Laying the Tracks for the Technology Train

IT Management Issue

The 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.

Consider 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.

Early in the game, IT was perceived to be a roadblock, not the enabler of the transformation.

• 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.

One 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.

Business Implications

The 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.

We 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 often confused.

There 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., Tyco International).

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).

If 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:

Executive 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.

Information Technology Management Implications

IT 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 Operating Units.

The 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.

Many 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).

Each 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 .

Architecture Impacts

1. The Integrated corporate strategy choice demands a highly integrated architecture realized on a single infrastructure with integrated applications.
   
   
2. The Federated corporate strategy choice is best supported by linking infrastructure and applications at points where data is shared.
   
   
3. 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.
   
   
4. An enterprise-wide information technology architecture has equal value for all three alternatives. It sets integration standards and it establishes local standards as well.
   
   
5. 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 ones.

Business Management Response

1. Be clear on which Corporate Strategy alternative you want to run the company.
   
   
2. 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.
   
   
3. Prioritize the delivery of capabilities to the enterprise.
   
   
4. Hold managers accountable for the delivery of capabilities to the enterprise and compliance with corporate standards.
   
   
5. Integrate Business and IT Planning. Focus on speed over breadth and breadth over depth.
   
   
6. 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).
   
   
7. Insist on a disciplined project prioritization process.

Information Technology Management Response

1. Be clear about the corporate strategy and build IT Architecture Design capabilities within your organization.
   
   
2. Establish an IT Governance process.
   
   
3. Lead the effort to translate business strategy directly to IT Architecture and Infrastructure.
   
   
4. Accelerate IT delivery capabilities through standards and common infrastructure.
   
   
5. Map every IT initiative to a business initiative and the strategic objective that it supports.
   
   
6. Let delivery of capabilities drive the IT agenda.
   
   
7. Focus on the Infrastructure first. It is the platform for future development and it drives recurring cost.