Running IT as a business: Myth or reality

IT as a business

In January this year Bob Lewis posted an article in Infoworld titled “ Run IT as a business — why that’s a train wreck waiting to happen“. In this article, Bob suggests that a lot of current thinking about running IT like a business is misguided and leading CIOs in the wrong direction. This article explores what is ‘Running IT like a business’ and what should a CIO do?

The myth of the internal customer – IT is expected to treat internal departments as customers and deliver them the software or projects that they have asked for. The problem is that customers don’t always know what they want and they are reluctant to commit anything to paper. Even if they do commit something to paper their thinking (and often budgets) demand a “silo” solution which only partially meets the needs of the enterprise. As a result, IT architecture suffers. IT becomes just an order-taker and not a partner.

IT Costs are always too high – Comparing costs of IT services to the external market is always fraught with danger. Why does a corporate laptop cost $2000 when I can buy a laptop from the local store for half of that price? It doesn’t matter that the other would not run corporate applications or the reliability is too low or it does not include software licenses. Similar stories are heard about the network costs, applications and hosting.

Challenge of the charge-back – IT as a business is expected to charge internal customers for its services. Charge-back is a popular mechanism for this. However, charge-back can create unintended behaviours, where departments try to reduce costs by avoiding IT services. I know a department, which stopped using help-desk for password resets due to the cost of the calls. This resulted in major security issues. Rather than figuring out how to reduce the overall costs, departments tend to focus on individual cost reductions.

IT seen as a vendor – Business begins to see IT as a vendor (usually an expensive one). This results in an arms-length relationship between IT and the rest of the business. As a result, trust begins to erode and outsourcing IT begins to look like an attractive proposition.

Bob believes, “The alternatives begin with a radically different model of the relationship between IT and the rest of the business — that IT must be integrated into the heart of the enterprise, and everyone in IT must collaborate as a peer with those in the business who need what they do.”

Is IT ready for the radical model?

Bob’s comments are spot-on! I agree that turning IT into an internal business unit, which conducts business transactions with other departments, is a less than optimal model. So what should a CIO do? For IT to be accepted as a credible internal partner there are a few things IT needs to get right.

  • Is IT managing service right? – When IT fails to deliver basic services and project, it would be impossible to develop any meaningful relationship with business.
  • Is IT managing the budget right? – If IT budgets are not predictable and IT does not understand or manage its costs, IT would not have much credibility in the enterprise.
  • Is IT investment generating value for the business? – IT must be able to demonstrate that its projects and investments support the business strategy and deliver benefits for the business such as, revenue growth, cost reduction, better decisions or reduction in risk.
  • Is IT managing the resources (or capability) right? – IT capabilities consist of people, technology assets, intellectual capital (processes and know-how) as well as relationships (trust and shared ownership). Successful IT groups leverage these capabilities to deliver and sustain competitive advantage for the business.
  • Is IT managing the “business of IT” right? – Managing the business of IT means managing the costs of IT services and projects, managing demand for services, having effective governance processes along with delivering and communicating value.

IT as a businessThe “radical model” moves the focus from managing IT like a business to managing IT for business value. When IT is solely focused on chargeback and internal customer requirements, it is not always working in the best interests of the enterprise as a whole. But it is neither easy nor straightforward to make the transition from the traditional to the new operating model. Martin Curley of Intel uses the business value maturity framework to describe the journey.

Managing IT for Value

There are interrelated challenges of managing IT for business value (or contribution to business success), management of IT budget, IT capability and managing the business of IT.  IT groups gradually move from one maturity level to the next and need different strategies at each level.

Managing the IT budget

The initial challenges are to get a handle on IT costs and budget and apply financial discipline of expense control as well as forecasting to ensur

Managing IT for Value

There are interrelated challenges of managing IT for business value (or contribution to business success), management of IT budget, IT capability and managing the business of IT.  IT groups gradually move from one maturity level to the next and need different strategies at each level.

Managing the IT budget

The initial challenges are to get a handle on IT costs and budget and apply financial discipline of expense control as well as forecasting to ensure that the budget is predictable. Many IT shops cannot forecast half-year or year-end expenses confidently. Executing the strategies for systematic cost reductions (e.g. demand management, SOE, adjusting service levels, BPR etc) is the next level of maturity. Optimising costs by adjusting refresh cycles or managing risk reward trade-offs is the final level of sophistication.

Managing the IT capability

IT capability is what IT can do for the business. Improving IT capability is about keeping up with the business demands and reducing the gap between demand and IT delivery. The IT capability stages of maturity are:
  • Technology provider – IT as an order-taker who can be counted upon to provide basic technologies and applications that the business requires.
  • Technical experts – IT as providers of technology services. IT is invited to provide technical inputs and expertise. Typically at this stage IT has limited business understanding.
  • Business partners – IT are included in developing business plans and solutions. IT has a good understanding of business and can engage with the business well. IT is proactive and is able to propose innovative solutions. However, the difficulty in going from good service providers to this level should not be under estimated. According to Bob Lewis, innovative CIOs are operating at this level. As Mazda CIO Jim Dimarzio writes in his CIO article, “Being in the room, however, did not automatically equate to involvement.” Jim had to develop the IT capability to effectively engage with the business and contribute to business processes and priorities.
  • Corporate core – IT is considered a core capability and a source of competitive advantage. IT has a track record of innovations that are a major source of competitive advantage.

Managing IT as a business and managing for value

I believe both these strategies are closely related. When IT is run effectively as a business it creates significant value.  The stages of maturity are:

  • Cost centre/cost focus – IT understands and manages the cost of the services well. Cost and quality of service are seen as important. Expenditure is controlled and technology life-cycle costs are considered in investment decisions.
  • Customer /benefits focus – The focus of IT engagement changes from cost to value or business benefits. Formal tools such as business case/Return on Investment (ROI) are used. Services are designed with customers’ needs in mind.
  • Portfolio approach – More sophisticated approaches are used to select investments using portfolio management and value management techniques. IT has effective measures of customer service. Mechanisms such as chargeback are used for fair distribution of IT costs and as a way of changing consumption patterns.
  • Value Centre – The organisation systematically optimises its value using portfolio management, risk trade-off and alignment with strategy. IT demonstrates a different mindset. IT has a strong stakeholder focus and is aligned to organisations’ value drivers where technology is seen as a tool rather than an end.

Conclusion

In closing, I quote Bob’s advice, “Don’t act like a separate business. Do the opposite — be the most internal of internal departments. Become so integrated into the enterprise that nobody would dream of working with anyone else.”

Secrets of strategic planning success

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.

Summary

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.

Managing talent with 9-box grid

Career pathsWhen we think of talent management, we immediately think of managing bright and high potential employees. But although ‘star talent’ are important in any business, just managing stars is not enough. A high performing team means managers have to understand the performance and contribution from all the team and manage the talent pool. Often talent management is the missing ingredient from many IT strategies. While great emphasis is given to obtaining hot technical skills managing existing talent appears to be forgotten.

I came across two management tools, one is called the ‘Career Crossroads Model’ and other is a ‘9 box-grid’. I found these tools useful with the challenge of managing leadership talent. The Career Crossroads Model also helps guide the long-term career development of individuals in the context of the organisation’s needs. I hope you will also find these useful.

Many approaches to strengthening leadership capabilities focus on individual ‘stars’ rather than the whole leadership bench. Leaders drive results and if there are gaps in their ability, performance suffers. If the gaps are known, development plans can be created.

Career Crossroads Model

As an individual progresses though careers, s/he progress through a number of natural crossroads. Usually the individual will advance from ‘managing oneself’ to ‘managing others’, then ‘managing functions’, to ‘managing business’ and so on. Each of these crossroads needs different skills and job experience. For example, technical skills are required to manage oneself whilst P&L management and business strategy skills are needed to manage a business. Individuals step into a new role, grow in that role and get ready for the next career crossroad. In good organisation practices there is no instant move from one level to another at a much higher level (e.g. from managing oneself to becoming a functional manager). Each crossroad is also called a ‘turn’ opportunity.

Performance and potential

Good potential leads to good performance. However, potential is not an absolute measure. In an earlier article, I had discussed the idea of potential being a combination of demonstrated capabilities, ambition/motivation (to take on the challenges at the new crossroads level) and alignment with the organisation’ needs in terms of career progression. The Crossroads Model helps assess potential based on prior performance. When an individual does not have all three aspects of potential, performance suffers.

Performance

In judging performance there needs to a clear and complete job definition. It must define what is required to be successful in the role as well as what customers, shareholders, team and colleagues require. If the job is described as a circle and each dimension of performance done well is shown as a line, the following representations of performance emerge.

Exceptional performance meets performance criteria in many job dimensions, whilst full performance meets performance criteria in all job dimensions (note: this is a simplified example, in reality complications such as exceeding some dimensions and not meeting others can arise). Exceptional performers need to be given larger jobs otherwise they will leave and find challenges elsewhere. Developing performers on the other hand, need more time in the role and need help to improve their performance.

Levels of Potential

There are three levels of potential: Turn, Growth and Mastery.
1.Turn Potential – The ability and desire to move to a job at a higher level on the Career Crossroads Model.
2.Growth Potential – The ability and desire to move to a bigger/more complex job on the same level.
3.Mastery potential – The ability and desire to balance current and changing job requirements and deepen experience and specialisation on the same current level.

The 9-box grid

The 9-box potential performance grid provides an easy way to plot leadership talent in the organisation on a single page. It’s a great way to create an open dialogue amongst a leadership team. Open discussions and multiple perspectives allow better calibration of ratings and expectations and a shared ownership of the organisation’s talent pool. It’s a great way to identify development needs and succession planning opportunities.

Using the 9-box grid

The grid is used in two ways; to plan individual career development and to plan and manage the talent pool in the organisation. There is development action associated with each of the 9 boxes. In brief these are:

  1. Ready for a move to the next level within the next 12 months.
  2. Move to a larger role on the same level within 12-24 months.
  3. Coach and develop to be exceptional performer.
  4. Leverage mastery for the benefit of the organisation. Reward and recognise. Use their help to develop high performers.
  5. Manage /coach to improve performance.
  6. These can be employees who have moved to a new level. Coach/ develop to continue to have a turn potential.
  7. Develop to become exceptional performers.
  8. Assess the reasons for lack of performance. Coach/develop to become fully performing.
  9. As above or move out in the next 12 months.

Effective organisations have a mix of people in all the boxes. Many organisations just focus on the top talent (boxes 1-3) and forget the needs of the people in other boxes. Employees in the boxes 4, 5 and 7 are valuable employees who can have deep expertise in their areas. The challenge is to keep the skills of these employees up to date as business and technology changes. Over time the market forces and change would push the performance levels up, so staff would need to keep up to maintain full performance. Managers ought to help employees improve performance as well as try and lift growth potential of the team.

Ideal talent mix

Different business situations demand different mixes of talent.
Start-up – An organisation in the start-up or high growth phases would need to have a much higher proportion of high potential individuals than one in the mature stages. Start-ups require a high number of ready to grow employees and leaders as well as seasoned professionals (box 4).
Growing business – A growing business needs a high proportion of exceptional performers and a pipeline of talent to move to the next crossroad levels as the business grows and new opportunities emerge.
Consolidation – A business in a consolidation mode
would not have many opportunities for people to take on larger jobs. Hence, they would need lower numbers in boxes 1, 2, 3. There may be more people in boxes 8 and 9 as they try to do more with less and raise the bar.
Normal Business – In a normal business, the ideal mix may look like the below. There would be smaller proportion of high performers and low performers with the middle performers / mid potential staff in higher numbers.

Conclusion

The 9-box model provides an easy and effective way to manage talent. It helps identify the category of the employee and tailor appropriate development plans to groom them. When there is a shortage of talent it is even more important to use the model to optimise performance and help employees grow within the organisation. What I like about the model is that it does not solely focus on high fliers but also recognises the important role played by the ‘solid’ performers who keep the organisation ticking along.

Towards better IT governance

Introduction

As both business and public sector organisations are becoming increasingly dependent on IT, there is growing recognition that governance of IT is an essential part of the corporate governance. Governance is about who makes the decisions? How they are made and who is accountable for what? While the need for IT governance is accepted, implementing effective IT governance continues to be a challenge.

Many C-level executives still consider IT to be too complex, technical and difficult to govern. IT governance still is perceived as a CIO issue. Alignment between IT and business strategy as well as between IT and business governance remains weak.

This article demystifies the IT governance and provides practical ideas for improvement.

Four “ares” of governance

Governance is about ensuring that the organizations resources are used the right way to create value while managing IT risks. The Val-IT framework from IT Governance institute helps address these challenges. The four “Ares’ are the core of Val-IT framework. This is a sound framework which helps organisations ensure IT efforts are aligned and IT continues to deliver value.

Four "R"s of IT Governance

  1. Are we doing the right things? To quote Peter Drucker: “There is nothing so useless as doing efficiently that which should not be done at all”. This is the question about should we be doing something at all. It ensures strategic alignment between business and IT. Is what we are trying to do fit with the organisations vision and strategy? Is it consistent with the business principles?
  2. Are we doing them the right way? This is the question about architecture and standards. Is what we are doing conform to the architecture and processes?
  3. Are we getting it done well? This is the question about the execution. Do we have the disciplined delivery and change management processes? Do we have the right skilled re sources and are we managing them well? How does our performance measure up to others? Are we effectively managing risks?
  4. Are we getting the benefits? This is a question about realising value from investments in IT /projects.  Are we clear about the benefits? Do we have metrics? Is the accountability for the benefits clearly defined?

These four questions cover the core of Governance, which are Strategic alignment, IT value delivery, IT Risk management, Performance management, and IT Resource Management. When managers at all levels address these questions, IT governance will become part of the culture.

IT Governance Models

There is no one size fits all model for IT governance.  Three common models are based on three decision-making styles within organizations. These are: Centralised, Federated or Decentralised.

 

IT Governance models

Figure 2 – IT Decision making models

  • In the centralised model efficiency and cost control is emphasised over business unit responsiveness. There is greater focus on standards, synergies and economies of scale.
  • In a BU centric (decentralised) model there is greater business ownership and responsiveness but integration and synergies suffer, resulting in likely higher costs.
  • The federated model tries to combine the best features of these two. In the federated model common applications and infrastructure resources are pooled while business units control BU specific applications.

Here are some commonly used IT Governance forums. The above models influence the scope and membership of the IT governance forums.
Business Leadership Council / Executive committee – This is the top-level committee that makes enterprise-wide decisions including approving IT strategic plan and controlling major investments (including projects). Sometimes Ex-co may delegate the IT decisions to IT Council or IT Steering committee. This usually consists of key business executives, CFO and CIO.  They would consider IT policy and investment decisions more deeply than the Ex-co.
IT Leadership council – This group consists of most senior IT leaders across the enterprise.  They focus on decisions such as IT policy, IT Architectures and IT infrastructure.  This is a critical forum in Federated and decentralised models.
IT Architecture Council consisting of key IT and some business leaders who would oversee development of architecture standards, recommend them for endorsement by the Leadership council. This group may also monitor compliance with the architecture standards.
Business-IT relationship managers – These managers bridge the gap between IT and business units and act as two-way communication channel to address and resolve any gaps.

Characteristics of good IT governance

  • IT investments and decisions are assessed in a manner similar to business investments and IT is managed as a strategic asset. This means there is top management participation in key IT decisions. There is board oversight of IT investments and executives are held accountable for realising benefits.
  • IT is essential part of corporate planning and strategic planning. IT understands the business dynamics and contributes to the development of business strategy, which is interlinked to IT strategy. IT and business work together to identify opportunities.
  • Top IT risks are considered within the enterprise risk management framework. Risks such as data protection, IT security and business continuity receive periodic board oversight.
  • IT performance is regularly measured and compared with peers and best practice.
  • How decisions are made and why, is well understood and outcomes are clearly and formally communicated to the stakeholders. Formal exception processes are established and promote transparency as well as allowing organisational learning.

Steps to better governance

Improving governance in organizations is a strategic change process. There is no silver bullet. Governance is not just a new process but it also needs a new mindset and behaviours at senior levels of both IT and business. The established power centres within organizations do not always welcome greater transparency and accountability. Experience suggests that strong support from CEO and CIO and gradual increase in governance maturity usually works better than constant tinkering.

Here are ten steps for improving IT Governance:

  1. Visible and active top management commitment is absolutely critical for the success of any governance initiative. Governance is a disciplined approach. There must be consequences for all the executives for non-compliance.
  2. Treat governance as a change program requiring resources and commitment. It must have visible benefits for it to be considered successful. Also, consider organization’s culture, resources available and capacity for change. Establish credible goals, measure and communicate the benefits.
    If the IT is struggling to deliver reliable service, or have a poor track record of customer service or project delivery; focus the governance efforts for addressing these burning issues rather than going for the lofty goals of strategy alignment and such.
  3. Use recognised frameworks for the governance initiative. There are a number of frameworks like COBIT, ITIL and others. If service management were an issue using ITIL framework would be ideal.  Use knowledgeable experts to help establish a realistic program.
  4. Transparency of decision making and reporting gives governance its potency. Transparency whether it be business cases, standards compliance or project health reports create trust and creates peer pressure to address issues identified or to question unusual decisions.
  5. Create a formal process for handling exceptions. Then report on percent of exceptions and key reasons for these. May be the standard it inappropriate or the enforcement is poor. Openly discuss and address.
  6. Encourage peer group consensus at each governance tier and avoid escalations to higher levels. This will build trust and sense of compromise within the framework of good governance.
  7. Where possible align with the corporate governance mechanisms. Most companies would have risk management, investment management, and crisis or business continuity management mechanisms. Align IT with this where possible. This would accelerate the implementation as well as give it instant credibility. Seek input from internal or external Audit staff in design of the governance framework.
  8. Educate senior management on benefits of IT governance as well as on new technologies and challenges so that they can participate in an informed manner in key technology related decisions. Lack of technological knowledge should not be an excuse for executives not to participate in key technology investment decisions.
  9. Build accountability for benefits realisation in the business case itself. This will encourage active interest in delivery governance.
  10. Avoid clogging the IT steering committee or EX-co with technical or architectural details. Address the technical details at a technical forum and report only on compliance or non-compliance/ risk to the top team. The top team can then focus on ‘is this the right thing to be doing (or investing in)’ rather than ‘how’.

If you want to discuss steps to improve IT governance in your organisations contact me.

Becoming a performance driven organisation with balanced scorecards

Introduction

A lot of effort goes into developing sound strategies for performance improvement and getting them endorsed by the board and the executives. Initially there is a flurry of new activities and initiatives. But a few months down the track, day-to-day operations seem to take over and strategy is relegated to the bottom of the pile.  The bulk of the organisation continues to do what it did before. As a result, the performance of the organisation remains unchanged.

What is typically missing is the process for turning the broad thrust of a strategy into specific measurable performance goals, and assigning accountability right through the organisation. A balanced scorecard turns a strategic plan from a passive document into marching orders for the troops on a daily basis.

Executive Summary

Strategy describes where the organisation now is and where it aspires to be. It also describes the broad initiatives that the organisation plans to take. It may describe key focus areas, process changes or capability-building initiatives or projects that are necessary for the achievement of goals. Strategy execution needs the ability to take a very broad-brush strategy and find, prioritise and carry out the key things that need to be done to put that strategy in practice. A successful execution means that the goals are set, accountability  assigned and the results reviewed.

A balanced scorecard (BSC) is a one-page document that outlines an organisation’s key performance goals and indicators (KPIs), usually covering financials, customers, execution and people.  These KPIs are driven from the company’s strategic intent. A BSC is critical for a performance-driven organisation as it creates a common view of performance across a range of objectives. For the business, KPIs are the “guiding force” that link strategic goals with day-to-day execution. This allows managers to have a better understanding of how to improve the business. Across and down the organisation, business units and teams then define supporting targets and KPIs, which results in a hierarchy of KPIs cascading down from the corporate strategy.

Why balanced scorecards?

  • We all know that ‘what gets measured gets done’. Organisations are faced with multi-dimensioned challenges (e.g. how to improve service and cut costs?). Balanced scorecards cater for many dimensions by allowing for simultaneous focus on multiple performance areas.
  • Organisations expect the strategy execution to happen in parallel with the ongoing service delivery. Merely tracking strategy execution progress can result in too much attention on strategy and not enough on service delivery. Different managers also have different accountability for delivery and strategy execution. BSC enable addressing these competing demands in a rational way.
  • BSCs also give the ability to assign joint accountability to multiple teams in the areas where joint effort is required to achieve results. Silo behaviours result where managers are held accountable for only the direct performance of their internal processes. External service or customer satisfaction outcomes result from end-to-end process execution. BSC makes this clear and enables teams to be jointly held accountable for the overall outcome.
  • In many organisations, scorecards are used only for the senior managers or executives. In fact, scorecards that cascade down many levels of the hierarchy are more effective. Here, the executives’ KPIs are directly linked to the KPIs of their managers and team leaders. There is clearer accountability for results. Cascading KPIs offer better drill down ability, allowing quick diagnosis and action on performance issues.
  • For teams lower down the hierarchy, this linkage shows, how they are contributing to the overall performance and achievement of the strategy. This can result in staff believing that  “my job matters”.

The goal of metrics is to enable managers to get a complete picture of the performance from multiple perspectives, and hence make wiser long-term decisions. As a management system, balanced scorecards enable regular feedback around both internal processes and external outcomes. Good BSCs capture feedback from the customer (or external) perspective and help analyse it with metrics from the internal processes. This encourages continuous monitoring and improvement by the teams as well as improvement in strategic performance across multiple areas.

Figure 1 – Balanced Scorecard Process

Setting the balanced scorecards is a six-step process. The first step is getting the commitment from the executive sponsor. Strategy mapping then identifies the key performance areas/indicators to focus on. The third step, selection of performance metrics, is at the heart of balanced scorecards. Having the right metrics with well-understood definitions is critical for a successful implementation. Fourthly, it is worth investing time to refine the quality of data used in the measurements and assign responsibilities for data collection to impartial staff. The fifth step, regular review, includes checking the quality and effectiveness of the metrics. The last step is to refine the performance indicators as the performance or strategy changes.

Ten Key Lessons for Balanced Scorecard Implementation

  1. Scorecards are most effective when they are linked to pay and performance management. Without this link there is little incentive for staff to take KPIs seriously. Top-level sponsorship is needed in order for this to happen.
  2. Good scorecards are brief; say one page, with around ten measures of what really matters. A business view of performance is more valuable than an internal view.  Ideally, the scores should show expected and superior performance levels. Scores weighting should be used to derive the performance ratings.
  3. Strategy Mapping will show key areas where performance must be lifted. Typically, the areas covered are financials, customers, execution and people.
    1. Financials cover profits, budgets, return on investment as well as key measures of risk.
    2. Customers cover areas that are important from a customer perspective. These could include customer satisfaction, growth/ attrition in customer numbers, number of complaints, etc.
    3. Execution (internal business process or delivery) covers how well the internal processes of the organisation are running in delivering the strategic mission for our customers. It includes key indicators of service delivery, such as service levels, reliability, on-time-performance etc.
    4. People (learning and growth) covers organisational development and ability. IT is a knowledge-worker organisation. Metrics on ‘learning’, ‘sharing’ and ‘retaining’ knowledge can be used. Metrics can cover talent management, training, turnover, and employee engagement. Some organisations also include “social responsibility”, e.g., volunteering, presentation at industry forums etc in this section.
  4. Unclear definitions undermine effectiveness. It is worth spending time in creating common definitions of the key measures. Assign data collection responsibility and review data for consistency and quality.
  5. Avoid seeking perfection with the measures or the scorecard. Measures that are 80% right can still yield valuable performance data. It is important to set up and practice the process of collecting the data, reporting, review and actions than to seek perfection. Focus on getting an acceptable level of quality.  An iterative approach works best allowing all participants to learn and refine. It is also important to remember that trends are usually more valuable than absolute values. Similarly, over reliance on tools or data collection automation at the beginning will detract from getting value from the scorecards.
  6. Meaningful performance results from understanding the desired outcomes and the internal processes that are used to generate these outcomes. Outcomes are measured from the perspective of customers while process metrics are from perspective of process owners. Usually, process metrics are used for teams while outcome measures are used for department/ service managers. Do not confuse output (what we produce) with outcome (what we produce).
  7. Drill down ability is valuable in analysing performance and improving data quality. Without adequate drill down ability, there will be greater subjectivity in interpreting results, which may result in inappropriate corrective actions being taken.
  8. Assign shared accountability to common measures such as customer satisfaction, where many teams have to work together to deliver satisfactory service to the customers. Joint responsibility will avoid silo behaviours being rewarded.
  9. Organisations that openly share the balanced scorecard results and communicate performance (and the challenges) with their teams and peers create greater commitment from their teams. It also helps to show how everyone is contributing to performance and how collective actions can improve the results.
  10. When planning to cascade scorecards through multiple levels of management in the organisation, it is best to tackle one level at a time and use an iterative approach.

For a detailed discussion and/or information on how you can use balanced scorecards to become a performance-driven organisation, please contact the author.

Unlocking value from the applications portfolio

Application analysis

Introduction

In today’s IT dependent world organisations have accumulated an array of applications from the modern to the ancient. Successive mergers and acquisitions have further added to the inventory. What’s more, because they accumulated over time, these IT portfolios are often patchy, redundant and lacking proper management oversight. The resulting IT portfolio has become complex and difficult to manage. According to reports, almost 70% of the IT budget is consumed by sustaining business-as-usual activities. When CIO’s are increasingly being asked to ‘do more with less’, it is necessary to optimise the IT portfolio.

Increasingly executives are using Portfolio Management method to tackle this challenge. IT portfolio management concept is not dissimilar to managing financial assets. In both, the aim is to collect data on the assets to be able to enhance returns and reduce risks. There are two types of IT portfolios, namely, IT asset portfolio and IT projects portfolio. Although the principles of portfolio management are similar there is great deal of difference in the processes used.

Within the IT Assets portfolio, we believe managing the application assets has the greatest upside. In this paper summarises benefits of Applications Portfolio Management and key learning from my experience in implementing APM.

Executive Summary

Organisations are using Applications Portfolio Management (APM) to make rational decisions about reducing the cost of application ownership, improving the functionality and the strategic alignment and reducing portfolio risks. The reason for the rapid growth in the use of APM is that organisations have achieved successes in cost reduction, managing the complexities of hundreds of established assets, and improving budget effectiveness.

Application Portfolio Management is a periodic fact-based assessment of organisations applications. Determining which applications receive same, lower, or increased levels of funding optimizes portfolios over time. The assessment helps refine application management practices, namely, which applications to cut, which to keep, which to renovate. The focus is to make sure that the business value and ownership costs are appropriately aligned and the portfolio is streamlined by rationalizing duplicate or obsolete applications. Over time, the applications portfolios as a whole should show the greatest business value and closest architectural fit with the lowest costs and risks.

APM generally consists of the following elements:

  • Applications Inventory – Identify and catalogue what applications you have and what they do and how much they cost.
  • Applications Assessment – Assess applications in terms of business value, alignment with strategy, technical architecture or standards and cost and ability to support. Identifying cost saving opportunities via removing duplication or overlaps.
  • Recommendations and Roadmaps – Develop changes to the application management strategies and create potential application transformation initiatives or roadmaps. The goal is to get prioritised action plans for tailoring maintenance spending, rationalising or migrating applications and addressing health risks.
  • Portfolio Governance – Assign responsibility for governance including managing the repository and tracking recommendations. Track and communicate the benefits.

Application portfolio management

Figure 1 – Applications portfolio management lifecycle

APM Implementation

APM implementation does not have to be too complex. The focus is on the big picture and identifying aspects that stand out from the norm. First step is the application inventory. Business users, IT support staff, IT architects and IT Managers take part in the data gathering stages. In the second step, gather data on operational performance, fit with the architecture or standards and the known vulnerabilities. This begins to find applications that need further attention. Next step is to analyse the application cost data and compare it with business value from other similar applications. Applications with too high costs or too low costs need further analysis. Final step in the process is to develop recommendations and migration scenarios, engage stakeholders in priority setting and begin detailed business cases for the selected roadmaps.

Where there are many application managers (e.g. in a federated structure), it would be ideal to assign responsibility to a central function such as Head of Architecture for creating uniform application inventory and assessment processes. A common repository would help the identification of duplicate applications across the entire organisation.

Benefits of Application Portfolio Management

APM benefits over time

  • APM improves the understanding of the applications so they can be managed effectively.
  • It helps track and communicate the technical and business health of applications to show problems and take advantage of opportunities.
  • With APM organisations can better align the applications portfolio to the business strategies and the technical architecture, thus improving business value over time.
  • Looking at how the portfolio supports key business processes, creates opportunities to remove the complexities and streamline support.

Over time APM enables focus to shift from application health and costs, to flexibility and responsiveness and ultimately to competitive advantage. By evolving applications in a planned and methodical way, organisations can maximise returns on their existing investments while making steady progress towards a stronger applications environment.

Tips for effective application portfolio management

  1. Executive Sponsor: Project must have sponsorship from the CIO or the Head of Applications. Proper understanding their goals and constraints ensures that the last recommendations can be acted upon.
  2. Engage Business: APM gives an excellent opportunity to tell and engage the business executives. Obtain business value and functional quality data from the real users and owners. Their support is critical for decisions to rationalise the duplicate applications or to adjust maintenance levels.
  3. Be pragmatic: In the first iteration, focus on applications that account for bulk of the costs and business support.  Similarly, in data gathering focus on few important attributes and costs. Where exact data is not available stake-holder/ user surveys can be used.
  4. APM tools: Spreadsheets may be used to record the inventory data. There are a number of third-party tools, which can help manage the applications inventory and the associated information such as costs, business value and risks. Tools would be of benefit for large portfolios and especially to keep inventory up-to-date.
  5. Source code analysis tools: These tools will help analyse the source code of applications and give information about the function points, complexity, etc. This data is valuable for understanding the reasons for complexity and the maintenance cost.
  6.  Assessment: Assessment typically covers business, technical, financial and operational perspectives. The typical questions are:
    1. Business: How well applications support the business process? What synergies we could achieve?
    2. Technical: Are the applications scalable/ extendable/ adaptable/ supportable? Do they fit the architecture?
    3. Financial: Do the applications cost too much to run? Why?  How can costs be reduced?
    4. Operational: Are the applications sustainable? What are the key vulnerabilities? Is the support infrastructure too complex? Can we find the right skills for support?
  7. Analysis: Looking at the data using a variety of criteria from business, technology, operations and financial perspectives would highlight  ‘anomalies’ and areas for actions.  Using a combination of factors would highlight anomalies, such as, if two applications are similar complexity and size but one has high costs, indicates an issue. Some solutions will become obvious when you see the problem, e.g. 17 versions of warehousing applications.
  8. Trend is your friend: Collecting cost and performance trends over time can give you richer insights than just point in time data. 18-24 months data would begin to yield useful information.
  9. Applications portfolio: Typically the assessment results would group each application in one of the four categories. These are Invest, Divest, Re-engineer and Tolerate.Application analysis
    1. Invest – These are applications of high business value and good technical quality
    2. Divest – Low value/ low quality or duplicate applications.
    3. Re-engineer – High business value but low quality applications are candidates for modernisation.
    4. Tolerate – High technical quality but low business value applications are possible candidates for cost reduction.
  10. Ongoing governance: Treating APM as a one time activity is a mistake. Any short-term gains would soon be lost. Assign responsibility for governance and ensuring inventories are regularly updated and assessed and recommendations are followed through. Establish key metrics and scorecards to check progress of the initiatives. Track and publish the benefits.
  11. Link with Enterprise Architecture: APM inventory provides data for the current state and recommendations should be aligned with the Enterprise architecture ‘desired end-state’. Application roadmaps create the migration path between these two states.
  12. Communicate the results:  Widely communicate the logic of the recommendations. Use the application roadmaps with the results of the assessment to tell business executives about the issues/ risks and various choices. This will result in a stronger business agreement.

If you would like further information or help please contact Kogekar Consulting.