I am somewhat dismayed with some of the particulars in the article “The State of the CIO 2008” by Kim S. Nash. The author urges CIO’s to “Forget alignment”, and “Stop Talking about Alignment”. See the article and get a free extended report at: Other quotes include, “I don’t talk about aligning customer service operations with the business”, and “The CFO doesn’t talk about financial alignment with the business. So why say ‘align IT and the business?”
Well, a number one rule is – you do what you say and do what you measure. Consequently, not talking about alignment is tantamount to not doing alignment. Furthermore, all support functions do and must align with the business. Finance must align with the business – it certainly can’t use a chart of accounts that is not aligned with the business. Marketing must align with the business – it certainly can’t spend advertising dollars on something the business is not doing. Human Resources must align with the business – it certainly can’t hire brain surgeons to build rockets. The same is true for IT --- it must align with the business it is supporting.
Of all the support functions of the business, IT is the most uniquely positioned to have the greatest impact on the profitability of the business because it supports not just one function, but every aspect of the business. Every function of the business has some different and unique responsibility with regard to the achievement of the business strategic plan (goals). IT (in addition to its own goals to achieve the strategic plan such as develop the IT infrastructure) has a role in aiding each and every one of the individual business functions in achieving their portion of the strategic plan. Thus when IT is aligned with the business, it leverages every function (including operations – the builder of the product, provider of services, etc) in its fulfillment of its business goal responsibilities. No wonder IT has such a large impact on profitability and profit margin.
The same is true of innovation and ROI. These are important concepts the CIO must keep in the forefront of his/her mind, actions, activities, goals, and focus. Not talking about it or “forgetting about it” is a good way for each and every function (not just IT) to fail.
The data in the article is good, the opinions expressed by the author are questionable at best and certainly unsupported by any data contained in either the article or in the extended report.
What do you think?
Friday, January 4, 2008
Monday, December 3, 2007
New articles available from CogniTech
Please forgive me readers for abandoning you for the last few weeks. But Tom (my partner) and I were asked by Cutter Consortium to write a couple of articles for them. Cutter normally charges for access to their posted articles. However, they have generously agreed to provide free access to you my blog readers. Those articles are now available at: click to go to Cutter website.
We chose two related topics. 1) The Agile IT Organization: Diffusion into the IT-Savvy Business, and 2) Agile Alignment. Both articles are posted on Cutter's website in their Business-IT Strategies Advisory Service Executive Update section as Vol. 8, No. 22 and Vol. 10 No. 21.
The articles are too long to post here. However, the Agile IT Organization deals with the evolution of the IT organization from Centralized, to Decentralized, to Dispersion, to Diffusion (with multiple iterations among the choices for most organizations). Centralized and Decentralized need no definitions. The Dispersed organization was defined by us (CogniTech) in the early 90's and is defined as: Dispersing some of the IT functions (for example single function development) into the individual business units. Diffusion as defined by Peter Weill and Sinan Aral of MIT's Center for Information Systems Research as diffusion of IT into the business where IT is done by business users. This requires an IT-Savvy organization defined by the above authors as "an organization in which there is extensive IT use for communication, more digitized business transactions, greater use of the Internet, higher IT skills of both business and IT staff, and more senior management involvement in IT decisions". We discuss the benefits, difficulties, dimensions, and requirements for an agile IT organization.
In our second article, we deal with agile IT alignment and deal with the issue of why (even when an organization can get aligned with business goals) is it so difficult to stay aligned. In essence, we conclude that: "In the grand scheme of things, organizations align to their external worlds by setting goals for achievement. Senior managers set the big goals, while operating managers translate these into their specific operating goals. In a perfect world, these would all point in the same direction and would never change. Reality poses a big problem, however, because external worlds do change, and goals change faster than you can imagine, even in big organizations. So if you had perfect alignment today, you might be out of whack six months or a year from now. Thus, IT-business alignment must be agile -- ever vigilant about shifting business goals." In this article we discuss the process by which IT can maintain alignment.
Please take the opportunity to read these articles in full on the Cutter Consortium website.
We chose two related topics. 1) The Agile IT Organization: Diffusion into the IT-Savvy Business, and 2) Agile Alignment. Both articles are posted on Cutter's website in their Business-IT Strategies Advisory Service Executive Update section as Vol. 8, No. 22 and Vol. 10 No. 21.
The articles are too long to post here. However, the Agile IT Organization deals with the evolution of the IT organization from Centralized, to Decentralized, to Dispersion, to Diffusion (with multiple iterations among the choices for most organizations). Centralized and Decentralized need no definitions. The Dispersed organization was defined by us (CogniTech) in the early 90's and is defined as: Dispersing some of the IT functions (for example single function development) into the individual business units. Diffusion as defined by Peter Weill and Sinan Aral of MIT's Center for Information Systems Research as diffusion of IT into the business where IT is done by business users. This requires an IT-Savvy organization defined by the above authors as "an organization in which there is extensive IT use for communication, more digitized business transactions, greater use of the Internet, higher IT skills of both business and IT staff, and more senior management involvement in IT decisions". We discuss the benefits, difficulties, dimensions, and requirements for an agile IT organization.
In our second article, we deal with agile IT alignment and deal with the issue of why (even when an organization can get aligned with business goals) is it so difficult to stay aligned. In essence, we conclude that: "In the grand scheme of things, organizations align to their external worlds by setting goals for achievement. Senior managers set the big goals, while operating managers translate these into their specific operating goals. In a perfect world, these would all point in the same direction and would never change. Reality poses a big problem, however, because external worlds do change, and goals change faster than you can imagine, even in big organizations. So if you had perfect alignment today, you might be out of whack six months or a year from now. Thus, IT-business alignment must be agile -- ever vigilant about shifting business goals." In this article we discuss the process by which IT can maintain alignment.
Please take the opportunity to read these articles in full on the Cutter Consortium website.
Friday, October 26, 2007
Outsourcing and Innovation
The October 15 issue of CIO Magazine, has a thought provoking article entitled “What Price Innovation?” by Stephanie Overby. In it the author makes the following points:
1. Outsourcers are not motivated to innovate because they make their profit through standardization among clients.
2. If they were somehow motivated, innovation is made difficult because senior business leaders are unable to manage the outsourcer in a manner that encourages innovation-- (our findings are more specific in that senior business leaders are reluctant to share business strategy with a vendor).
3. Contracting for innovation is difficult if not impossible.
4. Vendors will only innovate to the extent it saves them money or helps them introduce new products.
All this confirmed our findings in a survey we completed in 2002 in which we scored the level of and satisfaction with innovation provided by outsourcers. We measured 4 elements of innovation provided by the outsourcer:
1. Product Delivery Innovation – innovation in support of delivering existing products and services
2. Process Improvement Innovation – innovation in support of improvement in existing business processes
3. Competitive Innovation – innovation in support of improving competitive advantage
4. Overall Creativity – generation of new ideas for IT usage within the organization
On a scale of 1-7, the overall score over the 12 organizations and 123 respondents surveyed was 2.7 (1.3 points below an average 4.0 score) on the 4 elements above. The scores ranged from an average low of 2.3 for Process Improvement Innovation to 3.2 on Overall Creativity. However, the innovation factor rated most important by the several hundred respondents was Competitive Innovation with an average score of 2.5. By comparison, the average scores given to the outsourcers in our survey for Delivery to Contract (meeting SLA’s etc.) averaged 4.9 (almost a point above a 4.0 average score) on the same 1-7 scale and 2.2 points higher than their score on Innovation.
The obvious conclusion – IT innovation cannot be successfully outsourced. At minimum, internal IT needs to include keeping abreast of emerging technology and it implications for leveraging business strategy for both the long and short term. Also, IT architecture, standards, and enterprise-wide infrastructures cannot be effectively outsourced. In short, nothing that is strategic to the individual business/organization should be outsourced where innovation and/or leading edge thinking or technology is required.
Give me your thoughts.
1. Outsourcers are not motivated to innovate because they make their profit through standardization among clients.
2. If they were somehow motivated, innovation is made difficult because senior business leaders are unable to manage the outsourcer in a manner that encourages innovation-- (our findings are more specific in that senior business leaders are reluctant to share business strategy with a vendor).
3. Contracting for innovation is difficult if not impossible.
4. Vendors will only innovate to the extent it saves them money or helps them introduce new products.
All this confirmed our findings in a survey we completed in 2002 in which we scored the level of and satisfaction with innovation provided by outsourcers. We measured 4 elements of innovation provided by the outsourcer:
1. Product Delivery Innovation – innovation in support of delivering existing products and services
2. Process Improvement Innovation – innovation in support of improvement in existing business processes
3. Competitive Innovation – innovation in support of improving competitive advantage
4. Overall Creativity – generation of new ideas for IT usage within the organization
On a scale of 1-7, the overall score over the 12 organizations and 123 respondents surveyed was 2.7 (1.3 points below an average 4.0 score) on the 4 elements above. The scores ranged from an average low of 2.3 for Process Improvement Innovation to 3.2 on Overall Creativity. However, the innovation factor rated most important by the several hundred respondents was Competitive Innovation with an average score of 2.5. By comparison, the average scores given to the outsourcers in our survey for Delivery to Contract (meeting SLA’s etc.) averaged 4.9 (almost a point above a 4.0 average score) on the same 1-7 scale and 2.2 points higher than their score on Innovation.
The obvious conclusion – IT innovation cannot be successfully outsourced. At minimum, internal IT needs to include keeping abreast of emerging technology and it implications for leveraging business strategy for both the long and short term. Also, IT architecture, standards, and enterprise-wide infrastructures cannot be effectively outsourced. In short, nothing that is strategic to the individual business/organization should be outsourced where innovation and/or leading edge thinking or technology is required.
Give me your thoughts.
Monday, September 24, 2007
New Survey on IT Alignment
IDG Research has conducted a new survey about IT alignment. The findings published in a white paper at: click here for whitepaper are very consistent with our own data collected over the last 25 years. Some of their findings are as follows:
1. Companies that are well-aligned typically include the CIO or senior IT person as part of the executive committee. (See our Blog post of Sept. 13)
2. In well-aligned companies, IT is brought into new projects from the beginning rather than as an afterthought.
3. Frequent communication between IT and business is essential to successful alignment, and it needs to take place at all levels within the organization.
Other findings include data regarding the importance of IT alignment -- ..."81% say alignment is critical or high priority" and "over 50% say aligning IT with business goals will increase in importance over the next 18 months". Still others cite the IT poor success rate organizations have had with implementing and maintaining IT alignment -- ..."only 15% say they have been very successful at aligning IT and business goals".
The survey finds that, "One of the challenges to alignment is that the actual business goals of the enterprise are not always clear to IT, and they're not always well articulated within the organization as a whole."
How true this is. We have found in our work that as soon as you mention the business strategic goals the business or IT manager's mind leaves their real world and begins company-speak. Furthermore, in our experience, when the business managers requests and IT project, s/he is not thinking about the company goals (one reason why IT project requests are not aligned with business goals) but is thinking about today's big problem.
What is needed and the approach we have used over the years to bypass this problem is to work with the top operational goals for each unit within the organization -- things that have to be achieved in order for their organization/function/etc to be successful. Regardless of what is written in the strategic plan, or communicated by senior management, the operational goals are the ones driving the organization because these are the things the business managers are "doing".
IT therefore has a problem. Whose goals does it align with if operational and strategic goals are inconsistent. By identifying the operational goals, IT, operational business managers, and senior managers, have a means of measuring whether they are on the same page. Let me cite a story as example:
One of our clients in an electrical utility industry who used us over a period of years found in their initial baseline survey that a new unit that had been established to "pursue new business ideas" had operational goals that dealt primarily with getting more efficient and cost reduction and they had few operational goals dealing with revenue increases or competitive advantage. When this data was presented to the Senior Management Committee they were shocked. A discussion among themselves revealed that the business managers they had assigned to the new unit where mainly from the old power generation unit. These managers where unable to get out of their "old think" box in order to accomplish the strategic purpose for which the unit had been established. The Senior Management Committee was unaware until then that these managers were just the wrong people for the job. It was their fault not the fault of the business manager's chosen.
Management changes were made and more entrepreneurial managers put in place. At the next measurement, the goals shift was toward revenue generation and competitive advantage. Because IT had the strategic/operational goals for this unit, it could design projects to quick achieve these goals. The results: new profitable products up within one year and spin-off of a whole new profitable business within a few years.
1. Companies that are well-aligned typically include the CIO or senior IT person as part of the executive committee. (See our Blog post of Sept. 13)
2. In well-aligned companies, IT is brought into new projects from the beginning rather than as an afterthought.
3. Frequent communication between IT and business is essential to successful alignment, and it needs to take place at all levels within the organization.
Other findings include data regarding the importance of IT alignment -- ..."81% say alignment is critical or high priority" and "over 50% say aligning IT with business goals will increase in importance over the next 18 months". Still others cite the IT poor success rate organizations have had with implementing and maintaining IT alignment -- ..."only 15% say they have been very successful at aligning IT and business goals".
The survey finds that, "One of the challenges to alignment is that the actual business goals of the enterprise are not always clear to IT, and they're not always well articulated within the organization as a whole."
How true this is. We have found in our work that as soon as you mention the business strategic goals the business or IT manager's mind leaves their real world and begins company-speak. Furthermore, in our experience, when the business managers requests and IT project, s/he is not thinking about the company goals (one reason why IT project requests are not aligned with business goals) but is thinking about today's big problem.
What is needed and the approach we have used over the years to bypass this problem is to work with the top operational goals for each unit within the organization -- things that have to be achieved in order for their organization/function/etc to be successful. Regardless of what is written in the strategic plan, or communicated by senior management, the operational goals are the ones driving the organization because these are the things the business managers are "doing".
IT therefore has a problem. Whose goals does it align with if operational and strategic goals are inconsistent. By identifying the operational goals, IT, operational business managers, and senior managers, have a means of measuring whether they are on the same page. Let me cite a story as example:
One of our clients in an electrical utility industry who used us over a period of years found in their initial baseline survey that a new unit that had been established to "pursue new business ideas" had operational goals that dealt primarily with getting more efficient and cost reduction and they had few operational goals dealing with revenue increases or competitive advantage. When this data was presented to the Senior Management Committee they were shocked. A discussion among themselves revealed that the business managers they had assigned to the new unit where mainly from the old power generation unit. These managers where unable to get out of their "old think" box in order to accomplish the strategic purpose for which the unit had been established. The Senior Management Committee was unaware until then that these managers were just the wrong people for the job. It was their fault not the fault of the business manager's chosen.
Management changes were made and more entrepreneurial managers put in place. At the next measurement, the goals shift was toward revenue generation and competitive advantage. Because IT had the strategic/operational goals for this unit, it could design projects to quick achieve these goals. The results: new profitable products up within one year and spin-off of a whole new profitable business within a few years.
Thursday, September 20, 2007
IT Alignment Confusion
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.
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 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).
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