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Enterprise Integration & IT Strategy Blog

Business Drivers and IT Strategy

Gregg Powers, Senior Management Consultant  :  20 January 2010 / 12:13 PM  :  3

In the last blog entry, we looked at some of the first principles of IT strategy – things that should be addressed within an IT strategy document.  In this blog entry, we explore in more detail, some of the fundamental aspects of tying IT strategy to the business.   A key relationship that develops over time, although not immediately recognized by IT executives, is IT organizations inability to objectively define their value proposition are often viewed as an expense to be minimized.  Hence, there is a linkage between the view of IT within the organization as an expense and IT’s inability to define its value.

IT organizations have historically been challenged in defining their value proposition; the reason?  In many cases, it is because there is no objective foundation upon which IT products, services, and activities are delivered.  In less mature organizations, business executives (including the CEO/COO) may not ask the critical questions which would require a planning and measurement framework to answer such questions.

Having said this, businesses are in business (for the most part) to make money.  We see the emergence of ever more information technology savvy corporate executives and as such, IT is expected to behave as any other part of the organization which makes investments.  When a CFO is asked what value will be garnered on 25M in excess funds which will be invested, few CEO’s would be satisfied by the answer, “well, it will increase our reserves”.   Instead, the CIO, expects to hear something like, we will receive 8.4% over the next two years on our 25M dollars.  That is information at a level that a CEO can use.  He now knows he has 4.2M which can be invested to further increase business value.

While IT may be challenged in providing such detailed answers, most organizations can provide much more objective answers, if the necessary planning, business measurement infrastructure and governance is in place.

Depicted below are the major elements associated with both Business and IT Strategy and their primary relationships to one another. Business Drivers are represented in the upper left hand rectangle and are composed of Business Goals, the Business Strategies to achieve those goals, and the Business Objectives designed to execute the strategy.  Note how the IT side is similarly structured, but with linkages between the business and IT components.

A simplified and non-comprehensive but real world example is shown below for a governmental agency.

Note that in the second diagram, a business measurement framework, specific to that part of the organization was defined.  In this particular situation some of the metrics were readily available (e.g. average time to record a document) while some were not.  Some could be derived using a mixture of directly calculable and estimated costs (e.g. average cost to record a document).  In order to be able to do this however, investments often have to be made in a business measurement infrastructure, the initial set of measurements, and in the necessary disciplines to support on-going management of IT investments (ex. governance supporting portfolio management, demand management, etc.).

Also of note is the fact that all organizations do not use the exact same terminology and some even a different hierarchy applying strategies to objectives rather than goals.  In many cases, the corporate strategy table is not attended by IT personnel and in these cases, the terminology can vary dramatically.  In such cases, business strategic plans are developed without IT participation (a cardinal no-no) however when this does happen it will be necessary to develop a common glossary of terms between IT and the business guiding strategic management.

The strategic components shown above are related and are defined as follows.

Goal – An overarching aspiration, often general in nature.  More often than not, there are no KPIs (Key Performance Indicators or measures) associated with a goal.  A given department may well have multiple goals.  These goals should align with corporate goals through the business strategy process. 

Strategies – Defined approaches to achieving the defined goal.   Often these are envisioned initially and then augmented as more research and consideration is undertaken.  In some cases, competitors may provide insight into effective strategies to adopt.

Objectives – Specific and measurable actions taken to execute the strategies and realize the goal.   From this level of strategic component, programs or projects often are developed.  There is often one goal to many objectives (1:M).  Metrics are often applied to this level of the strategic hierarchy.

Programs or Projects – Activities designed to achieve defined objectives.  Measurement of the success or failure of a project is generally determined by the business measurement framework in place or developed.  Prioritization of these programs or projects in more mature organizations is tied to forecasted business value.  In some cases, these may be business projects directly supporting business goals and in other cases, they may be IT activities which are designed to not only support the defined business projects but a whole portfolio of business processes and services.

The ways that these integrated components can be displayed within an IT Strategic Plan is manifold, but a rule of thumb to consider as part of the IT Strategic Plan review process is “if we cannot define the linkage of IT’s goals, strategies and objectives directly to business goals, strategies, and objectives, we must question why those components are there”.    This can be a challenging consideration especially when cost savings is important however many CIO’s may become too focused on savings.  Reduce IT costs and you receive incremental value; improve business processes and you receive exponential value.  This is largely because of the volume of activities over which improvements are applied.  Too often IT executives are so engrossed in reducing their costs, they miss the opportunity to drive or facilitate business improvements.  This can leave business stakeholders both frustrated and alienated.

Focusing on the business and linking IT to the business may seem overwhelming, but it is not rocket science, especially in an organization where the convergence of business and information technology is well developed.  Building a common vernacular between the two types of organizations will facilitate more effective communication and processes.  In addition, an IT organization aspiring to more effective planning, measurement, value definition, and value delivery supported through a more tightly linked IT Strategic Plan, can undertake some of the activities below.

Conduct Joint Planning and Brainstorming Sessions

Developing and linking IT Goals, Strategies, and Objectives to Business Goals, Strategies, and Objectives is not necessarily hard, but it does require thoughtful processes.  For example in the case above we see the objective to implement electronic recording however there are many aspects of the existing processes (the recording process itself, accessing the recorded documents, etc) which need to be considered when moving to a remote and electronic paradigm for the process.  For example:

• Who will support the remote users?
• How can a remote user get access to recorded documents?
• How do we prevent unauthorized access to remote documents?
• What about legacy documents not recorded electronically?
• What personally identifiable information requires protection?
• How do we protect personally identifiable information?

In short, brainstorming sessions with key departmental personnel and effective information technologists can go a long way in envisioning the program of activities to achieve all objectives and by association the defined business goals.

Ensure IT to Business Linkage
When developing an IT Strategic Plan, make sure that IT goals, strategies, and objectives are linked to business goals, strategies and objectives.  Do the same for other strategic plan components ( for example, principles and themes) which are designed to guide future decision-making activities in a business consistent manner.  Once this has been done and execution proceeds consistent with an aligned (or linked) plan, business executives will have a more thorough knowledge of what IT is doing for them and perhaps most importantly, why.

Build Institutional Knowledge about the Business
In order to be able to tie the value of IT products, services, and activities to the business, knowledge about the business must be harvested, stored, and institutionalized with IT.  This includes development of a formal business architectures and models identifying core business functions, business processes supporting those functions, activities embodied within those business processes, and systems and data supporting those business processes.   This also serves as the key foundation for IT driven innovation and for establishing a common vernacular with the business.

Define Business Process Value
Once the business architectures and models are in place, the focus turns to business processes and their associated activities. Being able to decompose these processes into activities and defining the value associated with them not only leads to the identification of metrics, but also provides input to a prioritization scheme centered on business value.  Furthermore, it improves IT’s decision making ability as an innate understanding of business process value enables IT to make decisions consistent with business needs and value.  It is important in this process to define the inter-relationships between business processes as changes in one can affect the cost or performance of another.

Define a Business Measurement Framework
Once knowledge has been developed regarding the business and a value chain analysis (or other valuation scheme) is applied to business processes, a specific Business Measurement Framework comprised of key process metrics can be identified which serve to not only measure the business but also the impact of proposed activities (projects, services) have on processes instrumented through the metrics.

Summary
Although development of an IT Strategic Plan is a great first step, the better the linkages between the IT Strategic Plan components and the business drivers (goals, strategies, and objectives), the more effective the plan will be perceived to be from IT’s primary customers – the business.  Organizations wishing to pursue this alignment can start with development of some basic capabilities and extend these over time driving towards IT to business convergence.

Next time, in Part IV, we will look more in depth at how to avoid the “Shelf Ware Syndrome” by ensuring the IT Strategic Plan remains relevant, actionable, and measured.

Posted in Enterprise Integration & IT Strategy on 20 January 2010
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Tagged: IT Planning  IT Strategy  IT to Business Alignment  

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