I have just read an article on the "CIO Insight" website that reflects the utter confusion about what IT Alignment really is. In this article (see "Companies Falter at Aligning IT to Business" by Brian P. Watson at: click here to go to article:, the author differentiates between IT effectiveness and IT alignment.
By all accepted definitions, IT effectiveness is defined as "IT doing the right things" rather than doing things right (which is efficiency). Accepting that definition for IT effectiveness, it has been our experience that IT alignment and IT effectiveness are two sides of the same coin - therefore, they cannot be in conflict.
If IT is doing the right things, they are aligned with business strategy because the business strategy defines the "right things" that business should be doing and IT should be supporting.
Therefore, if you have a measure of IT effectiveness, you have a measure of IT alignment.
Our measure of IT Alignment/IT Effectiveness shows how well IT is supporting the top 3 business goals of senior business managers. We have tracked that measure for almost 25 years in almost 200 organizations and it has been consistent with improved profit margins, ROI, EPS, etc.
The definition of IT effectiveness used in this article is as follows: "getting projects done as specified, on budget and on schedule". This definition is consistent with the accepted definition of IT efficiency - e.g. how well it is doing the things it is doing -- doing things right.
According to this definition of IT effectiveness in this article is actually IT efficiency. As such, I completely agree with the results of the Bain survey quoted in the article as they are consistent with our data collected over this last 25 years. However, instead of comparing IT effectiveness and IT alignment, the article is actually dealing with IT efficiency and IT alignment -- two very different things.
Thursday, September 20, 2007
Thursday, September 13, 2007
IT Alignment Failure Factor - #4 & #5
I have not been posting the IT alignment failure factors in any sort of priority order but instead, responded to articles. One on the InformationWeek Blog site intrigued me -- "Are CIOs Disappearing?' by Bob Evans ( see original InfoWeek Blog article:). In this article, he points out the big drop in the number of CIOs listed among top management on business websites. I have left a comment on the blog site, but the following is a more in-depth analysis:
Failure reason #4: IT needs to report at the correct level of the organization and be managed on the correct criteria.
Over hundreds of organizations we have consistently found that IT needs to report at high level in the organization -- preferably to the CEO or COO. There have been cycles over the years of IT reporting to the CFO. These cycles have generally been consistent with business downturns and downsizing when IT is being managed on the basis of cost.
It is critical that IT be managed based on its contribution to the organization rather than solely on cost. IT can contribute equally to revenue-increasing projects, quality improvement projects, competitive advantage projects as they can to efficiency and cost control projects.
IT budgets should be based on the IT projects required to be completed in order for the business to successfully achieve its top goals and objectives. This cannot be achieved by setting an arbitrary dollar amount, but must be based on the business/IT projects that must be completed for the business to profitable or meet its mission objectives.
In our experience, organizations that are adequately aligned have no IT budget issues. Projects get funded rather than IT organizations.
When the CIO does not report at a high enough level results in yet another typical failure factor:
Failure reason #5: IT not involved with the business planning process.
Of all the failure reasons this one probably has the biggest impact.
If IT does not sit at the table as equals with business managers during planning they cannot bring the technical capabilities and solutions to the business goals. In fact they cannot even clearly understand the goals themselves in order to provide the IT expertise upon which business success is now so critically dependent. Our data shows that less than 2% of business projects can be successfully completed without IT contribution. When IT participates in planning and conducts the type of alignment (Planning Interaction) meetings and processes we recommend, profitability and other outcome measures improve significantly. In fact, companies we have tracked that have implemented these procedures have experienced over $1.5 Billion higher profits over the years tracked. Companies that have succumbed to one or more of the failure reasons above have registered declines in profitability over the years tracked.
Let me know your thoughts.
Failure reason #4: IT needs to report at the correct level of the organization and be managed on the correct criteria.
Over hundreds of organizations we have consistently found that IT needs to report at high level in the organization -- preferably to the CEO or COO. There have been cycles over the years of IT reporting to the CFO. These cycles have generally been consistent with business downturns and downsizing when IT is being managed on the basis of cost.
It is critical that IT be managed based on its contribution to the organization rather than solely on cost. IT can contribute equally to revenue-increasing projects, quality improvement projects, competitive advantage projects as they can to efficiency and cost control projects.
IT budgets should be based on the IT projects required to be completed in order for the business to successfully achieve its top goals and objectives. This cannot be achieved by setting an arbitrary dollar amount, but must be based on the business/IT projects that must be completed for the business to profitable or meet its mission objectives.
In our experience, organizations that are adequately aligned have no IT budget issues. Projects get funded rather than IT organizations.
When the CIO does not report at a high enough level results in yet another typical failure factor:
Failure reason #5: IT not involved with the business planning process.
Of all the failure reasons this one probably has the biggest impact.
If IT does not sit at the table as equals with business managers during planning they cannot bring the technical capabilities and solutions to the business goals. In fact they cannot even clearly understand the goals themselves in order to provide the IT expertise upon which business success is now so critically dependent. Our data shows that less than 2% of business projects can be successfully completed without IT contribution. When IT participates in planning and conducts the type of alignment (Planning Interaction) meetings and processes we recommend, profitability and other outcome measures improve significantly. In fact, companies we have tracked that have implemented these procedures have experienced over $1.5 Billion higher profits over the years tracked. Companies that have succumbed to one or more of the failure reasons above have registered declines in profitability over the years tracked.
Let me know your thoughts.
Thursday, September 6, 2007
IT Alignment Failure Factor - from Cutter Consortium article
An article from the Cutter Consortium by Bob Benson and Tom Bugnitz entitled "Engaging Business Management" outlines a failure factor they have observed in organizations attempting to align IT with business. This failure factor is summarized in the following quote from the article: " We continue to confront a basic problem in IT management: business managers aren't much intrested in participating in prioritization alignment, and planning exercises for IT.... While the corporate CFO, and possibly the CEO do worry about IT costs, individual business unit managers who consume IT services simply aren't interested."
The authors attribute this lack of interest to the fact that, "IT costs represent only 2%-5% of the total company budget." Their recommendation is to:
"1. Get the IT cost comparisons right
2. Focus on making IT cost decisions"
Unlike these authors, we have not had difficulty in engaging the business unit managers in alignment exercises unless IT's credibility is below the critical threshold (see CogniTech's website at http://www.cognitechcorp.com for more on IT Credibility). We find business managers are willing to engage with IT in alignment work when the meeting is focused on identifying the capabilities and projects IT can bring to the business manager's goal accomplishment. Business managers are eager to find out what IT can bring to the table to enable them to successfully complete their goals. They are less interested in meeting with IT to prioritize a list of IT projects - regardless of where the list originated. Meetings in which IT projects are jointly identified by business managers and IT managers do not require additional prioritization meetings since the goal priority establishes IT project priority.
While I agree with the authors that it is important that the IT cost metrics and cost decisions are right -- the importance of IT to the organization resides more in IT's ability to leverage every function of the organization and the organization as a whole to perform better and to achieve its goals. The measure for this leverage is found in a measure of IT Contribution rather than cost. (See Gartner publication "Realizing the Benefits of Project and Portfolio Management", Matt Light, Bill Rosser, Simon Hayward, January 2005 - and CogniTech publications on our website http://www.cognitechcorp.com).
The authors attribute this lack of interest to the fact that, "IT costs represent only 2%-5% of the total company budget." Their recommendation is to:
"1. Get the IT cost comparisons right
2. Focus on making IT cost decisions"
Unlike these authors, we have not had difficulty in engaging the business unit managers in alignment exercises unless IT's credibility is below the critical threshold (see CogniTech's website at http://www.cognitechcorp.com for more on IT Credibility). We find business managers are willing to engage with IT in alignment work when the meeting is focused on identifying the capabilities and projects IT can bring to the business manager's goal accomplishment. Business managers are eager to find out what IT can bring to the table to enable them to successfully complete their goals. They are less interested in meeting with IT to prioritize a list of IT projects - regardless of where the list originated. Meetings in which IT projects are jointly identified by business managers and IT managers do not require additional prioritization meetings since the goal priority establishes IT project priority.
While I agree with the authors that it is important that the IT cost metrics and cost decisions are right -- the importance of IT to the organization resides more in IT's ability to leverage every function of the organization and the organization as a whole to perform better and to achieve its goals. The measure for this leverage is found in a measure of IT Contribution rather than cost. (See Gartner publication "Realizing the Benefits of Project and Portfolio Management", Matt Light, Bill Rosser, Simon Hayward, January 2005 - and CogniTech publications on our website http://www.cognitechcorp.com).
Thursday, August 16, 2007
We commend an article for your review
There is a very good article in the August, 2007 issue of Baseline magazine entitled, "The CIO and CEO, In Sync", by Robert Hertzberg. In it, he lists the "10 core principles" for making IT alignment work. For those of you familiar with our work, these will look very familiar indeed. For others, this is a good starting list.
Comments:
1. I would have some disagreement in the priority order of the items listed, but none with those listed.
2. Certainly the list is not exhaustive as there are some items more important than some of those listed. A couple of these include:
- IT and business working together as a team to identify and prioritize IT projects based on business strategic goals.
- Dynamic review of IT projects against changing business goals (quarterly at best and at least twice a year).
3. On his "Best Practice #2 - Establish an IT Steering Committee" -- We certainly agree with this one. In fact, it is this group that has the power to keep IT and business aligned with business goals (supported of course by the IT/business teams within each of the business units.)
4. "Best Practice #6 - Install a high-level IT liaison in every business unit" -- To us this is the IT team member of the IT/business team within each unit that initiates IT projects for review by the IT Steering Committee. The mixed results we have experienced with these liaisons usually arise because either the wrong individual is assiged, they are assigned at the wrong level, they are given too little authority, or they are given no budget.
5. "Best Practice #4 - Measure the right things" -- of course we think this in critical. You manage what you measure and if IT alignment is not measured you can't manage it.
6. "Best Practice #7 - Distribute a list of ongoing projects to the business as well as IT" -- this is OK as long as these projects don't take on a life of their own and become sacred. When goals change, IT and business must be willing to move on from previously blessed projects.
7. "Best Practice #9 - Create multi-discipliniary teams for high-priority projects" -- When this is done properly, I have seldom seen a project fail. Properly includes (as the author points out) co-location of the team members as well as one point not included e.g. rotating team leadership between IT and business managers depending upon the project's timeline. For example, Business lead during design and IT lead during development etc.
But all-in-all, I commend this article to you. We invite your comments.
Comments:
1. I would have some disagreement in the priority order of the items listed, but none with those listed.
2. Certainly the list is not exhaustive as there are some items more important than some of those listed. A couple of these include:
- IT and business working together as a team to identify and prioritize IT projects based on business strategic goals.
- Dynamic review of IT projects against changing business goals (quarterly at best and at least twice a year).
3. On his "Best Practice #2 - Establish an IT Steering Committee" -- We certainly agree with this one. In fact, it is this group that has the power to keep IT and business aligned with business goals (supported of course by the IT/business teams within each of the business units.)
4. "Best Practice #6 - Install a high-level IT liaison in every business unit" -- To us this is the IT team member of the IT/business team within each unit that initiates IT projects for review by the IT Steering Committee. The mixed results we have experienced with these liaisons usually arise because either the wrong individual is assiged, they are assigned at the wrong level, they are given too little authority, or they are given no budget.
5. "Best Practice #4 - Measure the right things" -- of course we think this in critical. You manage what you measure and if IT alignment is not measured you can't manage it.
6. "Best Practice #7 - Distribute a list of ongoing projects to the business as well as IT" -- this is OK as long as these projects don't take on a life of their own and become sacred. When goals change, IT and business must be willing to move on from previously blessed projects.
7. "Best Practice #9 - Create multi-discipliniary teams for high-priority projects" -- When this is done properly, I have seldom seen a project fail. Properly includes (as the author points out) co-location of the team members as well as one point not included e.g. rotating team leadership between IT and business managers depending upon the project's timeline. For example, Business lead during design and IT lead during development etc.
But all-in-all, I commend this article to you. We invite your comments.
Tuesday, July 31, 2007
IT Alignment Dialog - Failure Factor #3
This is perhaps the most frequent and the most controversial of the failure factors we have uncovered in the last 25 years.
Failure reason #3: Managerial, cultural and attitudinal roadblocks.
While both business and IT prefer the view that all IT issues can be resolved with a technical solution, the truth is unfortunately very different. Most of reasons for failure of IT and business to align are not technical in nature. Primarily they revolve around territorial issues, management capability, management resistance, attitudes, and/or cultural conflicts such as:
1. The things we need to do are too hard, take too long, don't know how, too risky, not my job, don't have authority
2. We don't need to do anything because we are aligned (our data show that 90% are not and 10% are only partially)
3. Don't want or fear of a report card
4. The IT and business managers have relationship issues (personality or cultural) and can't/won't work as a team
5. Territorial -- Fear that sharing information will result in loss of power, influence, etc.
6. Business managers do not believe IT can execute even if funding is adequate
7. Business and IT managers want a one-shot, silver-bullet, forever fix (Not going to happen)
In the past, unfortunately, IT and business had an adversarial rather rather than a team relationship. The fault in the past was on both sides. IT professionals harbored a deep (but unspoken) set of beliefs that they "knew best" because for several decades only they could use and understand the computer. Business managers resented their dependency.
The state of technology is now such that everyone has a "working" knowledge of computers and systems. Therefore, business managers want to take back control -- but, they can never be IT specialists enough to avoid disasters.
Alignment requires both IT and business to work together as seamlessly as marketing and sales, finance and operations, etc. IT cannot and should not operate in a vacuum -- business cannot and should not design IT projects. Teaming together, IT can bring the best solution to the business manager's projects to maximize efficiency, effectiveness, and success.
In short, in today's world there is no room for these problems. If they exist, they need to be identified and rectified. If the problems are cultural or personality conflicts -- bring them into the open and bridge or resolve them. If the problems are managerial, territorial, or attitudinal -- resolve or replace people. If doing the work to get aligned is too hard etc, get help to do it or get over it.
What are your thoughts, experience, stories.....
Failure reason #3: Managerial, cultural and attitudinal roadblocks.
While both business and IT prefer the view that all IT issues can be resolved with a technical solution, the truth is unfortunately very different. Most of reasons for failure of IT and business to align are not technical in nature. Primarily they revolve around territorial issues, management capability, management resistance, attitudes, and/or cultural conflicts such as:
1. The things we need to do are too hard, take too long, don't know how, too risky, not my job, don't have authority
2. We don't need to do anything because we are aligned (our data show that 90% are not and 10% are only partially)
3. Don't want or fear of a report card
4. The IT and business managers have relationship issues (personality or cultural) and can't/won't work as a team
5. Territorial -- Fear that sharing information will result in loss of power, influence, etc.
6. Business managers do not believe IT can execute even if funding is adequate
7. Business and IT managers want a one-shot, silver-bullet, forever fix (Not going to happen)
In the past, unfortunately, IT and business had an adversarial rather rather than a team relationship. The fault in the past was on both sides. IT professionals harbored a deep (but unspoken) set of beliefs that they "knew best" because for several decades only they could use and understand the computer. Business managers resented their dependency.
The state of technology is now such that everyone has a "working" knowledge of computers and systems. Therefore, business managers want to take back control -- but, they can never be IT specialists enough to avoid disasters.
Alignment requires both IT and business to work together as seamlessly as marketing and sales, finance and operations, etc. IT cannot and should not operate in a vacuum -- business cannot and should not design IT projects. Teaming together, IT can bring the best solution to the business manager's projects to maximize efficiency, effectiveness, and success.
In short, in today's world there is no room for these problems. If they exist, they need to be identified and rectified. If the problems are cultural or personality conflicts -- bring them into the open and bridge or resolve them. If the problems are managerial, territorial, or attitudinal -- resolve or replace people. If doing the work to get aligned is too hard etc, get help to do it or get over it.
What are your thoughts, experience, stories.....
Monday, July 30, 2007
What is IT Alignment
IT Alignment continues to be a hot topic as evidenced by at least one article on IT Alignment showing up in almost every issue of any IT magazine. In the lastest issue of CIO magazine an article entitled "The Fabric of the Company" led me to address the question, "What is IT Alignment". It seems every article I read has a different "take". In the article mentioned, the definition provided by the CEO of a leading textile company indicated he knew his IT was aligned with his business because, "I have data to make decisions."
Other definitions we encounter include:
"Business and IT are aligned because we only do projects requested by business." (Does business always ask for the right projects - our data says No!)
"We are aligned with new product development." (Is new product development the only need for the business as a whole - our data says focusing on one aspect of business leads to poorer overall alignment.)
"We are aligned because we have a request system which is subjected to a rigorous top management prioritization process." (Still depends on the right projects getting into the prioritization hopper and the luck of the power struggle in the prioritization process for IT $.)
"We aligned with the implementation of an ERP system." (How long ago was the implementation of the ERP and how dynamic is it to business changes - our data shows this long term solution does not address the fast dynamic business changes of todays world.)
The definitions vary but the one we have found best over the last 25 years is:
IT is aligned with business when IT projects leverage and remain in sync with business strategy and goals.
The test for this definition of IT alignment is:
IT's contribution or leveraging of business goals consistently impacts profitability, ROI, ROA, or some other objective business outcome measure.
What is your definition of IT Alignment?
Other definitions we encounter include:
"Business and IT are aligned because we only do projects requested by business." (Does business always ask for the right projects - our data says No!)
"We are aligned with new product development." (Is new product development the only need for the business as a whole - our data says focusing on one aspect of business leads to poorer overall alignment.)
"We are aligned because we have a request system which is subjected to a rigorous top management prioritization process." (Still depends on the right projects getting into the prioritization hopper and the luck of the power struggle in the prioritization process for IT $.)
"We aligned with the implementation of an ERP system." (How long ago was the implementation of the ERP and how dynamic is it to business changes - our data shows this long term solution does not address the fast dynamic business changes of todays world.)
The definitions vary but the one we have found best over the last 25 years is:
IT is aligned with business when IT projects leverage and remain in sync with business strategy and goals.
The test for this definition of IT alignment is:
IT's contribution or leveraging of business goals consistently impacts profitability, ROI, ROA, or some other objective business outcome measure.
What is your definition of IT Alignment?
Thursday, July 5, 2007
IT Alignment Dialog - Failure Factor #2
We will continue to post a list of factors that in our experience contribute to the failure to implement or maintain IT Alignment with business goals. To see all the factors listed to date, review previous posts.
IT Alignment Failure reason #2: Belief that IT is only a cost center and cannot make a difference in business outcomes (profit, market share, ROE, ROA, mission accomplishment).
I admit that this one baffles me and I sense it baffles some of those posting comments to this blog. But, in the almost 25 years of working in this domain I am forced to recognize its reality. I hark back to a presentation made at one of the top IT research organizations where CIO's from most of the largest organizations were in attendance. When presented with evidence that IT can make a significant impact on profitability they expressly refused to believe it. A direct quote from one of the top CIO's in the nation was: "How can we make such a big difference in profit margin when we cost only 1-2% of revenue." I was stunned. How could an expert in any field desire to deny that they have an impact on outcomes? How could any top manager fail to understand that leverage on revenue, profit, and profit margin can or is in many cases disproportionate to its cost - that is in fact the basis of profitability (Revenue minus Expense)?
Even managers in businesses we have worked with that have become aligned, can fall prey to "cost center" thinking. The CEO of one company we worked with that enjoyed tremendous success in aligning IT with business goals which resulted in improved profit margins asked the following question of his CIO: "When will we be able to cut IT spending while we keep the competitive advantage generated by IT?" "Never." responded the CIO. "Only by managing IT based on contribution which means funding the IT projects in support of the top prioritized business goals, can we keep our competitive advantage - we can't just set some artificial level of IT spending and expect to remain an industry leader." Both we and the CIO were mystified since the spending on IT had resulted in many times its cost in increased profit. But it illustrates that "cost center" thinking, even for those that have seen the results of managing IT based on contribution, is a tough mind set to break.
If CIO's (CEO's, CFO's etc) do not believe that aligning IT with business will make an impact on profitability or any other outcome measure, then where is the incentive to align.
IT Alignment Failure reason #2: Belief that IT is only a cost center and cannot make a difference in business outcomes (profit, market share, ROE, ROA, mission accomplishment).
I admit that this one baffles me and I sense it baffles some of those posting comments to this blog. But, in the almost 25 years of working in this domain I am forced to recognize its reality. I hark back to a presentation made at one of the top IT research organizations where CIO's from most of the largest organizations were in attendance. When presented with evidence that IT can make a significant impact on profitability they expressly refused to believe it. A direct quote from one of the top CIO's in the nation was: "How can we make such a big difference in profit margin when we cost only 1-2% of revenue." I was stunned. How could an expert in any field desire to deny that they have an impact on outcomes? How could any top manager fail to understand that leverage on revenue, profit, and profit margin can or is in many cases disproportionate to its cost - that is in fact the basis of profitability (Revenue minus Expense)?
Even managers in businesses we have worked with that have become aligned, can fall prey to "cost center" thinking. The CEO of one company we worked with that enjoyed tremendous success in aligning IT with business goals which resulted in improved profit margins asked the following question of his CIO: "When will we be able to cut IT spending while we keep the competitive advantage generated by IT?" "Never." responded the CIO. "Only by managing IT based on contribution which means funding the IT projects in support of the top prioritized business goals, can we keep our competitive advantage - we can't just set some artificial level of IT spending and expect to remain an industry leader." Both we and the CIO were mystified since the spending on IT had resulted in many times its cost in increased profit. But it illustrates that "cost center" thinking, even for those that have seen the results of managing IT based on contribution, is a tough mind set to break.
If CIO's (CEO's, CFO's etc) do not believe that aligning IT with business will make an impact on profitability or any other outcome measure, then where is the incentive to align.
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