Corporations operate based on the assumption of continuity,developing processes to drive efficiency over the long haul, but often ignoringthe vital need for constant transformation. As a result, most cannot change orcreate value at the pace and scale of the markets.
CEOs, who are largely compensated for building value, knowthey must drive a mandate for change, and look to the CIO to implement thetechnology that enables transformation.
In most cases, though, IT is the keeper of continuitybecause current systems support the status quo. Typically, technology fundingfavors incremental changes to existing processes, rather than bold new bets,and IT skills are focused on maintaining existing business processes. For theCIO and IT to succeed in transformation, they must make changes to funding,governance and specific skills. In short, to become a major driver ofinnovation, the following four changes are necessary:
1. Business Engagement Model
Developed in the days when the primary purpose of IT systemswas to automate operational functions, business engagement models were designedby business analysts with carefully crafted requirements that were latertranslated into software by engineers. Changing the software was difficult, butsince the status quo for business rarely changed, this model worked well.
Today, business cycles are compressed, customer needs areconstantly changing and companies look to technology to drive core valuecreation. So IT leaders should invest in architecture that defines businessactions and outcomes, and in new development methodologies that emphasizecollaboration between business and IT. These integrated teams spend more timeon solution design than code development. Solutions are delivered on technologyarchitecture that mirrors business architecture.
2. Architecture and Design
No one really owns the life cycle of a system. Instead, itis created, maintained, enhanced and, eventually, retired by different groups.A more effective model mirrors software companies, in which software is theproduct and its entire life cycle is owned by product managers. By adaptingthis model to internal IT organizations, systems can become more effective atmeeting business needs, and retirement costs become predictable.
3. Manufacturing (Systems Development)
Typically, funding for new systems is made available whenbusiness cycles are positive. Conversely, funding dries up when cycles turnnegative. CIOs must juggle between increasing staff to respond to new requestsand reducing overcapacity when the cycle turns negative. Contingent labor isoften used to accommodate these cycles. However, IT should use sourcing as astrategic weapon to manage variable demand, rather than just as cost reduction.Invest in architecture and systems design skills to deliver requirements that astrategic partner (the manufacturer) can then turn into code. Invest indocumentation and project management tools, and in resources skilled atmanaging complex vendor relationships.
4. Funding and Governance
Successful companies do a good job of allocating resourcesto their most strategic objectives. Marketing dollars, inventory, salescapacity and manufacturing capacity are all distributed to maximize return. IT,however, is usually treated as overhead.
If a business unit has money, it is presumed that it can?buy? technology services. This ignores the fact that IT has a number ofconstraints, including the availability of skilled resources. By not clearlyallocating those resources to the most strategic projects, IT ultimatelydelivers less value at higher cost than promised.
In response to cost overruns and underdelivery, the financeunit distributes technology funding to strategic business units and requiresROI analysis at the project level. Funding is available only to projects with ashort payback. While this may provide some prioritization, it does not considerthose game-changing bets on IT that typically do not have a fully understood returnand are too big for any one business unit to fund.
Keeping the Lights on
Companies should develop an enterprise view of how much toinvest in technology, and IT leaders should develop a ?keep the lights on? number, with the rest beingused as an investment pool for IT. Management must then determine whatpercentage of this investment pool to assign to strategic objectives.
Once the pool and investment areas are set, line managersselect projects that best support their strategic targets. Money can bereallocated as needed when costs become better known, but the overall pool canbe modified only by top-level management. In this way, companies can ensurethat scarce IT resources are aligned with the most important businessopportunities.
Senior management often believes that IT must be part of the?creative destruction? needed to compete successfully, but does not necessarilybelieve that the current technology structure can deliver. CEOs must play amuch more strategic role in allocating technology funds, and CIOs must boldlychange the way IT services are delivered.
Fred Matteson is managing director of Alvarez & Marsal,which specializes in turnaround and interim management, performance improvementand business advisory services.
