunity. Large amount of data from a variety of sources, company data, social media, video and audio is a challenge to manage and analyse. But those businesses which can extract meaningful intelligence from this data about customer needs, behaviours and trends have the potential to reap large rewards.
An impressive range of new technologies that enable rapid analysis of big data are available in the market. While there is still a gap between the promise and delivery of these new technologies, architects and planners should be considering the opportunities and implications of ‘big data’.
With increasing mobility, users are able to work from anywhere. Many new offices are designed with no designated desks, allowing users to work from any desk, conference room, or shared space. Travelling staff wish to access company systems using not only laptops and desktops, but also smart-phones, tables, and other devices from a variety of locations, such as hotels, the airport, and on the road. Universal access raises concerns about perimeter security. Data theft from mobile devises is also a concern. Enterprises will need strategies to make security robust, while the enterprise perimeter continues to expand.
Rising energy costs and the new carbon tax will force enterprises to think seriously about the costs of computing. As Australia produces most of its electricity from coal, electricity costs are expected to rise rapidly. Within the IT industry, the use of electricity is expected to grow four-fold by 2020. As a result, energy sustainability will need to have a place on the IT agenda.
Tools will be needed for better visibility and reporting of energy use by business units across IT. Efficient energy water use and ethical waste removal will become important. CIOs should begin developing strategies for reducing energy use and improving sustainability.
With thousands of baby boomers retiring every year, business knowledge is walking out the door every day. Some critical knowledge, gained by years of experience, may be irreplaceable. In many cases, there may not be a sufficient amount of new staff to learn from the retiring generation.
Businesses need to make targeted investments in rapid knowledge capture, storage, and transfer. CSC thinks that new human computer interfaces like Kinect and Augmented Reality may allow some retirees to continue to work on the job remotely. Leveraging principles from the gaming industry can improve education and knowledge retention. Such new techniques may be necessary in light of the ‘mass exodus’ of experience.
Globalisation of Talent
Enterprises will search for resources globally in order to find talent at a competitive price. Companies will get work done from places that have good resource pools and which are cost-effective. There will be an increased emphasis on the off-shoring of knowledge work and business processes in 2012. Crowd sourcing and social media may also begin to play a role for skills, content creation, reviews, and feedback.
Enterprises should consider investing in tools that facilitate collaboration and virtual workplace technologies and improve teamwork in distributed teams across countries and time zones.
While many of these trends have been apparent for some time, pace of many changes has accelerated. For example, growth in mobile devices has become a mainstream trend and is hard to ignore. IT and business leaders need to be aware of these trends. They need to understand how these would affect their business and then plan their strategic responses to these trends.
As I wrote in a previous article, strategy in many organisations just adorns bookshelves. However, a strategic plan is more than just a document. It is the shared understanding and common vision of the stakeholders along with the passion of IT leaders, which brings strategy to life. We can say the strategy is truly adopted, when people understand the strategic direction and make every day decisions (what, how and when) in context of the overall direction.
We all know that to get more value from Information Technology investments, IT projects, portfolios and priorities must be aligned to those of the business. IT strategic planning is often used as a tool to achieve this alignment and turn business needs into results. However, this is often not that easy! Although many organisations develop a strategic plan, they experience difficulties implementing the plan successfully. Similar to golf or chess, the rules are well known but performing consistently is still a challenge.
Here are a dozen secrets that will ensure your strategic plan is implemented successfully.
1. Understand and measure how IT will enable the business
These days, ‘business alignment’ has become a trite phrase. In the context of an IT strategic plan, understanding how IT can help improve the enterprise performance is critical. Can IT enable the business to bring products and services to market faster or more cheaply? Can IT change to meet the realities of new competition, restructures and other major business changes? It is not just the capabilities that must be aligned. IT expenditure and capital budget also need to be aligned with what the business can support.
IT strategic goals and performance measures should have a direct linkage with the enterprise performance goals. If improving customer service or satisfaction is an enterprise-wide performance measure, IT should demonstrate how it is supporting this goal. Although this sounds obvious, many the IT performance goals of many organisations have no obvious or automatic link to the organisation’s goals. The effort in linking IT’s goals to that of the organisation is worthwhile because it helps to define the value of IT spending, a critical step in defining the capital programming process and tracking the results of capital investments for IT.
2. Get executive sponsorship
If the strategic plan is not used by the executives or in decision making within IT, it will become redundant. Key stakeholders and executives need to be involved right from the beginning of the IT strategic planning process. A good start is to obtain the blessing of the chief executives in the form of a charter for strategic planning. Get the input of the executives about how the business is changing, what challenges they face and what they need from IT. Seek guidance on key priorities and investment areas.
Ultimately, the IT CIO / executive is a key to this sponsorship. Without the active involvement and sponsorship of the IT Executive, the plan will most likely fail.
3. Cast your net wide for input and ideas
Input to the strategic planning must come from a wide range of players. People in the field, call centres, product and service managers can help identify opportunities for improvement. Understanding what the industry/ competition is doing in their businesses can be valuable. I have found strategic planning managers in business units can be a valuable source of information. Smart IT leaders will stay alert for this type of in their day-to-day interactions so it does not become a major burden at the time of the strategic planning.
4. Obtain commitment to change
The primary purpose of a strategic plan is to define and execute change. Achieving change is never easy. It requires commitment from the leadership and also buy-in from people on the ground. Effective change management process requires the CIO and the IT leadership to demonstrate their commitment and take a lead role in the change management process.
5. Involve Stakeholders
Getting commitment to change starts at the time the strategy is formed. Giving key stakeholders an opportunity to provide input and feedback will increase their involvement and buy-in.
The first step in strategic planning often is the current state analysis (or where we are now?). Sharing the current state analysis with IT staff and other users and getting their thoughts on where IT could improve will unleash many new ideas and input. Asking people about their problems and ideas will increase their interest by making the strategy process more relevant to them. Keeping staff informed with regular updates and follow-ups, sometimes from their own managers and team leaders, will further maintain their interest. Remember that the plan is not only a factual document; it seeks to sell and motivate action.
6. Reality-check the plans
When the strategy is nearly ready getting key IT staff and managers to provide input on implementation timeframes and challenges would help ensure that the strategy is not a pie-in-the-sky but actually achievable. When the real size of the task and timeframes become apparent, steps can be taken to adjust the goals in order to ensure they remain challenging yet achievable.
7. Demonstrate flexibility during planning
Strategic perspectives evolve and develop as the strategic planning progresses and more discussions take place. Maintaining flexibility will allow IT to understand organisations imperatives and adopt strategy accordingly. This also avoids the risk of strategic plan becoming too ‘IT centric’. Keeping an open mind during the strategic planning process will help you identify omissions and unrealistic goals. Flexibility will result in a better plan as well as greater buy-in.
8. Prepare a holistic plan
The IT strategic plan should not just be about projects and portfolios. The plan needs to critically examine all aspects of IT management and IT capability within the organisation. Achieving the organisation’s goals often involves focussing on aspects such as the enterprise architecture, investment planning and governance, program management office, people planning and performance management practices. The inclusion of initiatives in this area would make the plan holistic and cover all critical aspects of IT.
9. Communicate, Communicate, Communicate
Completing your plan is just the first step in executing a process of strategic change. Once the plan is complete, launch it with a splash. Have sessions with all the IT staff including the executives and other key IT partners. Encourage IT managers to brief their staff on how the plan impacts them and what they can do to contribute. Regularly communicate progress and especially early successes. These will give everyone a sense of momentum and help to maintain focus. Regularly use staff meetings to talk about the plan and to explain how major IT projects and initiatives link to it.
10. Focus on progress measures
Good strategic plans include objectives and measures of progress as well as targets or milestones. These plans specify the actions or initiatives needed to achieve progress. The first step usually involves measuring the progress of the initiatives followed by the outcome measures (which usually lag the actions). Maintaining disciplined executive attention on completion of initiatives and targets is critical to achieving successful implementation.
11. Track and publish progress
One reason many plans fail is lack of execution. Once the planning is complete and the plan is approved, it sits on the shelf until the next time. Implementing rigorous progress monitoring and regularly publishing the results to the management team and the larger IT team is critical to the success. Better still is to link the manager KPI’s to the strategic plan outcomes.
12. Revisit and revise
All plans need to be refreshed periodically. Businesses are not static. Regulation, competition, technology or environmental changes necessitate plan adjustments. Most organisations have a strategic planning cycle. Revisiting the plan, checking progress and goals and adjusting as necessary in a formal and structured manner will keep the plan aligned to the business needs.
In order for strategy implementation to be successful it needs to be treated as a change program with the right sponsorship, stakeholder engagement and communications. Kogekar Consulting can help you develop and successfully implement your strategy.