IT Management Issue
volume of today's mergers, consolidations, new products, and new ventures
is unparalleled in business history. These, coupled with pressures to
reduce cycle times even further, have sent business leaders in search
of enabling technology. But the message from the CIO's office is often
not what they want to hear.
the case of an energy company. To accelerate its transformation from a
regional utility company to an energy service company that also provided
power generation and trading services, the company formed a legal Holding
company with dozens of Limited Liability Companies (LLC). Management of
these new businesses had been successful leading operating units when
the highly regulated industry allowed them to be slow and plodding. Their
new companies were now expected to be nimble and opportunistic. Part of
the strategy called for the creation of shared IT services to leverage
human capital and systems efforts.
in the game, IT was perceived to be a roadblock, not the enabler of the
- The CIO and GMs spent almost one year without being able to identify
the business problems they were trying to solve.
- Three consulting teams and hundreds of hours were squandered trying
to a select a financial system; driving the President to say the project
team was 'trying to hit a fly with a sledgehammer'.
- Database Management Systems multiplied to 11, and included Sybase,
Oracle, and DB2.
- GMs bypassed shared services, hired their own IT staff and put in
their own accounting systems to support their businesses.
frustrated GM said of the projects on the enterprise IT agenda "they really
support corporate initiatives", as if they had no benefit to his LLC.
The level of his frustration is directly attributable to apparent conflict
between expensive enterprise investments and LLC autonomy. Lack of corporate
level concern and IT responsiveness is attributable to both the strategic
transition itself and to the level of shared understanding about what
is important to the enterprise. The Corporate CIO sees a different organization
than those seen by divisional IT professionals and GMs. Left unresolved,
all parties will fail to deliver optimal results.
tension between the new ventures and IT Shared Services forced the formation
of new silos. Facing longer cycle times to reconcile and close the books,
the Controller lamented that the biggest stumbling block for the company
as a whole was that it did not embrace shared services.
think the problems started earlier in the formation of the corporate strategy.
Corporate strategy defines the number of businesses in the organization's
portfolio and the relationship or synergy desired between them, as well
as the future plan to maximize shareholder value. Corporate strategy is
different from business strategy. 'Business strategy' refers to how a
business will win in its industry, and operational (tactical) strategy
refers to specific plans that support the business strategy. These are
are three major choices for corporate strategy that the energy company
failed to distinguish:
Holding company: wholly self-contained brands/businesses with
dedicated core and support work. The businesses are tied together
only by a common funding source and financial requirements (e.g.,
Federated: each business contains the core work required to
create advantage autonomously. Issues of common interest are identified
and worked among businesses. Support organizations develop uniform
policies and practices across geographies, tailor them to meet the
needs of each business and help achieve synergies across businesses
where desired (e.g., access to customer, product files, needs to have
own accounting tied to corporate). Some support work may be shared
across businesses (e.g., Canon).
Integrated: single business, requiring a single business strategy
for competitive advantage. Important business issues are formulated
centrally and tailored for local needs to optimize the entire business.
Success is measured by adding up the global numbers (e.g., McDonalds).
different leaders act under different models, leverage and communications
efforts will be undermined and incorrect trade-offs will be made in technology
selection. In the case of the energy company, although it is legally a
holding company, its desire was to act in a federated model. The following
table illustrates the guideline for this choice:
roll - ups and analysis
management must clarify the Corporate Strategy, making it clear to all
constituents how each business unit relates to the enterprise. Further,
when a Federated or Holding corporate strategy is employed, specific goals
must be set for levels of sharing, commonality, and centralization. Such
goals establish high-level requirements for Business and Operational Strategies
at the Corporate and Operating Unit levels. With all three strategy layers
in hand, enabling organizations such as IT, Finance, and Human Resources
can build supporting operational and organizational strategies.
Technology Management Implications
must take a leading role to bring Business and Operational Strategies
to a level of detail that enables action. Specifically, IT should take
the lead in defining the business capabilities necessary to realize the
strategies and requirements for the automated systems that will optimize
business processes. IT must also provide an actionable architecture complete
with guiding principles to harmonize the different needs of the various
three corporate strategy choices are best supported by architectures that
are somewhat different. The critical consideration is data flow. Make
linkages between systems only where data must flow across the enterprise.
Make each linkage once and make it adaptable.
components and suppliers can be shared. To do so in a coordinated manner
lowers total cost of acquisition and ownership and affords the potential
for re-use and multiple deployments of single solutions (e.g., single
router supplier, single e-mail system).
choice around corporate strategy suggests but does not imply its own IT
organization structure. Centralized, Distributed, Centers of Excellence,
and Shared Services organizational structures can work for any of the
Corporate Strategies. Organizational structure is driven by corporate
management, measurement and decision-making practices more so than by
the Corporate Strategy. IT organization structure must be flexible (capable
of supporting multiple models at once) and adaptable to support business
unit level volatility .
- The Integrated corporate strategy choice demands a highly integrated
architecture realized on a single infrastructure with integrated applications.
- The Federated corporate strategy choice is best supported by linking
infrastructure and applications at points where data is shared.
- The Holding Company corporate strategy choice will be served similarly
to the Federated model with fewer linkage points and higher tolerance
for slow propagation of data across the enterprise.
- An enterprise-wide information technology architecture has equal
value for all three alternatives. It sets integration standards and
it establishes local standards as well.
- The process used to design enterprise-wide technology architecture
is similar for all models. However, care must be taken to avoid imposing
excessive cost on small operations and limited scalability on larger
- Be clear on which Corporate Strategy alternative you want to run
- Establish and articulate Business and Operational Strategies in terms
that are actionable. State the strategies in terms of the capabilities
that are needed and the value of having such capabilities.
- Prioritize the delivery of capabilities to the enterprise.
- Hold managers accountable for the delivery of capabilities to the
enterprise and compliance with corporate standards.
- Integrate Business and IT Planning. Focus on speed over breadth and
breadth over depth.
- If your business will experience frequent change drivers (e.g., deregulation,
new competitive threats, new opportunities), speed up the IT planning
cycle to match the business (typically 3 month cycles).
- Insist on a disciplined project prioritization process.
Technology Management Response
- Be clear about the corporate strategy and build IT Architecture Design
capabilities within your organization.
- Establish an IT Governance process.
- Lead the effort to translate business strategy directly to IT Architecture
- Accelerate IT delivery capabilities through standards and common
- Map every IT initiative to a business initiative and the strategic
objective that it supports.
- Let delivery of capabilities drive the IT agenda.
- Focus on the Infrastructure first. It is the platform for future
development and it drives recurring cost.