Forget IT strategy, it is now all about digital strategy

There has been a quiet revolution going on in organisations over the past decade which has gathered pace this year. Organisational IT is changing beyond recognition. With the widespread use of outsourcing, off-shoring, cloud services (application outsourcing), remote hosting and the rapidly developing automated economy, not to mention the rise of user owned devices and the shifting of IT purchasing and management power out of IT enclaves and into general business, the world of IT strategy is not what it used to be. Indeed organisations still thinking of IT as something to be aligned (proof if ever there was any needed of the 'otherness' of IT are just kidding themselves).

It is now, all about your digital strategy, that is, how will you electronically interconnect and interact with customers, suppliers, employees, government etc. The 'how' of IT is rightly taking a back-seat to the 'what - where - when'. Atlast organisational IT is maturing, it is an area of strategy every manager must now know, and it is as impossible to separate form the activity of business as finance or marketing is.

This is causing major challenges for IT managers and those living in the IT-Business alignment past. It is also a challenge for business schools and others charged with equipping tomorrows managers with the tools they need to lead tomorrows organisations. I have spent my entire career in IT and acknowledge the legacy thinking that I possess. I hope that I can embrace and contribute to the new world of digital strategy, it will be fast and exciting, and organisational IT will never be the same again. 2012 here we come.

David Gwillim

Exploring the value of IT to organisations

email: david.gwillim@optusnet.com.au

Fire all the managers - a measurement solution

The development of bureaucratic management over the past 200 years has built up a whole heap of metrics, budgets, planning and other evaluative mechanisms designed to enhance performance within a functional hierarchy. A key question for me, when I read about alternative business models is how are the measurement and evaluation systems adapted so that desired behaviour is achieved in the new model. After all you get what you measure, and many a business change has failed because the measurement and reward system did not change or was not appropriate. After all you get what you measure?

"First, let's fire all the managers" is the title of management guru Gary Hamel's latest article in Harvard Business Review (citation below). It documents the practices of the Morning Star Company in California that operates 3 major fruit processing plants and is the worlds largest processor of tomatoes. With 400 staff and $700M in revenue such a company would typically have a hierarchy of 50 or so managers. At Morning Star no one has a boss, employees negotiate with their peers, everyone can spend the company's money, each individual is responsible for acquiring the tools they need, there are no titles or promotions and compensation decisions are peer based. Morning Stars vision is to create a company in which all team members "will be self managing professionals, initiating communications and the coordination of their activities with fellow colleagues, customers, suppliers, and fellow industry participants, absent directives from others".

Effective measurement systems are the corner stone of alternatives to the traditional control centric bureaucratic hierarchy. So how does measurement work at Morning Star? For a start employees negotiate with each other over the services and performance levels they will provide to each other. This is similar to internal SLA's that are familiar to many IT managers, the main difference from an IT perspective is that they are reciprocal rather than the typical one-sided internal IT SLA. Morning Star calls these agreements "Colleague Letter of Understanding" and there are 3,000 of them across the company.

Secondly, separate P&L's are created for as many business segments as possible (this is critical in empowering employees so they can determine their contribution to the companies overall results and modify behaviour as necessary - in large and complex business units typical in many big companies it is impossible for individuals to quantify their contribution - and therefore cannot make empowered decisions that are consistent with overall company success) at Morning Star there are 23 separate business units with P&Ls.

Also every staff member creates a personal vision statement that shows how they contribute to the company's overall vision. This seems to me to allow much for more flexibility than the balanced scorecard when it is applied to individuals as due to its format restrictions the individual scorecard often make no sense.

It is fascinating to watch organisations such as Morning Star, Google, WL Gore and others developing alternative management models, with common themes of individual responsibility and team based measurement, I'm sure more will develop in the knowledge economy. To read this article go to hbr.org and register for free, you can download 3 articles per month at no cost. Hamel, G, 2011, "First Lets Fire All the Managers", Harvard Business Review, December 2011.

David Gwillim

Exploring the value of IT to organisations

email: david.gwillim@optusnet.com.au

The widening gap between companies that use IT strategically and those that don't

The first mention I saw about a growing gap between companies that 'get' IT and use it effectively and those that don't was in research published by Meta Group (now part of Gartner) in 2004. They predicted that there would be an increasing gap between internal IT organisations that were strategic in their orientation and those that were operational. They predicted that those that were operationally focused would find themselves outsourced, downsized and had they know then - replaced by cloud applications.

There is plenty of evidence that Meta Group were right. A study published late last year by Accenture titled "Mind The Gap: Insights from Accenture's Third Global IT Performance Study" covering 225 of the worlds largest companies concluded that the gap in performance of IT in high performing organisations was 42% in terms of innovation and 37% for execution. Accenture identified 9 areas that high performing IT organisations excelled at:
1. Strategic IT alignment
2. Effective IT Governance and clear strategic business cases for all IT investments
3. Clear application architecture
4. Focus on information management not technology
5. Implemented a standarised platform and service management approach such as ITIL
6. Effective solution delivery and highly visible project performance
7. Effective workforce management
8. Effective and proactive IT security strategy
9. Intelligent use of outsourcing to access hard to get skill sets and agility

The question as a CIO then, is what do you do if your IT organisation is not viewed as strategic? Is it possible to change thaose perceptions or is a change of employer required?

Also look out for my article in the current issue of CIO Magazine on the challenges for the CIO of the future (Sept-Oct p. 80-81).

Strategic use of IT - Computershare

Continuing with the theme of operational versus strategic IT investment, this week is a brief look at Computershare, an Australian company that started life providing third party share registry services to Australian listed companies. The company has expanded both internationally and into complementary high volume services such as handling parking fines and administration of rental bonds. It has increased revenues 36% over the past 5 years and profit  by 106% and employs 11,000 staff in 20 countries. It really is a great Australian success story.

It's relevance to this blog is that Computershare has used and developed its IT platform extensively to continually automate its processes and services. In short its IT capability forms an integral part of the company's sustainable competitive advantage. Using the analysis developed in this blog over the past few weeks Computershare stands out on some key criteria:

1. The board of directors and senior management take an active interest in IT strategy and spending (none of this reporting via the CFO)
2. IT spending averages 10% of revenue (9.9% in 2011), significantly higher than the 2.2% average for operationally focused IT operations
3. Portfolio management underpins all IT investment decisions
4. The strategic importance of IT is recognised by the board and senior management - it even gets a mention in the annual report to shareholders.
5. R&D makes up 41% of the IT budget compared to industry average of 30%
6. Contractors and outsourced IT is mininimal, 95% of IT manpower is in-house allowing critical knowledge to be developed and protected.

So should you race out and spend 10% of your annual revenue on IT? Well that depends on whether IT is part of your competitive advantage or not. What Computershare illustrates is that IT investment and management should be a series of deliberate decisions consistent with its place in an organisation. Cutting IT costs while claiming IT should be strategic is just plain fantasy, bad management or both.

Is your IT team strategic or operational?

"Do not expect value from a CIO with an operational profile" proclaims KPMG in their report "Cost to Value 2010 Global Survey on the CIO Agenda", but how do you determine what "operational" is?

Last week I provided a simple survey to determine if your IT team has a primarily operational or strategic focus. Of the 15 criteria listed there are 5 criteria that have stood out in my research to-date as being diagnostic, that is companies with a strategic focus almost always have these traits and those that are operational almost never do. The 5 criteria are:

1. Who does the CIO report to?: CIO's that have a reporting line into the CEO or top executives are 70% likely to be strategically orientated. CIO's who report to the CFO or COO are never strategically orientated. This makes sense, if IT is strategic to the business then the CEO wants to be involved, if it is something that should be neither seen nor hear (nor ever break) then it goes to the CFO. Many CIO's seem to forget this and think they can be strategic for behind the CFO, the results suggest otherwise.

2. Are portfolio management techniques used to manage IT investment?: This one surprised me. In 99% of companies with a strategic orientation portfolio management was in use, in operationally focused IT teams it was 11%.

3. When IT investments are being considered what are the key criteria for approval?: 98% of companies with a strategic IT orientation focus on strategic fit, while only 23% for companies with a operational focus.

4. Are IT benefits managed?: For companies with a strategic IT focus 70% actively manage benefits, for operational IT that percentage drops to 0%!

5. Is the CIO focused on value delivery or cost cutting?: 85% of strategically focused CIOs focus on value while only 22% of operational focused companies do.

So what does this all mean? Well, it has significant influence on what the CIO can achieve in a organisation and it also provides a guide as to what the CIO should be focusing on to align with how IT is truly viewed by the executives.

There will be no blog next week, back on the 21st of November.

Strategic IT versus operational IT, how do you tell the difference?

Is your IT team strategic or just keeping the lights on? How would you know? Over the past few years I have been undertaking some research into the role of the IT team within a company. In short, is the IT teams role predominantly strategic (rare) or focused on operations (common)? Many CIO’s consider themselves ‘strategic’ when the rest of the company considers them ‘operational’ and wonder why they feel frustrated and not taken seriously by other managers. Understanding whether IT is strategic or operational in an organisation is the first step delivering better IT services.

To determine whether your IT operation is strategic or operational it is necessary to look at the ‘actual behaviour’ and position of IT in the organisation not the stated strategies or objectives.

Take the following quiz to determine the primary orientation of your IT group. Answer each question as either column A or column B, depending on which answer applies the most:

Count the number of scores for column A and column B. If you answered predominantly A scores then IT has a strategic orientation, if the answer if mostly B scores then IT is operational. The implications of this will be discussed next week as it has a huge impact on the value that the IT team can deliver to the organisation.

Canny homeworkers 'out source' work

I had a fascinating discussion with someone today whose friend is a contract programmer. The friend works from home and where possible sends the work he has offshore to be done, then checks it and uploads it per his contract. Apparently he gets the work done for 30% of his hourly rate so make 60% without doing any work. While sub-contracting is common in production programming, it is not common (or probably expected) in personal contracting.

This raised the question in my mind as to whether home workers (employees) will get in on this and start outsourcing their work to cheaper providers. If you think this is unlikely check out this site that writes academic essays for you (for a fee), the extension of these types of services to doing my job for me is not that hard to imagine. http://www.assignmentmakers.com/Default.aspx

The question that this raises, is how can this happen and how will it be managed in the future? My thesis is that our relationships to work/study is becoming more remote. Historically workers were apprenticed and students met lecturers face to face, therefore it was difficult (not impossible) to fake personal effort. With the coming of the internet the relationship between employee/boss and lecturer/teacher are becoming more and more remote. It will be interesting to see what social system develops to control this. For example contract law developed in England in the 19th century in response to mass production and imports from overseas that broke the traditionally strong relationship between grower/manufacturer and consumer, necessitating a code of conduct (common law contracts) to ensure fair behaviour (as the traditional  'relationship controls' no longer worked). What do you think?