Published:
December 20 2011, 09:02 AM
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1 Comment(s)
by
Robert Stroud
We've all seen headlines like this before, but it is time for IT to finally take notice. IT must become a value-driven organization, demonstrating its contribution to the business whether you are publicly traded organization or a government entity. The IT organization has to communicate to the business in business terms NOT IT metrics. This requires that the IT organization become fused with the enterprise, no longer running IT like a separate and untouchable line of the business. In this new IT organization, the CIO could even become the COO or owner of core business processes like Supply Chain Management (SCM). They will have ownership of technology, processes, and most importantly process outcomes -- that will be measured in business, not IT Key Performance Indicators (KPIs).
This is certainly not a new line of thinking - we've been headed down this path for quite some time - but never has it been more imperative for IT to actually heed this advice, or risk becoming completely irrelevant.
Recently I visited a financial organization that has an extensive set of KPIs. Unfortunately, they are all technical metrics and the business didn't see any value in them. Their challenge is to migrate from the traditional IT organization to one that is a value-driven organization. Now that sounds simple on paper but it a little more difficult to do in practice.
So how do organizations transition? First, they need to understand where they are and what their current delivery model looks like. This uncovers insights into where a company is in the innovation cycle and the types of changes that may be required.
Typical characteristics of the different types of IT organizations include:
Traditional IT Organization:
This organization is typically based on ownership of assets and focused on process optimization. IT is typically a cost center and operates as a back office utility that focuses on efficiency with the delivery of predictable and repeatable results. Process reigns supreme. Innovation is supported, but often the business will perceive IT as difficult and adding little value given the pain to innovate.
Running IT Like a Business:
This IT organization uses a service portfolio approach with a focus on meeting Service Level Agreements and captures implicit cost/benefit relationship data that the business expects. It runs like an external service provider with the main objective to comply with performance goals. This organization will measure and report on performance metrics and not business performance indicators.
Value Model IT Organization:
The value model is the most mature. IT is no longer running IT like a business; instead IT is fused with the enterprise. In this model you may often see the CIO becoming COO or owner of core business processes like supply chain, CRM, etc. Ownership of technology, process and process outcomes is handled within one stack, and all reporting is done in terms of business performance KPIs such as profitability of a service in business terms, costs per customer and so on.
Experience tells me that approximately 10% of enterprises are currently in the value-driven state, and perhaps surprisingly, many happen to be in financial services or pharmaceutical industries. Fundamentally these organizations are subject to compliance requirements in financial services and pharmaceutical regulations and commoditization of many of the services offered.
The majority of IT organizations are process based attempting to become service based. The challenge for those that are beyond the Traditional IT model is getting a clear view of the business service and implementing service models that visualize business services. The secret of success with this effort is to accelerate the move to a true service portfolio at the business level first, with clear metrics (including cost) before pursuing extensive process optimization.
In short you need to consider starting over with the portfolio, as you cannot optimize services if you don't know what they are. The secret here is to not attempt to boil the ocean, start small and then add additional services over time, so you have to be selective and prioritize.
What is your experience transitioning from one state to the next? What tips would you share with other IT professionals to help them reach the desired value-driven state?