I.T.-Business Alignment: 10 Best Practices

By Baselinemag  |  Posted 2007-08-03

Think you know how to align information technology and the business? Think again. In 2007, companies are still messing up this fundamental aspect of I.T. management.

Sometimes companies just don't execute—either because of incompetence, internal politics or insufficient know-how. Sometimes they execute well but without regard to some larger consequence.

With these problems still so routine, some renewed attention on how business-I.T. alignment can be made to work for the long term would seem useful. Baseline takes a look at 10 core principles.

10 Best Practices in Miniature: A Slide Show

10 Best Practices in Detail: A Fuller View Detail: A Fuller View">

Below is a list of the strategies followed by the most sophisticated technology departments. To learn more about each strategy, click on
the link.

1. Emphasize the Governance Function
2. Establish an I.T. Steering Committee
3. Know How (And When) To Do a Business Case
4. Measure the Right Things
5. Create a Shared Pool of Bonus Money
6. Install a High-Level I.T. Liaison in Every Business Unit
7. Distribute a List of Ongoing Projects—To the Business as Well as I.T.
8. Network (in a Non-Technical Way)
9. Create Multi-Disciplinary Teams for High-Priority Projects
10.Think Beyond Mere "Alignment"

Want the best practices in a nutshell? See our slide show

1. Emphasize the Governance Function
With so many big-project failures under their belts, you'd think companies would have figured out a way to make their biggest I.T. investments successful. In many cases, they haven't. More than 50% of big I.T. projects still fail to produce the expected business benefits, according to most estimates.

The companies that are doing better are using a variety of tactics to improve their governance. Project management offices and frameworks like COBIT (Control Objectives for Information and Related Technology), developed by professional I.T. organizations, have helped some companies with the critical function of making sure that the right projects are getting funded. "Typically, companies going through the effort to think this through have better I.T. alignment," says Eric Dorr, a senior business adviser with the Hackett Group, a strategic advisory firm.

But even big companies are feeling their way with the kind and size of projects to put through the process. For instance, there is a natural temptation, if a project falls below a certain dollar level, not to put it through a compliance review. "That's exactly when you're going to get yourself into trouble," says Jeanne Ross, principal research scientist at the MIT Sloan Center for Information Systems Research. Problems can arise, she says, if a small project has a chance of turning into something that could be deployed throughout an enterprise. "It's really hard to make sure that things aren't falling through the cracks," Ross says.

Smaller companies, too, need oversight mechanisms for their I.T. investments. At Progressive Medical, a $175 million insurer based in Westerville, Ohio, chief information officer Angelo Mazzocco meets every other week with business executives. More formality than that wouldn't make sense at a company so small.

At that level "I'd still be putting in place the discipline of governance, but I'd be doing it to show the rest of the company what good governance looks like," says Vaughan Merlyn, executive vice president of consulting firm BSG Concours.

Next Best Practice: Establish an I.T. Steering Committee

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2. Establish an I.T. Steering Committee
Here's one route to good governance on which virtually everyone agrees. But there is less agreement on how it should work and what it's for. Far too often, I.T. steering committees are created for a specific project or are put in place to save an initiative that has gone wrong. The committee's charter should be more strategic than that.

The central role of the committee in aligning business with I.T. is evident in its composition. In addition to the CIO, I.T. steering committees typically include some very senior business executives—often the chief executive or chief financial officer. This forces the company's business leaders to participate in decisions about technology spending, and gives the CIO face time with people who need to understand the obstacles he's encountering. "There's a lot of expectation-setting," says Progressive Medical's Mazzocco.

A skillful CIO can also use the steering committee to facilitate a change in priorities. Not long ago, for instance, the I.T. team at Progressive had to set aside some projects to do the data conversion necessary to accommodate a major new customer. For help, Mazzocco turned to his partners on the steering committee—the CEO, CFO and head of sales. "To have the most visible business executives saying [to people whose projects were delayed], 'Look, here's what's happening,' rather than just me saying it, made my job much easier," Mazzocco says.

As the role of technology has gained importance at some companies, a stint as co-chair of the I.T. steering committee is a prerequisite to advancing through the ranks, as important, say, as running a foreign subsidiary.

Next Best Practice: Know How (And When) To Do a Business Case

(And When) To Do a Business Case">

3. Know How (And When) To Do a Business Case
It has become so fashionable to talk about the business justification for technology expenditures that some CFOs expect an ROI calculation to come clipped to every proposal. That's madness, says Chris Curran, chief technology officer of Diamond Management & Technology Consultants.

"There are some things you have to do because if you don't, something's going to break," Curran says. You still measure the success of these undertakings, which Curran calls "stay-in-business investments." But you do that by seeing if you achieved your milestones, stayed within budget and met your schedule.

For Curran's clients—most of them with revenue above $1 billion—there's no need to create a business case for I.T. investments of less than $500,000. And even some larger projects, in the $1 million range, can defy a business-case calculation if their benefits are unclear. Indeed, in many cases, a $1 million project itself may be the thing that creates clarity about expanding a project—or shelving it.

A common mistake is failing to track benefits after a project is up and running. "Very few companies actually do a regular practical follow-up once the investment has been made," Curran says. "You'll never do better business cases if you don't know how your initial thinking was right or wrong."

Next Best Practice: Measure the Right Things

4. Measure the Right Things
One thing that often creates a barrier between I.T. and business department leaders is language. Technologists tend to talk about the things they have set up and that they believe they can control directly. There's often a disconnect between those things and what business managers think about every day.

"The business doesn't care about mainframe uptime; they care about the availability of the order-entry system when they need it," says consultant Curran. This doesn't mean a CIO needn't worry if, say, a system fails, but the point is to look at that event in light of its impact on the business.

CIOs need to become familiar enough with the business so they understand what's worth measuring and what the numbers should be. For instance, for a service delivered over the Internet, anything up to three seconds might be an acceptable transaction time, says Robert Stroud, I.T. governance evangelist at software company CA. "If we're talking about medical systems, it could be you need it in one-thousandth of a second," he says.

One challenge is the impossibility of tying the performance of a system directly to profitability. A more effective approach, Curran suggests, is to decompose what the system needs to accomplish and measure just those aspects that matter the most. It might be the number of bills processed within a given window, if a goal is to get bills to customers more quickly. Or it might be trends in call-center volume if the goal is to push support questions to the Web. "Measure something the business cares about," Curran says. "Show you're working with them to try to achieve their goals."

Next Best Practice: Create a Shared Pool of Bonus Money

of Bonus Money">

5. Create a Shared Pool of Bonus Money
Some consultants recommend the use of cross-department financial incentives. Companies struggle with this culturally, but Barry Rosenberg, a partner with technology consulting firm Pace Harmon, says this is a practice that has gone from being desirable to mandatory. Business and technology people should be aligned not just in their objectives but their incentives. "It has to be everyone in the pool together," Rosenberg says. "You can't have one team win and another lose."

Rosenberg adds that I.T.-business teams shouldn't just be rewarded for success, but also penalized for failure, in the form of a bonus that goes partially or completely unearned. "If you're doing a half-a-million-dollar project, that's one thing," he says. "But a lot of these projects are in the tens or hundreds of millions."

Success in most big projects comes down to having an airtight plan and seeing to it that everyone does his job correctly, Rosenberg says: "The issue is operationalizing it. If you can establish things so that the incentives to succeed are not unique to any one group, you get an exponential benefit in terms of your likelihood to succeed."

Next Best Practice: Install a High-Level I.T. Liaison in Every Business Unit

-Level I.T. Liaison in Every Business Unit">

6. Install a High-Level I.T. Liaison in Every Business Unit
As the idea of alignment has taken hold in recent years, many companies have created liaison positions that are explicitly intended to bridge the gap—in understanding, language and communications—between business and I.T. Some companies have gone even further, installing a person responsible for I.T. implementation and strategy in individual business units.

Called everything from account managers to business I.T. managers to relationship managers, these people are essentially mini-CIOs, residing within the business units and doing for them what corporate CIOs do for entire companies. Their jobs go beyond the basic function of representing I.T. to the business; they are also supposed to identify ways that the business units can use technology for competitive advantage. Giving a sense of how seriously some big companies take this function, consultant Merlyn says he is working with a global pharmaceutical company (I.T. budget: $1 billion) that has about 30 relationship managers around the world. Another of Merlyn's clients, a financial services firm, has almost 1,000 people in the role, he says.

It is not an easy job. Relationship managers can fail if they lack the experience and credibility to interact with business-unit leaders at a very high level. After all, you can't expect most 29-year-olds, even ones with all the brains in the world, to square off with executives who have shown they can run billion-dollar businesses. It's the conundrum that the baby-faced Topher Grace ran into, on a smaller scale, in the 2004 movie In Good Company.

"People with the skills to be an I.T. relationship manager are few and far between," Merlyn says. "Most people are not very good at it."

Next Best Practice: Distribute a List of Ongoing Projects—To the Business as Well as I.T.

Ongoing Projects—To the Business as Well as I.T.">

7. Distribute a List of Ongoing Projects—To the Business as Well as I.T.
Do you have it in writing? A regularly updated list of the projects you've got going can do a lot to keep you coordinated with your peers on the business side. Progressive Medical CIO Mazzocco maintains such a record in Excel; its multiple worksheets and entries contain information about projects, tasks, release dates and the dollars Mazzocco has spent.

The document is useful for keeping Mazzocco himself on track, but perhaps its biggest benefit is how Mazzocco uses it with his CEO. The two men, along with several other top executives, discuss an updated version of the project road map twice a month.

"If I can walk around with a list that's been blessed by the CEO and key executives, that's half the battle," Mazzocco says.

Next Best Practice: Network (in a Non-Technical Way)

(in a Non-Technical Way)">

8. Network (in a Non-Technical Way)
Up to now, a lot of our best practice suggestions have had to do with structures and processes. These are all things that can help you stay in tune with the business, but perhaps none is as important as the softer tactic of having good relationships with your peers.

This is easiest, of course, for technology executives who have long tenures at their companies—a rare breed these days. For instance, Doug Allen's 28 years at Columbus, Ohio-based State Auto Financial Corp. give him credibility with his peers—and a deep understanding of his company's $1.1 billion business. When the CEO calls his monthly leadership meetings, Allen, State Auto's director of information technology, is among the 17 people in the room.

"With me there, I can hear what the conversation is," Allen says. "If I wasn't at that table, it would be much harder for me to react to these ideas."

Effective networking doesn't just mean hearing others' ideas. Consultant Merlyn recalls that a CIO of a Fortune 100 company once told him, in explaining his decision to add two seemingly unrelated PowerPoint slides to a presentation, that he never got in front of his company's management committee without also trying to educate them about something he was going to be bringing to their attention six or eight months down the road.

"That's a good practice," Merlyn says.

Next Best Practice: Create Multi-Disciplinary Teams for High-Priority Projects

-Disciplinary Teams for High-Priority Projects">

9. Create Multi-Disciplinary Teams for High-Priority Projects
One thing that can work for aligning I.T. with the business is to create teams to handle specific projects.

State Auto did this in the summer of 2006 when the company set out to sell more insurance to small-business owners. The problem was that independent insurance agents had no easy way of accessing State Auto's back-end systems. State Auto gave itself nine months to build a portal that would address that.

I.T. director Allen opted for an arrangement in which his developers were co-located with business analysts, project managers and quality assurance personnel. The physical proximity helped communication, making things like scope creep easier to manage, and the portal went live in State Auto's home state, Ohio, this past May.

Allen says it's too early to tell if the portal will increase State Auto's small-business sales, an area the company hasn't emphasized previously. But he is heartened that the initial product came out within a few weeks of its due date, and contained just 35 defects—very few for a project of this complexity. "I think we're going to see a more repeatable process so when we take on the next project, we've got a solid template" for how to get it done, Allen says.

Successful as an approach like this can be, it can also backfire if it is allowed to take root outside a company's approved enterprise architecture. "That's where you get all these silos," MIT's Ross says, speaking generally, not of State Auto's project. "It can make it hard to respond to the next set of requirements."

Next Best Practice: Think Beyond Mere "Alignment"

10. Think Beyond Mere "Alignment"

The day is fast approaching when it may be passé to talk about bridging the gap between business and I.T. For some big companies, that day has already arrived, says Merlyn, the BSG consultant. Within those companies—places like ING Direct and UPS—even to suggest there's a different language for business and I.T. may create a wall, he says.

"When you work with the most sophisticated companies, and you use the language of business versus I.T., they look at you a bit funny," Merlyn says. "They'll tell you, 'We don't talk about business people and I.T. people in our enterprise because if you ask someone here are they a business person or an I.T. person, the answer is, yes.'"

In the future, these leading companies won't be unique in seeing I.T. as a key driver of overall business strategy. Every successful company will be in that position—expecting its CIO to think of ways to use data, systems and services to shape customer experience in a way that strengthens the bottom line.