In the almost 25 years we have been working on IT alignment with business, we have uncovered some truths that lead to the consistent failure of IT to successfully align with business. I say failure, because algnment has remained a top goal of both business and IT senior managers for decades and yet the number of organizations that have achieved and maintained alignment is very small. (See CIO Insight, March 2007, "The Eternal Priority" by Allan Alter - "Yet again, alignment is the top priority for CIO's". "Alignment rises to the top because it's at the heart of business technology".)
These discusions are intended to explore the reasons behind the difficulty in implementing IT alignment. We will share our knowledge and experience garnered over these last decades and invite comments and input from those who have succeeded (yes, there are some), those who are/were unable to maintain, those who are in the process, and those who have lessons to share.
In an effort to get this dialog started I submit the following observation from among out top 10 failure factors:
SUCCESSFUL IT ALIGNMENT IS NOT ACHIEVED BASED ON WHAT YOU SPEND. It is not how much you spend, but what you choose to spend it on.
In all our years of research and work with alignment in hundreds of organizations, we have found only two that did not spend enough on IT to meet their goals. However, we have found only a handful of organizations that focus their IT investment dollars on the things that would make the business more successful -- enable their business goal achievement.
Organizations have spent huge efforts trying to determine if they are spending the right amount on IT. The answer is simple: If you are spending enough dollars to support the IT projects that will enable the top business goals of each function within the organization and on the IT infrastructure to enable its 3 to 5-year strategic vision, you are spending the correct amount of dollars. If you cannot afford to fund the IT support for all the top goals of each business function, the prioritization process is again very simple -- fund the projects that achieve the highest priority business goals.
We gather data on the three top goals of the managers in each unit of the organization. We have found that most organizations are financially unable to fund IT for more than the top two priority goals for each business function. In some cases, not all the 2nd level priority business projects can be fully IT funded. However, all top priority goals projects should be funded. The process is a give and take, but IT funding decisions made based on the impact on the business strategic plan.
The process is also a dynamic rather than static process. We have discovered over the years that by the time the ink is dry on a strategic plan, business goals have changed. The changes may be due to market, industry, economic, political, legal, or any number of other reasons. However, what is important is that the IT and business teams at all levels constantly revisit these goal shifts and determine whether the business projects underway should be continued, changed in priority, or abandoned. IT needs to be agile and able to reassign resources based on, at least, a quarterly review to minimize IT lag with business goals.
This brings up the issue of long-term IT projects such as ERP, etc. Should business and IT undertake these projects? Absolutely!!! However, funding these long-term projects should NOT preclude the funding of those IT projects required for successful short-term goal achievement. To do so is to risk organizational decline and, in the case of the private sector, diminished profitability. Those organizations that have focused IT funding solely on long-term projects have experienced (in addition to lower profits), job losses, market share declines, outsourcing of IT, and many other unpleasant outcomes. Big, long-term projects (like ERP) require infusions of additional IT resources in order to service the ongoing business.
So: How does the CIO maintain alignment currency on actual business goals and retain enough spending freedom to do the quick, high-payoff projects?
We invite anecdotes, stories, comments, observations, critique, expansion, or any other dialog on the above and look forward to a lively discussion and/or debate on this topic.
IT Alignment - A Dialog Sponsored by: CogniTech Services Corp. See website at: www.cognitechcorp.com
6 comments:
I couldn’t agree more. It is vital that whatever is spent on IT, whether a lot or a little, is spent where it will do the most good – and that is on those things that will enable the business to meet its most important goals.
I worked for many years in senior IT management for a major global organisation that used the CogniTech approach, and have experienced both tremendous successes and sad failures, and I can attest to the fact that the difference was not related to the amount spent on IT. It was always to do with how well-aligned the IT projects were with the priority goals of the business.
To achieve and maintain this alignment requires an understanding of the top goals of the business and a process by which they are regularly reviewed in order to maintain the IT focus on the top goals as they change. But even with the best will in the world this can still come unstuck.
A sudden change of senior management, or a change of ownership of the business can quickly undo years of good work with loss of support for the alignment process, if it has not become institutionalised as “just part of the way we do things around here” throughout all parts of the business.
One major problem with big ERP implementations is that they are often imposed on a business from above, from the parent company or from the corporate centre. In these cases, there is rarely the recognition that the ERP implementation will take resources away from the IT projects that are focused on supporting the current business goals. This is a particular problem when the new ERP system is replacing an existing system that has served the business well for many years and with which the business is familiar and happy. I have experienced this, and have seen the IT alignment plummet from well above average to way below par in a matter of 18 months, with all the problems you could imagine associated with such a drop.
Alignment is a means not an end. The end goal has to be creation of value through use of information systems. Management and IT need to rigorously evaluate their IT choices against value-added criteria. If they work at this process, alignment should improve.
One big obstacle to alignment, beside the process issue, is often management views that stop real discussion of IT value-added opportunities. Typically, top management adopts a cost-optimization strategy for IT. Enforced with vigor, this strategy functions as a straitjacket on the organization. Very quickly people learn to quit thinking of ways to create value and focus on how to lower costs. This behavior kills off credible cost-benefit analysis and misalignment occurs.
I know of no way to wake up top management when such a situation occurs. Only after a systems train wreck or a competitor emerges with new tools is it possible that management may wake up. The omniscient manager has a lot to learn in these environments.
Rob: Thanks for your input. Perhaps the following caselet from CogniTech's experience can best illustrate your point about abandoning current alignment with business goals even for necessary long-term change.
ERP Case
This company used CogniTech' IT Contritution measure annually over three years. This is a UK-based worldwide service/manufacturing company located in 20 countries with average revenue of $1 Billion.
After its first measurement in the US subsidiary of this company, CogniTech's goal alignment process (Planning Interaction) was widely implemented throughout the US branch. Realignment between IT projects and business goals was widely effected and the IS Contribution score increased from 47.7 (below the IT impact level of 48) to 52.4. Profits over and above those that would have accrued from industry average increases were $37 Million after the first year.
The success of the US firm came to the attention at the UK Headquarters the result being that the goal alignment methodology was rolled out worldwide. However, the US company remained their top performer.
In the ensuing year, the UK CIO determined that an ERP system would be implemented worldwide and that the US company would be the first to implement. By edict, all IT projects were put on hold. Planning Interaction was abandoned (if nothing was to be done but ERP there was no need to meet with business managers to realign IT projects with business goals). In the third measurement, the IS Contribution score dropped from 52.4 to 48.6. More important is what happened to profit. The industry profit margins continued to increase with the average growing by .6%. However, the US company’s profit margin declined by 4% resulting in a reduction in profit margin of $47 Million.
Results: First, the US company's senior business managers received no benefits from the ERP systems during the first 18 months of the process (the first year was spent "studying" the business so the chosen system could be customized.) In addition no other IT work was performed. Consequently, the business managers rejected the ERP system and refused to fund its implementation.
Second, the US CIO was fired.
Third, the UK CIO was replaced.
Fourth, the US company lost ground to its US competitors and declined in market share from which it has not recovered.
Fifth, the company's profit margins have not recovered. This is a clear indication that when IT projects are kept aligned with business projects (prioritized based on business goals through frequent reassessments), the company is more profitable.
Sixth, timing and lost opportunities may not at times be recoverable.
Tex: You make a very important point. Another of the "failure factors" to achieve or maintain IT alignment is the failure to recognize that it is a continuous process and never finished. In our experience, alignment needs to be re-examined at least annually. Most organizations successful in maintaining alignment re-examine quarterly.
Another point you make is too little recognized. IT should be managed based on its contribution rather than cost. Funding those IT projects that, in your terms, add value to the company (in our terms - that enable business goals), is the basis for funding and management. No fixed amount of budget or % of revenue can achieve that.
You are right to point out that such artificial funding mechanisms short circuit value-added thinking. Rather than processes that force a rigorous analysis of value and enhance creative thinking around value, artificial cost criteria turn the IT project identification and prioritization process into a political debate.
I don't want to believe that senior management cannot awake to these realities. If the failure to recognize can be laid at the correct causal doorstep, senior management can be made to understand that IT alignment is critical and that there are no "silver bullets" -- there is no one time fix, no system, no piece of hardware that can do it alone and forever. Alignment is continuous work between IT and business managers.
So: How does the CIO maintain alignment currency on actual business goals and retain enough spending freedom to do the quick, high-payoff projects?
Success requires two achievements: do the right things and do things right.
“Doing things right” is a criterion for all of the IT activities in which we can observe and adopt “best practices” as we understand them. Best change management, best performance monitoring, measurement, and reporting, best problem isolation and remedy, best user support, best hardware and software procurement processes, best staff selection, training, and monitoring, best asset and cost management, and so forth. The professional expertise of the CIO is the company’s assurance that things (in IT) will be done right. This portion of the CIO’s job is concerned with sustaining, maintaining, and reducing the risks involved in doing today’s business as we have decided to do it.
“Doing the right things” is a criterion primarily involved with the IT activities which redesign, change, and transform the way the enterprise is doing business today. There are also best practices associated with these transformation activities (technology assessment, software evaluation and selection, process reengineering, systems design etc), but these best practices are rarely the issues around which debate, conflict, and uncertainty develop. Project selection, not project execution, is the area in which alignment issues tend to arise.
In my experience, large organizations rarely think about how “sustain” related policies, processes, procedures, activities, investments, and costs should be balanced with “transform” related policies, processes, procedures, activities, investments, and costs. I have observed organizations which were dominated by “sustain” that found it very difficult to adapt to meet the challenge of changing business conditions and I have observed organizations which were so dominated by “transformation” they couldn’t maintain their day-to-day operations without enormous operating risks.
In my opinion, a fact-based dialog among the organization’s senior leadership about where they wish to strike the sustain-transform balance can be a major contributor to better understanding of the strategic business issues. And, of course, such a mutual understanding is at the heart of what we call alignment.
Well we are all in agreement. The issue of pure alignment on a long term basis is a lot like the old logarithmic curve - you get close -but perfection is almost impossible.
The view of IT being a cost center is driven by prevailing industry vertical economics and surprise surpise - people (the decision makers and the doers) (eg: in the mining commmodity market) in a bullish period as is the case now -IT have a window of opportunity (an assisted ride you could say) to get momentum. The need is there (business pull factor is hard to manufacture artifically) and the funds are there. The missing piece is the alignment to deliver on the right projects.
The key for me is you need to have an undisputed "credit bank' with the business. This can only be built up via "doing what you say you will do and delivering".
IT need to mirror and ideally integrate with the same decision making processes the main stream business runs with. Eg: For new contruction projects there is a tollgating process to move through to validate and make clear - both the business outcomes and the effort to achieve. Alignment happens and is measured (success) as a byproduct of this type of process.
The challenge for CIO (and hasn't this always been the case) is to be positioned as peer in the Executive Team and from my experience someone who is prepared to put personal creditibility on the line to build the "Credit Bank" for the good IT overall.
Agree with Rob - unless the process is institutionalised, the CIO will have to continually rebuild around stakeholders. (Like it or not though, working and continually maintaining relationships is a key part of the CIO).
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