Introduction
In the back of
every CIO's mind at the time of the annual performance review are two questions:
"Do I run an IT shop that is aligned with the requirements of our business?"
and "Are the IT projects we are doing generating an acceptable return on investment?"
In the short term,
the more expedient CIO might just try to align IT results with the expectations
of the CEO and assume that they are on track. However, from a strategic point
of view, an IT organization needs to view business alignments from two perspectives.
The first perspective is to formulate action plans and budgets that support
the operational business plan. In other words, react and align IT with the business
plan that is in place. The other perspective is to develop a framework that
will raise organizational awareness of IT opportunities. This means proactively
exposing the enterprise to the areas where IT can make a difference in the business.
*In Memoriam
Taking a Broader Perspective on IT Requirements
Traditionally,
many IT organizations build their IT action plans from the objectives that make
up the overall operational business plan. In a relatively straight-forward exercise,
a CIO can lay out the relationships between enterprise objectives and IT action
plans and budgets. While this approach solves the short-term issues of IT alignment
with the business, it can miss strategic opportunities where business managers
and planners may not have considered the potential business contributions of
IT.
This is where the
CIO has an opportunity to proactively work in advance of the operational planning
cycle to develop a framework that business managers and planners can use to
integrate IT opportunities into the operational business plan before IT action
plans are developed.
Components of an Alignment Framework
In
the early 1990's the American Productivity and Quality Center (APQC),
Houston, Texas (US), conducted a number of pilot projects to determine methodologies
for improving white-collar productivity. One of the major findings of the study
was that real, measurable improvement in productivity occurred only in those
pilot projects that were designed to work on problems in the interface between
organizations.
The
APQC studies found that projects that were designed to optimize productivity
inside of a department ended up making more work for the down or up stream departments
that were involved in the work flow. On the other hand, when two or more organizations
worked together on improving the handoff between their organizations real, measurable
productivity results developed.
This
conclusion shouldn't be too surprising given the way managers are usually held
accountable for departmental results and not encouraged to manage beyond the
"walls" of their organization. Ken Pyles, manager of IT at the Idaho agribusiness
giant J.R. Simplot Company observed, "IT projects that focus on departmental
productivity improvement are really hard to measure. When we have projects that
are funded by several departments that work on improving an entire business
process, that's when we find real economic benefit".
It
is also important to look for opportunities outside of the parameters of currently
installed package software. ERP packages in particular tend to have a departmental/functional
focus. Many of the opportunities for added IT value will come from the interfaces
between standard ERP components and the unique requirements of your business.
If
we look at the opportunities for IT in this context, there are the following
major organizational activities to consider:
The
five interfaces where IT planners should look for high productivity and resulting
high return on investment (ROI) projects are in the
- Service/production
interface with buy side supply chain
-
Service/production interface with sell side supply chain
-
Service/production interface with corporate enterprise
- Corporate
enterprise interface with buy side supply chain
-
Corporate enterprise interface with sell side supply chain
From
an IT point of view, these interfaces should be examined with the following
questions in mind:
- Are
the appropriate data elements available to exchange information through the
interface? In other words, do we have the right information moving through
the interface?
-
Does information transfer through the interface fast enough to meet business
requirements?
-
Is the information accurate enough to use for business decisions?
-
Will improvements in data availability, speed, and accuracy return economic
value ?
Using the Results
The benefit of
a simple initial framework is that it can be used to compare business initiatives
with the current IT projects. At a top line level, just marking the current
enterprise strategic objectives and all the current IT projects on figure 1
will give a graphic representation of the alignment between IT resources and
business initiatives.
Using this framework,
it may be interesting to see where the enterprise strategic objectives fall
on the framework. If they mostly fall within departmental jurisdictions and
not at the organizational interfaces, the IT manager will have a more difficult
job convincing the organization to move some priorities out to the organizational
interfaces.
Conclusions
IT
alignment and ROI from IT projects are two sides of the same coin. If IT isn't
aligned with the corporate strategic objectives, the ROI associated with those
projects will not be attributed to IT. If IT generates projects that have high
ROI but are not aligned with corporate strategic objectives, IT will not get
credit for their contribution. IT leaders should consider initially developing
simple frameworks for evaluating the extent to which they are aligning with
corporate strategic objectives. The graphic framework we have described could
be used as a starting point for integrating IT into the corporate planning process.
Once corporate strategic objectives are well understood, IT can move to incorporate
improvements in the interface and process flows that will impact the corporate
objectives, thus helping to increase the ROI from IT investments.
In
Memoriam
Bill
Friend was a consultant, writer, and speaker who specialized in the
application of IT to business problems in the process industries. He was a principal
of WR Friend & Associates and had over twenty-five years executive experience
in food and chemical manufacturing. Bill co-wrote a monthly
column "Managing Software" for Food Engineering (www.foodengineeringmag.com)
and was a co-founder of the Food, Chemical and Life Science CIO Forums found
at www.foodcioforum.com,
www.chemcioforum.com,
and www.lifesciencecioforum.com.
He
was a colleague and valued contributor to the TEC site. He will be missed.