ROBERT J. BENSON

THOMAS L. BUGNITZ

WILLIAM B. WALTON

John Wiley & Sons, Inc.

From Business Strategyto IT ActionRight Decisions for a Better Bottom Line

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From Business Strategyto IT ActionRight Decisions for a Better Bottom Line

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Praise forFrom Business Strategy to IT Action

The authors provide us a most insightful approach to industry’s toughest problem: on what IT investments should we invest our scarce

resources? More importantly, their framework can be applied to any and every discretionary corporate investment. Linking corporate

investments to strategic objectives is critical to remaining or becoming a viable and vital business—and this book gives us the roadmap for the journey. Particularly helpful are the provocative sets of questions and helpful tools to address this complex issue.

—Francisco A. Figueroa, CFO and Vice President,Sandia National Laboratories

This is a dynamite book of practical advice for companies that do not fully understand IT, and should become required reading for

both business and IT management. It is a “gem” of disciplines and practices and of business-based ways to manage IT and to get

the biggest and most important value from IT investments.

—Cecil O. Smith, Senior Vice President and CIO, Duke Energy

I’ve worked with Bob for several years. This book, which outlines his practical yet elegant approach for aligning IT action plans

with the overarching business strategy, is a must read for anyone who wants to get more impact from their IT dollar!

—Brian Gill, Vice President and CIO, Sunlife Canada

I like this book very much. It offers an extraordinary set of insights on how to take IT planning, innovation, and performance

measurement to the bottom line. For more than two decades I struggled, as a CIO, to tie IT management decisions to business outcomes. Finally, I found in this book a consistent framework

for guiding IT and business leaders alike, in maximizing the business value of their IS capabilities and technology investments.

—Doron J. Cohen, Ph.D. CIO, The BrassTacks

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To bridge the chasm between business and IT, concise and clearly defined business and financial decision processes and metrics

need to be created and articulated. This book provides a precise and simple to follow methodology that IT executives can use

to better align themselves with CFOs and their business partners.

—Mark Popolano, CIO, Vice President, AIG, Inc.

This book tells you all you need to know about strategy and execution related to developing IT strategies, making the right investment

decisions, and implementing the strategies that will lead to creating greaterimpact to business performance. A great insight shared by the authors

for those who are concerned with IT investment and return.

—Swee-Cheang Lim, Director, Institute of Systems Science, Singapore

In 1988, Information Economics proposed a way of thinking and a method about the value of IT. In this new book, based on their broad

business-based experience, the authors further develop the framework and process. It is the combination that lays the foundation

for increasing the bottom-line results of IT investments.

—Prof. dr. Pieter Ribbers, Faculty of Economics,Tilburg University, The Netherlands

Within ING there is continuous pressure to ascertain that all discretionary IT-related business investments generate a stable earnings

stream that is significantly higher than the weighted average cost of capital. Following on the valuable insights of Information

Economics, this book may contribute to the firm’s ability to enhance IT’s contribution to its value creation process by

ameliorating project risk.

—Dr. John FA Spangenberg, Head of IT Performance &Investment Management, ING Group

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ROBERT J. BENSON

THOMAS L. BUGNITZ

WILLIAM B. WALTON

John Wiley & Sons, Inc.

From Business Strategyto IT ActionRight Decisions for a Better Bottom Line

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This book is printed on acid-free paper. ��

Copyright © 2004 by John Wiley & Sons. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New JerseyPublished simultaneously in Canada

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorizationthrough payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, e-mail: permcoordinator@wiley.com.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or fax 317-572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content that appears inprint may not be available in electronic books.

Library of Congress Cataloging-in-Publication Data

Benson, Robert J.From business strategy to IT action : right decisions for a better

bottom line / by Robert J. Benson, Tom Bugnitz, William Waltonp. cm.

Includes index.ISBN 0-471-49191-81. Business planning. 2. Business enterprises—Computer networks.

3. Information technology—Management. 4. Information resourcesmanagement—Economic aspects. I. Bugnitz, Thomas L. II. Walton,William, 1951– III. Title.HD30.28.B4533 2004658.4'03— dc22 2003020204

Printed in the United States of America.

10 9 8 7 6 5 4 3 2 1

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http://www.copyright.com

Bob Benson thanks his wife, Noreen Carrocci, for her continuous and constant support

and dedicates this effort to her and our families.

Tom Bugnitz dedicates his work on this book to Diane Dimeff, who has supported, helped,

encouraged, and most of all put up with him and his many idiosyncrasies for the last ten years.

Bill Walton dedicates his work to his wife Eliza and children, Mac, Jas, and Grace.

Together, you are both my why and my how.

Miraculously, we have all three ended up with women who are much better than we deserve.

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Bob Benson is a Principal with The Beta Group. He has served as CIO, finan-cial executive, dean, professor, author, and consultant for over 40 years. Hisconsulting and research deals with the business value of IT, business and ITstrategic planning, methodology and process development, IT governance, andfacilitation. He has conducted executive seminars and performed and managedconsulting engagements on these subjects throughout the world (in 20 countriesand 40 states) and has taught graduate courses in schools of business and engi-neering in Europe and the United States. For over 10 years, he has consulted fulltime in his areas of interest.

He has keynoted numerous international conferences, created and managedacademic programs and organizations, developed large-scale computer systems,and consulted with a wide range of companies and government agencies. Mr.Benson is coauthor of several books and numerous book chapters, articles, andmonographs, including Information Economics: Linking Information Technol-ogy and Business Performance (Prentice-Hall, 1988) and Information Strategyand Economics: Linking Information Systems Strategy to Business Performance(Prentice-Hall, 1989).

Mr. Benson is an affiliate professor of computer science at Washington Uni-versity in St. Louis, where he also served as senior executive for computing andcommunications, institutional financial planning, and professor, dean, and cen-ter director. He is currently a professor of information management (part-time),Faculty of Economics, Tilburg University, The Netherlands. He served as found-ing managing director of the E-Business Forum.

Tom Bugnitz has been the President of The Beta Group, a consulting firm hecofounded with Bob Benson, for the past 15 years. Mr. Bugnitz has consultedand lectured widely in the United States on the subject of the business-IT con-nection, and has codeveloped a number of consulting methodologies forimproving IT management. In addition, he is closely associated with Washing-ton University in St. Louis as an adjunct professor of computer science and par-ticipates actively in the development and execution of research in the field ofinformation management. He is coauthor of several books on systems and com-puter programming. Mr. Bugnitz brings practical experience to bear on his con-sulting and teaching assignments, having worked at all levels of informationsystems organizations, including 10 years managing large data centers and tele-communications operations.

about the authors

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Bill Walton is a Principal with The Beta Group. His areas of special interest andexpertise include Performance Measurement, Alignment, Integrated StrategicPlanning, IT/Business Value, Organizational Change Management, and Tech-nology-Driven Change.

Before joining The Beta Group Mr. Walton was with Gartner and Real Deci-sions for 17 years. He spent his final 5 years at Gartner as the Vice-President ofR&D for Gartner Measurement where he was directly responsible for the devel-opment of numerous innovative benchmarking and IT performance measure-ment services and their associated analytical methods. These included the useof organizational and technical complexity as IT cost drivers, the application ofthe Balanced Scorecard to IT, and the development of IT management processmodels. Most recently, with The Beta Group Mr. Walton has been responsiblefor the development of a set of management frameworks and tools that supportIT strategic alignment and planning processes.

Mr. Walton has been active in the information and technology managementfield since 1977. He has worked with a large number of clients in the USA,Canada and Europe on critical IT measurement and management issues. Mr.Walton applies a combination of active research and practical experience to eachof his consulting engagements.

x ABOUT THE AUTHORS

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The Beta Group consults to Fortune 500 companies and government agencies in North America and Europe, focusing on improving IT’s bottom-lineimpact and controlling IT spending. Beta Group consulting practices cover theIT planning-to-execution cycle, starting with strategic planning and budgetingthrough investment prioritization, alignment, performance measurement, andportfolio management. For more information on the company or its methods,visit www.the-beta-group.com or www.beta-books.com.

about the beta group

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As a purchaser of From Business Strategy to IT Action: Right Decisions for aBetter Bottom Line, you have access to the companion website. The Notesthat are provided on the Website provide additional information and back-ground on IT value strategies including the Strategy-to-Bottom-Line Value Chain,New Information Economics, the five practices, and Portfolio Management andAssessment. To access the website, go to www.wiley.com/go/ITAction.

NOTES

1 IT and Economic Cycles2 IT’s Value—A Definition3 IT, Bottom-Line Impact, and Government4 Tests for Connected Business and IT5 Modern Portfolio Management6 One Company’s View of Portfolio Management7 Constructing Portfolios8 Gap Analysis: Closing Disconnects between Business and IT9 Building an IT Profit Model

10 Stage Theory and Management Culture11 Right and Wrong in Management Culture12 Value and Values13 Our Use of Shareholder Value14 Scoring for Portfolio Assessment15 The CFO’s Role16 What about IT’s Performance17 Other Portfolio Classifications18 ROI and the IT Value Life Cycle

about the website

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http://www.wiley.com/go/ITAction