The Information Age May Finally Be Upon Us: How to Deliver Value with IT
Originally published February 8, 2011
The change in corporate IT from decade to decade has been remarkable. Think of IT as it is now and compare it to IT a decade ago. In 2000, corporations were focused on getting value from major application investments like ERP and CRM, outsourcing was not the solution to cost management it has become, and IT and the business were coming to grips with how to use the Internet. Just as the 1990s had seen the rise of ERP and CRM mega-applications, client server computing, and the introduction of data warehousing and business intelligence, each decade has produced new challenges and changed the shape of IT.
Where We Are TodayIT departments today face many challenges. The challenge presented by the current economy has resulted in no- to low-growth IT budgets and a relentless focus on driving operating costs down. This has manifested itself in outsourcing IT application development and support to improve the productive use of IT dollars. In turn, business departments who need new departmental functionality have begun to turn to software-as-a-service (SaaS) to support their business capabilities.
Meanwhile the industry that serves IT continues to go through consolidations and mergers, resulting in ever larger mega-vendors to extend their diverse and wide-ranging product offerings. While this may simplify a company’s vendor relationships and contracting, many are concerned about the vendor’s commitment to integrate an acquired technology into their product families and the effect on pricing that goes with reduced competition.
At the other extreme, there are a wide range of open source offerings that provide many of the basic capabilities of the products offered by long-established vendors. Rather than concern about product integration and pricing, the concern with open source is ongoing product development and support. The dichotomy is that, on the one hand, open source offerings are free but may not have a revenue stream that supports development of new capabilities while, on the other, vendor-provided offerings are expensive but do have funding for ongoing development. Interestingly enough, some open source is moving into the core of products offered by vendors as vendors look to lower their cost of development as well.
Underlying IT operations and vendor offerings is the ever-changing foundation of technology. Almost ubiquitous in the press these days is cloud computing. The advantages of cloud computing are nearly instant allocation of computing resources as needed. In effect, cloud computing is another form of outsourcing data center operations. Of course, there is also the relentless ongoing impact of Moore’s law which continues to increase performance and lower price per unit at a phenomenal pace. For data, the trend toward memory-based, rather than disk-stored, information will be a game-changing event.
The Challenge of Demonstrating Value with ITHow IT adds value to the organizations they serve is undergoing a fundamental shift in emphasis. For decades IT value sprung from its ability to provide the organization with application functionality, a computer infrastructure such as networks and servers, and support of these for business operations, specifically transaction processing. However, as budgets ceased to grow and outsourcing and software-service-as-a-service became the new operating model for IT, it is no longer possible – or at least it is very difficult to determine – for IT to demonstrate value in these terms. Computer infrastructures are well-established. Data center operations are often outsourced, as are IT development and support. These are all now low-cost operations covered by service-level agreements.
IT needs a new way to provide and demonstrate the value it adds to business operations. In fact, non-IT executives do recognize that IT can bring value to business, as a recent McKinsey survey shows:
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Exhibit from "McKinsey Global Survey: How IT is managing new demands," December 2010. McKinsey Quarterly, www.mckinseyquarterly.com. Copyright (c) 2010 McKinsey & Company. All rights reserved. Reprinted by permission.
While IT executives see their top priority as keeping the IT lights on for the lowest possible cost, business executives want IT to operate as a value-added component of the business. While there will always be elements of both, today’s focus on cost, budgets, and outsourcing agreements has caused many IT operations to become like facilities or contract managers providing capacity at the lowest unit cost. IT must take responsibility for and focus on adding bottom-line business value through information rather than justifying itself on its delivery of applications, infrastructure, and support to business operations.
The three areas for IT to add value are to measure progress toward strategic goals, measure process performance, and enabling business activity. By doing so, IT will become an essential extension of executive and operational management of the business.
Supporting Progress Toward Strategic GoalsWhile it is true that a company’s strategies will change, it is equally true that a strategy, to be effective, needs to be made clear through specific operational objectives, measurable goals, and a goals analysis such as provided by the Kaplan-Norton strategy map. Helping the business achieve its strategic goals quickly and effectively is a critical way in which IT can demonstrate its ability to add value by identifying and delivering information that measures progress toward achievement of these goals.
However, strategic context is more than measurement. Goals relate to the performance of business functions, organization responsibilities, and other aspects of the business that establish a business context. Fortunately, these can be identified and defined relatively quickly and easily, forming a framework of the functions, organization, and other aspects that make up the business. This context for framing what the business is trying to achieve in and of itself is value-adding information for the business.
While most organizations use the organizational chart as the business framework, IT can add value by developing this broader framework. For example, if a company wishes to improve sales, it may not be clear what improvements could be made consistently across all sales channels because an organization chart typically breaks sales channels into discrete organizational unit responsibilities. A functional view, to further the example, might look at the sales function and find opportunities for commonality of data and process. This would clarify the information needed to measure progress toward the strategic sales goal.
The artifacts, other than the organization chart and specific goals themselves, that document the strategic context are few, relatively stable, and can be developed in a short period of time (think in terms of weeks, not months).
Improving Process PerformanceHelping improve the performance of business processes is the second area in which IT can value. A business process in this context needs to be thought of in broad, comprehensive terms. Procure to Pay and Order to Cash are examples of broad, comprehensive business process. Such a process is likely to be cross organizational, cross functional, and cross application, making it a fundamental business view of the process rather than a task-level, application-specific view. Like the context for a strategic goal, this view of a business process provides a context for the more specific sub-processes, organization units, and applications of which the business process is comprised. Further, the need for and limitations of business and management controls of the process that transcend functions, organizations, and applications is also clarified. As a CIO told me recently, these essential and transcending controls are not built into applications such as ERP or CRM but may be essential for achieving a strategic goal.
Ultimately, a high level process like those described will be made up of lower-level or sub-processes that create an overall process architecture. Typical artifacts for a process architecture are process designs or work flows, activity maps, control rules, and artifacts of that nature. For an entire company, creating a complete set of process maps can be a lengthy process. However, taking one process at a time, a process can be documented, like the strategic context described above, in a matter of weeks not months.
Having a process workflow identifies the activities that make up the process and, more importantly, the measurement points and measurement factors (based on what goes into and comes out of the activity) to measure and analyze the performance of the business process. Further, while processes may change, they cannot change too often because of the operational impact on staff, operational procedures, and so forth.
Taken one process at a time, process artifacts are also manageable and relatively stable (think in terms of weeks, not months).
Activity EnablementUltimately, any improvement in performance or achieving a strategic goal will come from business activities. Think of a business as a black box, inside of which are a wide range of discrete business activities. Business intelligence, if you will, is the aggregation of measures of activities, further ”sliced and diced” by classifications and hierarchies such as territories, customer and product classifications, and presented in dashboards, analytic queries, and reports.
In fact, performance measurements are really the aggregation of measures of activities in different structures. These structures might be functional, such as sales or inventory, or they might be organizational, such as divisions or territories, or they might be process oriented, such as Order to Cash, or they might be some other classification of the business such as world locations. It is necessary to support all of these measurement perspectives; however, in most organizations today, it is the process orientation of performance measurement that is missing.
Understanding, improving, and enabling the performance business activities is the fundamental unit that affects both business performance and strategic goals. A clear understanding of each activity, including the rules for the activity (such as for complex event processing or real-time decision making), is the critical success factor for IT to add business value. Traditionally, this level of attention to business activities has been a part of application development or implementations that focused on the IT application rather than the business activity and how it fits into a business process. However, today's business operations are much less application- or screen transaction-focused and much more web page- or browser/Internet-focused.
This means that activity enablement requires understanding all the information needed to perform an activity rather than how an application will be used. This also requires ensuring consistent use of data semantically, taxonomically, structurally, and hierarchically across functions, across organizational units, and across applications so that rules for and usage of data will be consistent.
Because there are a myriad of activities in any business, understanding and enabling all of them is a monumental task. Prioritize them by focusing on those that affect the strategic goals and process performance important to the business.
Deliver Value with ITA focus on strategic goals, process performance, and activity enablement is a fundamental shift from IT’s traditional focus on application functionality, computer infrastructure, and support. The critical success factor for delivering value with IT is measuring IT’s impact on them. This impact will be in terms of reducing the time it takes to achieve a strategic goal, identifying process improvements and measuring the value of each improvement, and measuring the improvement in the performance of an enabled business activity. By taking responsibility for demonstrating its value through measurable impact on the business’s ability to achieve strategic goals and improve process performance, IT will become a strategic partner for business improvement.
This has ramifications for how IT priorities and funding for new initiatives are done. Traditional department-level budgeting and prioritization need to fall into the operational IT and cost management we are in today. Efforts to achieve strategic goals and improve process performance should be funded as investments, the results of which are demonstrated by measure of the value delivered. This will have a huge payoff in terms of its impact on business performance and the bottom line.
There is one other fundamental difference to note here. This difference is the focus on information not on functionality or transaction processing. This means that part of the foundation for delivering value with IT is to develop a solid foundation of data. While we use the terms data quality and master data as IT disciplines, we must recognize that these terms reflect inattention to data quality in transaction processing systems where data is typically captured. If we did not have data problems, we wouldn’t need data quality or master data initiatives.
This does not mean that IT must wait to deliver value until its data is cleaned up and appropriate for enterprise use. It does mean that IT must take responsibility for the quality and integrity of the data it uses to achieve strategic goals and improve process performance. Value-adding data must be accurate.
The Information Age May Finally Be Upon UsAnother factor to consider is the domains of data required. To achieve a strategic goal, the goal must be described in terms of new data: metrics, targets, and so forth. To improve process performance, a process must be identified in terms of its discrete activities, measurement points, and measurement factors. And to enable activity, the activity must be described in terms of the data and other information objects it requires. These become stored and available data describing the business and its strategic goals, operations, and performance.
The information age may finally be truly upon us as a business becomes fully and completely defined as digital data. This will provide a digital representation of the business, its organization, its processes, its activities, and its strategic goals. Further, this information provides a context within which transaction processing and business activities can be organized into traditional dashboards, reports, and queries.
As with all new paradigms, there will be fundamental shifts. How will applications fit into this picture? Applications and platforms once implemented become instant legacy that IT sustains and deals with until they are replaced. Just as client/server created legacy mainframe applications and the Internet created legacy client/server applications, this shift to delivering value with IT will have legacy implications as well.
How then will IT move to the strategic role of becoming instrumental to delivering value?
I believe the enabling factor lies in technological shifts in data storage. Already we are seeing memory-resident business intelligence technologies. Some of these break traditional relational and hierarchical data structures into other forms to facilitate user access to and combining of data. As computer memory and hardware components continue to get cheaper while at the same time increasing capacity, it becomes more feasible to sustain the data necessary for monitoring strategic goals and process performance in memory. In addition, the move toward process-centric rather than application-centric processing may make all data as important as master data is today. The shift to making information available to enable an activity as defined by the business process may also change applications, making them more focused on data management and delivery than application-controlled processes.
One thing is for certain: IT in 2010, when seen from the vantage point of 2020, will seem very different. It’s my hope that we will look back and see 2010 as the beginning of the true information age, the time when information became essential for achieving strategic goals, process performance, and activity enablement—the time when IT became centered on information rather than applications.
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