Post image for New Age of IT – Are you ready?

New Age of IT – Are you ready?

by Vivek on March 25, 2015

By S. Srinivasa Sivakumar, Enterprise Architect, Microsoft

Abstract

In the digital world, business models are rapidly reinvented every moment, and the reliance on more scalable and flexible IT solutions is increasing. However, based on many surveys, there are worrisome trends that show a growing disconnect between IT and business. Based on a Gartner-Forbes survey from 2012, IT’s competitive differentiator is steadily declining from 117% in 2011 to a mere 14% in 2012. The question is, how can IT influence business growth more effectively and measure the same? This article addresses this in detail.

Introduction

A typical business expects IT to help them:

  • Drive innovation
  • Stay ahead of the competition
  • Enter new markets quickly and grab opportunities
  • Meet industry regulations and internal policies
  • Overcome globalization challenges

Even though IT strategy should be aligned with business strategy, the IT/Business alignment is an age-old challenge. Many pundits have written about this challenge, consultants have made careers creating frameworks and processes around it, and yet the issue remains very present in today’s business environment.

For example, based on the Forrester study, Beyond Alignment: A Road Map For Business-centric CIOs – A Business Technology (BT) Report

  • 58% of marketing professionals said “IT and marketing speak different languages”
  • 56% of them said “IT doesn’t understand our business”
  • 48% of them said “IT doesn’t understand how we adopt technology”
  • 32% of them said “IT focuses on metrics that don’t matter to us”

From the above study, it is quite evident that IT-Business alignment has a long way to go to find common ground. Is there an effective way for business to measure the performance of IT? Figure 1 below depicts a simple KPI framework which can be utilized to measure the performance of IT.

Figure 1: IT efficiency measurement framework

Time to decision
How IT is planning to fulfill the business challenge/requirement

Time to market
How long IT will take to provide a solution for the given business challenge/requirement

Time to value
How IT will work with the business to launch the IT solution, ensure adoption, and accelerate business value

Time to decision
How would IT fulfill the given business requirement?

  • Would IT procure a COTS product with or without an RFP process?
  • Would IT build a custom solution using .NET, SharePoint, JEE or some other framework? Would this require in-house skills, augmented skills, or outsourcing the custom solution
    build to a systems integrator?
  • Would IT rent a SaaS solution from a Cloud service?

Time to market
How long will IT take to provide a solution for the given business requirement?

  • Would IT take 3 weeks to rent a SaaS solution, integrate it with on-premise services, and make it available for business users?
  • Would IT take 2 months to buy a product (with or without an RFP process), customize it, host it on an IaaS Cloud container, and make it available for business users?
  • Would IT take 5 months to buy a product (with or without an RFP process), customize it, procure the hardware, and make it available for business users?
  • Would IT take 9 months to build a custom solution and make it available for business users?

Time to value
How will IT work with business to launch the solution in a more efficient manner, accelerate adoption by business users and realize faster business value?

  • Would IT use effective adoption and change management techniques?
  • Would IT use motivational techniques like rewards & recognition frameworks or gamification frameworks?
  • Would IT use Hall of Fame techniques?
  • Would IT use business value articulation?
  • Would IT do all of the above or a combination of some?

The disconnect and the power shift

IT departments have been known to drive complex, multi-year IT projects such as large ERP implementations with several customizations or multi-vendor custom application development. The low success rates of large and complex IT projects are well known. In one study, McKinsey found on average that large IT projects run 45% over budget and 7% over time, while delivering 56% less value than predicted.

According to a survey by CIO Insights, big IT projects usually fail. The bigger the project, the more likely they are to fail and the estimated cost of these failures in the U.S. range between $60 billion in direct costs to over $2 trillion in indirect costs. These are alarming numbers for business stakeholders.

IT often takes an analysis-paralysis approach to make decisions and increases all of the ‘time to’ KPIs (T-DMV) which doesn’t include the cost of lost opportunities. These inefficiencies in the IT ecosystem have created major dissatisfaction in the business community. They have also created the new trend of ‘Shadow IT’ where many departments bypass the rigid and time-consuming IT process in favor of bringing in or building their own solutions, hosted on a server which runs under the table or by some cloud provider as a SaaS service. Gartner’s Hype Cycle for IT Operations Management, 2013 study finds that IT organizations believe Shadow IT is at least 25% of their IT budget.

There are a few interesting trends driving the new age of IT:

  • Skirting of power: Since time to market is so high with IT departments, business users are buying off-the-shelf SaaS services and mobile applications with a swipe of a credit card. They are accepting standard service agreements without any due diligence review and clicking “I agree” when they download applications. Therefore, IT and sourcing departments are clearly bypassed when these new business capabilities are brought into the organization. Sourcing professionals and IT are unable to control these departmental shadow IT purchases and the inherent risk they bring to the company. According to Gartner, by 2015 CMOs will spend more on IT than CIOs.
  • Budget trends: Based on IDC data, the last couple of years have seen IT budgets reduced 5% YoY and IT is expected to do more with less.
  • IT spend: Based on Gartner data, most of the surveyed CIOs spent 70% of their IT budget on maintenance of ongoing applications, supporting them and running them with minimal innovation.  Only 30% of the IT budget is spent on innovation-related initiatives.  However, business expects the reverse from IT – 70% on innovation and 30% maintaining the existing legacy. This is a difficult cycle to handle.
  • Consumarization of IT: Employees are more powerful than ever and don’t like what the IT department gives them as standard devices and services. Many companies are implementing a variety of BYOx initiatives (BYOD, BYOA, BYOS) to satisfy users and as an attracting-and-retaining strategy for HR managers.

New role of IT

Times are changing. The new age of IT is all about reducing T-DMV, bringing agility into IT and helping the business to:

  • Innovate faster by improving the innovation/R&D process and enhancing the ability to roll out new products and services to stay ahead of the competition
  • Increase new customer acquisitions, improve customer retention and exceed expectations for the overall customer experience
  • Lower operational costs and optimize business and IT investments
  • Use predictive analytics to enable CMOs to reach new markets and customers which is becoming the new source of revenue for organizations

For IT to be agile, business leadership has to think about new sourcing models which will result in faster T-DMV. IT is moving from being an all-encompassing service provider to more of a service facilitator role. IT should work closely with business and procurement functions to create a new sourcing framework – Build vs. Buy vs. Rent (aka BBR framework) – which will decide:

  • Which business capabilities the organization will rent
  • Which business capabilities the organization will buy
  • Which business capabilities the organization will host on private or public clouds
  • Which business capabilities the organization will build

The BBR framework should be holistic in nature and consider the strategic importance for the organization, vendor commitment to products and/or services, vendor credibility, vendor financial position and associated risks, procurement policy adherence, information security and privacy related risks, regulatory compliance related risks, existing IT landscape fit, multi-year deals, best possible prices and contract terms, etc.

Figure 2: BBR process

Traditionally, IT has been following a Build vs. Buy framework process to acquire new business capabilities and roll them out. This is nothing new for IT organizations, but it is time to add the rent decision into the framework. The rent option allows IT leaders to roll out and experiment with new business in a much more agile way without spending too much money or time. Renting also enables IT leaders to acquire fully-functional business capabilities (SaaS) or complete platform capabilities (IaaS or PaaS) where handcrafted solutions can be built. It is a safer bet when dealing with ambiguous business requirements that aren’t always clear.

1. Business Capabilities

  • HR
  • Finance
  • Marketing
  • Sales
  • R&D
  • Innovation

2. The Framework

  • HR (Rent: X% | Buy: Y% | Build: Z%)
  • Finance (Rent: X% | Buy: Y% | Build: Z%)
  • Marketing (Rent: X% | Buy: Y% | Build: Z%)
  • Sales(Rent: X% | Buy: Y% | Build: Z%)
  • R&D(Rent: X% | Buy: Y% | Build: Z%)
  • Innovation(Rent: X% | Buy: Y% | Build: Z%)

3. Measures

Time to market/value  |  Lower risk  |  Enhance top and bottom line  |  Competitive advantage

Figure 3: BBR framework view

 fig303

Figure 4: BBR stakeholders

The BBR framework should be created in partnership with business stakeholders (Chief Information Security Officer, Chief Privacy Officer, Chief Procurement Officer, and CIO) who can define and drive business priorities, information security policies, data privacy policies, and understand the investments and outcomes to drive the entire program.

fig404

Landing the framework

Landing a BBR framework requires a programmatic approach as outlined below.

Define a BBR framework
Define the BBR framework and identify the business and IT stakeholders.

Communicate and educate
Educate business and IT users on how to use the framework. Create a BBR champions team spanning multiple areas of the company and use them for insider influence. Identify early adopters as heroes and celebrate them with a Hall of Fame.

Governance process
Define a cross-group governance process.

Change & lifecycle management
Define an effective change management and lifecycle function
for continuous improvement.

Like any other transformational IT initiative, adoption, communication, and change management functions play an important role in the BBR framework. Make sure all new business initiatives follow this framework to reduce the IT and business disconnect. T-DMV KPIs, information security, and privacy are also critical components. CIOs should use IT Portfolio Rationalization techniques along with the BBR framework to find ways to optimize the existing IT portfolio for cost and agility. For example:

  • Are there any standard IT products or SaaS services that could replace applications developed and maintained by the IT team or an outsourced vendor?
  • Are there any hardware refresh cycles coming? Instead of buying new hardware, can the applications be moved to a standard LaaS platform on the cloud?
  • Are there any seasonal applications that exist with predictable or unpredictable spikes in usage or processing? Could a Cloud Bursting architecture free up extra hardware assigned to these applications?

Figure 5: BBR framework execution

1. Initiatives

  • New Business Initiative
  • Existing IT portfolio optimization

2. The Framework

  • Build vs. Buy vs. Rent Framework
  • BBR Governance Function
  • BBR Change & Life Cyle Management Function

3. Measures

  • Faster time to value
  • Faster time to market
  • Faster time to decision

Consider the following example:
An organization’s annual IT spend is $10 million USD with 80% spent as CAPEX investment and 20% as OPEX. Using IT Portfolio Rationalization techniques, along with a BBR framework, IT could change the IT portfolio investment spend percentage by adopting cloud-based procurement models. This would provide substantial savings to the organization.

Measuring success
Once the BBR framework has been rolled out across the organization, measuring the success of T-DMV from an ‘as-is’ state to a ‘to-be’ state for every quarter would be ideal in order to understand the impact of BBR on IT efficiency. For example, the following table and chart depicts sample data on how IT agility score improvements can be measured QoQ based on the BBR framework.


While T-DMV is more of an IT efficiency measure, it can also be connected with business impact measures and aligned with business outcomes. The following table and chart depicts sample data to show business outcome correlations.


 

Conclusion
When an organization is able to deploy devices and services more rapidly in this digital economy, it can create differentiated experiences which, in turn creates high value for customers and for the organization.  Adopting a BBR-like framework accelerates the value realization process and can create a competitive advantage for any organization.

To be an IT hero in the new age of IT, be sure to communicate clearly and consistently how the BBR framework has improved IT efficiency and business outcomes.

References

McKinsey: Delivering large-scale IT projects on time, on budget, and on value

Gartner: Hype Cycle for IT Operations Management, 2013

CIO Insights survey

Beyond Alignment: A Road Map For Business-Centric CIOs – A Business Technology (BT) Report

Related Posts:

Previous post:

Next post: