In many organizations, deep and meaningful linkages between business and IT are problematic. Yet such linkages have the power to make or break a business. But it’s not the technology that makes the difference; it’s how business and IT executives weave together and implement the business and IT strategies. These co-authors discuss the four factors that lead to success.
Weaving together business and information technology strategies has always been problematic. IT was the domain of specialists. Systems supported largely financial and backroom functions; however, IT directors were not the sort of people you would usually have around an executive table.
Today, the business significance of information and technology capabilities and assets is higher than ever. IT is something virtually every executive task depends on in some form, and business executives generally are much more involved in decisions about IT. Cash flows are on-line, as are many channels to customers and supply chains. Information security, customer privacy and compliance are all IT-influenced business risks. Assessing information systems is now a key part of due diligence in mergers and acquisitions. The success or failure of large IT-enabled business projects can now make or break a business.
“IT directors” have evolved into chief information officers, and more than one-third report directly to the CEO and are part of the ‘C’ suite. In many organizations, though, deep, meaningful and effective linkages between business and IT continue to be elusive.
Higher demands increase expectations
As business executives have become more appreciative of how IT and systems impact their bottom line and relationships with customers, they have become understandably more demanding. The amount of hype about what is possible with technology doesn’t help. It creates expectations that because a piece of technology is available, it can and should be deployed quickly in the organization what CIOs call the “airline magazine syndrome.” At the same time, there is lingering disaffection with IT from the dot.com bust, the over-expenditure on technology capacity and a lack of good business discipline on project implementation.
From both our own research and in working day-to-day with dozens of executive teams and hundreds of chief information officers, we can confidently say that weaving together business and IT strategy and execution is challenging and will continue to be so in the foreseeable future. The major reasons are grounded in how businesses shape what they do and the difficulties of integrating appropriate technology and systems into this shifting landscape quickly, effectively and at a reasonable price. “On-demand” or “utility” computing might help a little in terms of capacity issues, but it won’t overcome the kernel of the problem.
What matters is how business and IT executives, managers and professionals work together at all levels in the organization. It’s about the vision, motivation, goodwill and persistence of people supported by the effectiveness of relationships and process capabilities around integrating business and technology developments. The technology and systems are not long-term differentiators.
Four factors provide necessary building blocks for business-IT linkages
While many factors contribute to well-integrated business and IT strategy and execution, four in particular provide the necessary foundations:
- A CIO who spends enough productive time with their business colleagues on the need for, and demand for, technology solutions to business problems
- An executive team that takes the time to develop informed expectations for an IT-enabled enterprise.
- Clear and appropriate IT governance-knowing who is responsible for what, so you can make faster, better decisions.
- Taking an IT portfolio management approach, understanding and balancing risk and return.
Taken together these four factors provide the relationship and process platforms necessary to integrate business and IT as well as can be expected. Each factor has certain requirements.
Foundation 1. A CIO who provides leadership on both the demand and supply sides of their role
The right CIO in the right place at the right time greatly enhances a business or government agency. CIOs are often one of the few executives who deal across the whole enterprise and who have some understanding of how all the parts fit together –or should fit together. An effective CIO really understands how the business makes money, how it is (or should be) positioned in the marketplace, and how and where to use business-driven information and technology to deliver good business outcomes. A CIO without the right capabilities for your business can do real harm.
CIOs now need a high level of both technical and business acumen, but that can be a tough combination to find, to develop or to acquire. They also have to deal with some gaps in their credibility-sometimes well-founded, sometimes not. CEOs tend to view CIOs as effective operational leaders, but not as business leaders.
To be considered successful, CIOs need to lead on both the demand and supply sides. But these two sides require different types of leadership. The demand side is about determining the nature of business demand for information and IT. To meet this need, CIOs need to determine the “why” of IT and clarify both reasonable and ambitious expectations-helping business colleagues see what is actually possible today, what are the constraints and tradeoffs, as well as what is unimaginable today, but will be possible tomorrow. We call this process leading with business colleagues, because the kind of leadership exercised here will be that of a team member working among peers. It’s a different kind of leadership than leading from a base of formal power.
On the demand side, CIOs need to create a vision for how IT will both stimulate and support better business strategy for their company or agency. This means understanding the fundamentals of the environment, their industry, and engaging key stakeholders. It requires not just responding to demand, but shaping and managing informed expectations of executive colleagues. The heart of the CIO’s role is shaping and managing informed business expectations by drawing on their vision, business needs and their context- again the tradeoffs. It is about working with executive colleagues to identify critical needs, strategies and drivers, and then articulating the IT guidelines-what we call maxims-necessary to address those needs.
Diligent attention to the demand side of their job ensures that CIOs always have the answer to the questions: Why are we doing this project? How does it link to desired business outcomes? Why are we doing it now?
The supply side is about delivering cost-effective services. To do that, CIOs need to build a lean and focused information services organization. They need to develop a strong IS leadership team, refocus on process-based work, ensure sound financial and risk management, and source capabilities strategically. To bring it all together, CIOs need to be able to communicate their vision, successes and failures, and performance to others and help key Clevel executives articulate the value of IS to the market. All of this is much easier said than done. Being a CIO is one of the toughest jobs there is.
IT and IS
In this article, information technology refers to technology; information systems refers to the organization responsible for managing IT and delivering IT services.
Foundation 2. An executive team that takes the time to develop informed expectations for an IT-enabled enterprise
The CIO is but one player who weaves the business and IT strategies together. The role of the executive team is at least as important as the leadership of the CIO. Effective integration of business and IT is always underpinned by an executive team that takes the time to work on it.
Most companies have multiple critical initiatives under way at the same time. Each major initiative-such as developing a new business or product, shifting to become truly customer-centric, working on a new demographic, ensuring regular compliance-tends to require considerable technology enablement. But the specific technology capabilities are often hard to pinpoint and articulate in a way that can then be acted on. Executive managers find it difficult to clearly specify the implications for the IT portfolio. At the same time, the most judicious and high-impact technology capabilities are often difficult to explain in business terms. “Management by maxims” is a well-developed approach which helps business and technology executives to clarify, articulate and link their strategic context, business initiatives and changes underway with the necessary IT capabilities and services. But it takes time and executive committee commitment.
The process starts with understanding your enterprise’s strategic intent and how you want to compete or position your products and services. The next step is to create guiding principles called business maxims. The purpose of maxims is to articulate an agreed-on position in a form that can be readily understood and communicated. Many enterprises do not have well-captured or timely strategic statements that give clear guidance to IT investments. The maxim process overcomes this common problem by translating and combining aspects of strategic context into simple and clear statements.
Business maxims express the competitive stance of the enterprise, its differentiating factors, and the extent of autonomy of business units or synergy between them that is required to meet business drivers. Business maxims should be limited to no more than six or seven short statements. Too many business maxims means the executive team hasn’t made real choices and tradeoffs. Business executives have to agree on and communicate these tradeoffs so IT dollars can be invested wisely.
From business maxims, business and IT executives together identify IT maxims that describe how an enterprise needs to deploy IT across the enterprise and connect, share and structure information and processing. Six business maxims typically lead to up to 12 guiding principles for IT. These maxims, in turn, guide enterprise-wide investment in IT. Good business and technology maxims are usually created as part of a process of interviewing and convening workshops that involve top-level business and IT executives. They bridge the business and IT strategy gap, creating shared expectations about the role of IT in your enterprise. Once started, the agreed maxims and maxims process provide the basis for ongoing review of the efficacy of every initiative.
Foundation 3. Clear and appropriate demand-side IT governance- knowing who’s responsible for what, so you can make faster, better decisions
Executives want to be able to make better decisions faster, and then know they are being adequately executed and tracked. This is especially the case for decisions about information technology investments and IT-enabled business initiatives. This means good governance of IT-clarity and transparency around input, decision rights and accountabilities for information, and IT-related decision making and implementation. But, with the greater infusion of IT responsibilities in business, and greater business understanding of IT professionals, these areas are now muddied.
Good governance enables you to make and implement better decisions faster and provides the foundation for weaving together business and IT strategies. It is the “glue” that helps organizations to have the right people making the right decisions, with clear accountabilities and a clear benefits realization program. There is transparency of decision making and accountabilities. You know who is responsible for what, how to deal with exceptions, who is tracking implementation, who has “benefits delivery” as part of their remit, and who is auditing these processes. Knowing who is responsible for what limits delays in executives and managers making timely and informed decisions and monitoring their implementation.
On the demand side, IT governance processes involve decisions about major IT domains, that is, areas such as IT investment priorities, IT principles or maxims. They balance decision rights between multiple constituencies, such as C-level executives (including the CIO), business unit leaders and IT executives. Their purpose is to encourage desirable behaviour so the enterprise achieves its goals. IT governance is formed and enacted by multiple mechanisms-formal mechanisms, such as the executive committee and the IT council, and informal mechanisms, such as talking with colleagues.
But it is worth remembering that it’s hard to hold your CIO accountable for good IT governance if your regular business governance is really messy. Do you have clear guidelines about who can market what to whom, about who can create new products and services, about the lines of demarcation between what is corporate responsibility and what are divisional or business unit responsibilities? Just as IT is often an artifact of the business-if it works well, so do other parts of the business -so also is good IT governance related to good business governance. It’s hard to have the right people with the right accountabilities for IT if you don’t have such clarity in other parts of the business.
Foundation 4. Taking an IT portfolio management approach
IT strategy takes business-driven IT maxims to the next level of specificity: a targeted set of objectives, initiatives and investments for a specified period. The CIO and IS organization need a timely IT strategy that shows where to focus efforts and resources.
Your demand-side governance systems indicated who gets to decide on IT maxims or principles, architecture, infrastructure strategies, business application needs, and IT investment and prioritization. Your IT strategy is about the content of each of those same five domains and their implementation over a defined period. Check that your enterprise IT strategy clarifies at least the following:
- A statement of the content of the IT maxims, that is, the guidelines that will drive other decisions.
- The key enterprise architecture decisions. These are enterprise technical choices for all forms of media, including data, hardware, software, communications, and possibly processes, and the level to which each choice is mandated. (Is it required, preferred or optional?)
- How your IT infrastructure capabilities or shared IT services and processes are offered. You need to know which services or processes are to be centralized or delivered as shared services, and which are to be decentralized or provided at individual business levels.
- What business applications are to be retained, which are to be replaced, and which new ones are to be put in place?
These elements determine where financial and other resources should be allocated to maximize business value.
The key to an effective IT strategy for many enterprises is to take a portfolio approach. Good decisions about architectures, infrastructure capability, and applications can create an IT portfolio that achieves in total the highest business value across the enterprise. Think of a financial or an R&D portfolio with different risk-and-return approaches over a certain time period. The portfolio can be, and often needs to be, reconfigured to fit changing conditions; an example might be the need during tough economic times to shift funds into investments with lower risk and shorter-term returns.
Your enterprise IT strategy should develop and sustain a portfolio of services and capability. At the heart of the strategy is prioritization and the investment decisions usually made by the executive team (and by the board when the dollars, the value and risk are large). Choices will have to be made-constantly-in an orderly fashion. Prioritization, in turn, requires disciplined governance based on a good understanding of enterprise goals and the careful balancing of multiple evaluation criteria.
A good business-driven IT strategy means there is a business-relevant portfolio of IT-related programs and projects that are actively managed as part of a portfolio, just as you manage your financial, property or intellectual asset portfolio.
Business executives have a choice-CIOs can’t do it alone
Business and IT need to be woven together, but a CIO can’t do it alone. Business executives and managers have to put in the time to help link their business and IT strategies. Doing so is in their interests, as executive and company success now rests on IT-enabled services and products. Quite a few organizations now refer to the fact that there is no such thing as an IT strategy. There are business strategies that have integrated within them a set of information and technology directions to be acted on. While that might be going a bit too far, executive teams that pay attention to the four foundation factors will have a strong base to move faster and more effectively than their competitors in deciding on and implementing IT-enabled business initiatives. And these days, that covers a big percentage of business action.