nature of information technology within organizations

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Nature of Information Technology Within Organizations

Dr. Mary C. Lacity

Thomas Cole, Course of the Empire: Archadian State, 1834

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Session Objectives

Understand Context (nature) of ITwithin organizations

Understand Role of the CIOUnderstand that every organization has

an IT cultureUnderstand how IT is governed

within organizations

EnsureValue for IT

Spend

to

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Session Objectives

EnsureValue for IT

Spend

to

The IT function provides a portfolio of IT products and services.

For many IT products & services, there is a corresponding cost/service trade-off.

For some IT activities, both costs and services can be improved.

Stakeholders possess different expectations and perceptions of IT performance.





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Session Objectives

EnsureValue for IT

Spend

to

The CIO must deliver operational excellence to gain credibility

The CIO must make strategic choices and communicate these effectively to stakeholders

The CIO must propose new business opportunities

The CIO must promote agenda

Levinson, M., “CIO and CEO: How to Work with Your Boss,” CIO Magazine, Oct 1, 2004.





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Session Objectives

EnsureValue for IT

Spend

to

“A necessary evil,” “IT is support, not a partner,” “IT Rules!”

“Business Can Do It Better” “Equal Partners”

Kaarst-Brown, M., “Understanding An Organization’s View of the CIO: The Role of Assumptions

About IT, MIS Quarterly Executive, Vol. 4, 2, June 2005, pp. 287-301.





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Session Objectives

EnsureValue for IT

Spend

to

“IT governance—specifying the framework for decision rights and accountabilities to encourage desirable behavior in the use of IT.”

IT governance mechanisms: budgets, chargebacks, service level agreements,Committees, special offices (Office of Architecture; Program Management Office)Weill, “Don’t Just Lead: Govern, How Top Performing Firms Govern IT, MISQE, March 2004, 2004, pp. 1-17.





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“Smurfit-Stone is North America's premier packaging company, working as ONE team to deliver exceptional value to our customers, employees, shareholders and the communities in which we do business.” --http://www.smurfitstone.com/Content/

Major product lines include corrugated boxes or containerboard, point-of-purchase displays and recyclable paper products.

Major services include consulting, contract packaging, recycling, research & development, or testing

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2005 2004 2003 2002

Annual Revenues

$8,396 million $8,291 million $7,722 million $7,483 million

Net Income1 $(339) million $(54) million $(208) million $54 million

2005 Data:

Total Number of employees = 35,300 (28,200 in US)Total Number of IT employees in IT headquarters: 300 in-house & 80 contractors IT Spend ~ $100 million (1% of revenues)

1 Losses due to increased global competition, rising input costs, and soaring employee benefits costs.

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Mr. JamesBurdiss

Senior VP & CIO

InfrastructureBusiness

ApplicationsBusiness

Operations

Data, E-commerce,Integration, &

Support

Supply ChainAnd Mill

Applications

ERPIntegration

IT Department:5 locations (Alton)

Asset ManagementProcurementPMOCustomer Training

LANWANTcomDesktopsMidrangeSecurityContiniuty

WarehouseDBABIDSSCustomer support

FinancialHR/PayrollCADBag PlantsConvertingCorrugated

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IT Department Supports:

12,500 customers (users) 11,917 desktops & laptops 246 Macintosh computers 4,143 printers 604 contracts with suppliers 1,920 IT orders processed 3,733 production system

changes 300 phone systems 1,700 cell phones 248 personal digital assistants

2 mainframes 2 data centers (Alton & Chicago) 187 midrange computers 589 routers & 1,778 switches

84 business applications 598 databases 72,000 EDI documents per month

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Nature of IT Within Organizations

Top 4 things general managers must understand about IT:

The IT function provides a portfolio of IT products and services.

For most IT products & services, there is a corresponding cost/service trade-off.

For some IT activities, both costs and services can be improved.

Stakeholders possess different expectations and perceptions of IT performance.

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The IT Function Provides aPortfolio of Products & Services

The typical Fortune 500 company provides over 500 IT services:

Computer Operations Output Management

Help Desk Forms Inventory

Hardware Planning and Installation Capacity Management

Performance Management Problem Management

Back-up Management Disaster Recovery

Software License Management Hardware Lease Mgmt

Production Schedule Application Testing

Application Installation Systems Security

Standards and Procedures Performance Tuning

Database Administration Physical Security

Tape/Cartridge Management Etc...

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The typical Fortune 500 company supports thousands of applications…

Sales Force Support Sales and Use Tax E-commerce Customer Relationship Management Credit Validation Auctions Purchase Orders Telemarketing Receipts Seismic Analysis Invoices Logistics Joint Interest Accounting Financial Analysis General Ledger Personal Productivity Chart of Accounts Video Conferencing Inventory Control Email Shipping Knowledge Management System

etc.....

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Different IT products/services require different skills, capabilities,and resources

All of IT is not a commodity (despite what many CEOs think)

All of IT is not strategic (despite what many IT managers think)

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IT Cost/Service Trade-offs

For most IT products/services, there is a corresponding cost/servicetrade-off. This trade-off suggests IT management practices:

Best service, but high cost practices:• Customization• Decentralization• Loose Controls that encourage consumption

Low cost, but lower service practices:• Standardization• Centralization• Tight Controls to harness consumption

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Just some examples ofIT Cost/Service Trade-offs

IT ACTIVITY MINIMAL COSTMINIMALSERVICE

PREMIUM COSTPREMIUMSERVICE

MainframeOperations

CentralizedMega-center

Multipledecentralizedcenters

Printing On-line reportsonly

Local printing onmultiple forms

Help desk hours Business hoursonly

24/7

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For some IT activities, both costs and services can be improved

Capability Maturity Model, ISO, Six Sigma, Structured SAD and other process methodologies are based on the notion that improving quality reduces costs.

For example:

Reducing the number of errors in programming code improves software quality and reduces maintenance costs.

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IT Cost/Service Trade-offs

The IT management challenge:

For each product and service, should we focus on lowcost or service excellence?

Most IT managers face different expectations fromdifferent stakeholders.

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Stakeholder Expectations/Perceptions of IT

Senior managers typically want low costs because theypay for IT

Users typically want service excellence because they consumeIT products/services

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Senior managers typically want low costs because theypay for IT:

"All they (senior management) see is this amount of moneythat they have to write a check for every year. Year afteryear after year. Where is the benefit? MIS says, 'Well, weprocess data faster than we did last year.' They say, 'Sowhat?' MIS says, 'Well, we can close the ledger faster.' Andthey say, 'So what? Where have you increased revenue? Allyou do is increase costs, year after year after year and I amsick of it. All I get are these esoteric benefits and a bunch ofbaloney on how much technology has advanced. Show mewhere you put one more dollar on the income statement.'" --Corporate Manager of IS Planning, Petroleum Company

"There was a feeling that this was a rat hole to pour moneydown...We don’t like you guys anyway, you cost too much,you want to increase our prices, our profits are down, wewant to go outside."--Data Center Manager, Ralston Purina,describing his senior management's perceptions of IS

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Users typically want service excellence because they consumeIT products/services:

"If it cost $5 million more dollars to have this in my businessunit and be able to control it and make it responsive to myneeds it's worth 5 million dollars to me."--DivisionManager, Petroleum Company

“...the [expectations were] the services were going to befantastic. They were going to have PCs on a desk in 9.5minutes and God knows whatever else. So the end customerhad got this expectation of a step-change.” -- CSC VicePresident.

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“I said [to management], ‘I cannot get any support from you all in how to allocate these resources. And we cannot be the traffic cop in this whole process because it’s not right. I’m trying to satisfy everybody and it’s not working.’” --IT Director, Petroleum Company

“We are an IT company, so we can transfuse current IT, state of the art IT, future IT, conceptual IT. But of course that transfusion as far as we are concerned is not free.The big problem is these people think that transfusion is free. All we are contracted to do is drive a service of this level.” -- CSC Quality Manager on BAe Account

IT managers are often placed in the impossible situation ofproving a Rolls Royce service at a Chevrolet price:

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MINIMALCOST

PREMIUMCOST

PREMIUMSERVICE

SUPERSTAR

Expectations ofIT

DIFFERENTIATOR

decentralization customization loose controls

MINIMALSERVICE

COMMODITY

centralization standardization tight controls

BLACK HOLE

Perceptions of IT

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Session Objectives

EnsureValue for IT

Spend

to

The CIO must deliver operational excellence to gain credibility

The CIO must make strategic choices and communicate these effectively to stakeholders

The CIO must propose new business opportunities

The CIO must promote agenda






25

Role of CIO: Ideal verses Reality

Ideal But Many Times…

Head of the IT Reports to CEO CFO, Controller, COO

Role in Organizational Strategy

Significant input into the Organizational Strategy; Co-development of business & IT strategy

Aligns IT strategy with organizational strategy

Committee Participation CIO sits on important committees like Strategic Planning, Capital Budgeting

CIO directs his/her own IT Steering Committee

CIO background IT and Business Management Experience

IT with MBA

Perceived as Strategist Tactical/Operational Manager

CEO & CIO see role of IT as

Enabling growth, business innovation, competitive advantage

Reducing Costs

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Operational Excellence Precedes Strategic Credibility

“It’s very difficult to be seen as Mr. or Mrs. Strategy if the trains aren’t running on time.” -- Steve Agnoli, CIO, Kirkpatrick & Lockhart law firm (Seated left)


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Three Steps to Image Alignment

Make Strategic Choices –CIO at AskSam Systems told his CEO that he decided to pull headcount from the internal CRM project so that an upgrade to a core external product would be delivered on time

Propose New Business Opportunities – CIO of Chicago Mercantile Exchange adopted Financial Industry Exchange (FIX) protocol before competitors and gained a competitive advantage by attracting more traders.

Promote Your Agenda – If not invited to the party, lobby for 10 minutes in front of the Board or top management committees to explain what IT is working on and how it add value.


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CIO of Smurfit Stone

The CIO was awarded CIO Magazine’s prestigious “the CIO 100” in 2003. His award was for “demonstrated resourceful use of technology in tough economic times.” The CIO notes:“Even in declining times, we have a responsibility to move technology forward. We look for investment dollars that will make us more agile or more flexible. If there is something that can differentiate us in the market that is IT enabled, we will spend dollars there.”

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CIO Status Depends More on Culture than:

• Co-location with business peers

• Business degree

• Personal charisma

• Tech savvy business peers

Kaarst-Brown, M., “Understanding An Organization’s View of the CIO: The Role of Assumptions About IT, MIS Quarterly Executive, Vol. 4, 2, June 2005, pp. 287-301.

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Session Objectives

EnsureValue for IT

Spend

to

“A necessary evil,” “IT is support, not a partner,” “IT Rules!”

“Business Can Do It Better” “Equal Partners”

Kaarst-Brown, M., “Understanding An Organization’s View of the CIO: The Role of Assumptions

About IT, MIS Quarterly Executive, Vol. 4, 2, June 2005, pp. 287-301.





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“Culture” A Necessary Evil

IT is Support, Not a Partner

IT Rules Business Can Do It Better

Equal Partners

Who should Control IT Direction?

Let’s not control it, let’s avoid it because IT is out of control

Corporate business executives

IT professionals should control IT direction

Each business unit should control its own IT direction

Control should be shared by IT professionals and business units

Centrality of IT to Business

Strategy

Not assumed to be central to business strategy

Must have senior business champion or sponsor

Crucial at corporate (strategic) level

Important at operational or tactical levels

Balanced importance depending on issues

Value of IT Skills and Knowledge

Not valued; potentially a threat

Business knowledge superior; IT 2nd class

IT skills highly valued and rewarded

IT knowledge and or skills required at mid-managerial and staff business levels

IT skills valued as partnered with business skills

Justification for IT investment

No choice but to adopt IT solution as survival measure

To reduce costs or staff

R&D; innovation; to improve or create new services

Improved services, personal productivity and unit level services

Customer oriented; problem specific

Beneficiaries Non-IT staff will lose, no one wins

Staff may lose; organization wins, IT suffers demands

IT staff win; organization & clients win

SBUs win; IT may lose if shut out of projects

Selective losses; organization & customers win

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Session Objectives

EnsureValue for IT

Spend

to

“IT governance—specifying the framework for decision rights and accountabilities to encourage desirable behavior in the use of IT.”

IT governance mechanisms: budgets, chargebacks, service level agreements,Committees, special offices (Office of Architecture; Program Management Office)Weill, “Don’t Just Lead: Govern, How Top Performing Firms Govern IT, MISQE, March 2004, 2004, pp. 1-17.





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“Don’t Just Lead, Govern: How Top-Performing Firms Govern IT”

Peter Weill, MISQE, 2004, pp. 1-16

“Top performing enterprises succeed in obtaining value from IT where others fail,in part by implementing effective IT governance to support their strategies andinstitutionalize good practices.”

Survey of 256 enterprises in 23 countries20 detailed case studies

5 Major IT Decisions:Input & Decision:

IT principlesIT architecture

IT infrastructureBusiness Application Needs

IT Investment & Prioritization

6 Governance Archetypes:Business Monarchy

IT MonarchyFeudalFederal

IT DuopolyAnarchy

Performance: 1. IT Governance as assessed by CIOs on scaleof 20-1002. Financial as measured by Return on assets Revenue growth Profit (Industry Adjusted)

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Governance Defined

“IT governance—specifying the framework for decision rights and accountabilities to encourage desirable behavior in the use of IT.” –Weill, MISQE, 2004

“A structure of relationships and processes to control the enterprise in order toachieve the enterprise’s goals by adding value while balancing risk verses return over IT and its processes.” –IT Governance Institute, www.itgi.org

“IT governance is the organizational capacity exercised by the Board, executive management, and IT management to control the formulation and implementation of IT strategy and in this way ensure the fusion of business and IT.” –Wim Van Grembergen, 35th HICSS Conference

http://www.itgi.org/

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Govern-ance

Arche-

type

Decision DomainIT Principles IT Architecture IT

Infrastructure

Strategies

Business Application

Needs

IT Investment

input decision input decision input decision input decision input decision

Business

Monarchy

IT Monarchy

Feudal

Federal

IT

Duopoly

Anarchy

Don’t Know

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Decision Domain

IT Principles IT Architecture IT Infrastructure

Strategies


Needs

IT Investment

High-level statements about how IT is to used in the business

Ex:•Leverage economies of scale•Standardize processes and technologies wherever appropriate•Common tools, i.e. one ERP system•Cost control and operational efficiency•Alignment and responsiveness to negotiated business requirements•Bench-marked lowest total cost of ownership•Rapid deployment of new applications

An integrated set of technical choices to guide the organization in satisfying business needs.

Hardware

Data Dictionary

Operating

Systems

Base foundation of centrally coordinated services such as firm-wide:

communication network services

Messaging services

Disaster recovery

Security

Help desks

Data centers

Business need for purchased or internally developed IT applications

CRM

ERP

KM

SCM

How much and where to invest in IT; Capital budgeting for IT

Project approvals

Prioritization

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Govern-ance

Arche-

type

Decision rights or input rights are held by: CXO

Level

IT

executives

Business unit leaders;

Process owners

Business

MonarchyCXOs; CIOs may be included X

IT Monarchy

IT executives only X

Feudal Business unit leaders or key process owners

Feudal lords maximizing own needs

X

Federal C level executive and at least one other business group; Like country and states working together

Takes a long time; compromises may result in no one happy

X X X

X X

IT

DuopolyIT executives and one other group X X

X X

Anarchy Small group of individual users

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Govern-ance

Arche-

type


Infrastructure

Strategies


Needs

IT Investment

input decision input decision input decision input decision input decision

Business

Monarchy

0 27 0 6 0 7 1 12 1 30

IT Monarchy

1 18 20 73 10 59 0 8 0 9

Feudal 0 3 0 0 1 2 1 18 0 3

Federal 83 14 46 4 59 6 81 30 93 27

IT

Duopoly

15 36 34 15 30 23 17 27 6 30

Anarchy 0 0 0 1 0 1 0 3 0 1

Don’t Know

1 2 0 1 0 2 0 2 0 0

MOST COMMON GOVERANCE PATTERNS:NOT TIED TO PERFORMANCE

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Govern-ance

Arche-

type


Infrastructure

Strategies


Needs

IT Investment

Business

Monarchy

IT Monarchy

Feudal

Federal

IT

Duopoly

Anarchy

TOP THREE PERFORMING PATTERNS AS MEASURED BY CIO ASSESSMENT

3 3

3

33

1

1

11

1

2

2

22

2

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Govern-ance

Arche-

type


Infrastructure

Strategies


Needs

IT Investment

Business

Monarchy

IT Monarchy

Feudal

Federal

IT

Duopoly

Anarchy

TOP THREE PERFORMING PATTERNS AS MEASURED BY:Asset Utilization (IT coordinates) Growth (Balance needs of entrepreneurial unitsProfit(Largely centralized to control costs) with business wide objectives)

G

G

G

G

G

AAAAA

P

P

PPP

P

No dominant patternOften multipleArchitectures & infrastructures

G

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Eight IT Governance Critical Success Factors

1. Transparency to all managers

2. Governance should be actively designed

3. Governance should be infrequently redesigned—takes 6 months to define one!

4. Educate managers to understand and use IT governance

5. Simplicity—based on small number of performance objectives

6. An exception handling process (UPS)

7. Governance should be designed at multiple organizational levels (enterprise/ division/geographic, business unit) 8. Align incentives

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Management / Maintenance / Technical Support of:

– Mainframe / Data Center– Server– LAN/WAN Network– Desktop Support– Security– Version control– Disaster Recovery

UserBoard of Advisors

CIO

InfrastructurePMO/

Change Management

Customer SupportAnd Finance

• Charter: Manage and ensure uptime of the data center and all information technology infrastructure

• Charter: Improve customer satisfaction through problem prevention and timely resolution. Ensure proper fiscal, procurement and human resource operations within ITD.

• Charter: Development of common project methodology and tools. Develop project performance metrics. Provide Coaching to projects

• Charter: Customer voice, strategy formulation, policy review

• Comprised of Senior Business Executives from Corporate and Divisions

– DBA– Data Management– Data Warehouse/

Architecture– Business Intelligence/

Decision Support– eBusiness– Web Development– EAI

– CAD Eng. (Product Config)– Business Apps Development & support:

•CRM•Finance•HR/Payroll•CPD Apps•Container Apps

– Business Process Group

– Methodology Dev.– Training; Planning,

Execution, Coordination– Communications– Performance management

and measurement– Project Governance

– Customer Advocate– Help Desk/Support Center– Finance– HR/Personnel– IT skills enhancement– Procurement/ Technical

Acquisition– Asset Management

BusinessProcess Automation

• Charter: Create Centers of Expertise in areas of knowledge to share across SSCC

Business Applications

• Charter: Working closely with customers, plan, lead and manage software application projects

Supply ChainOperations

• Charter: Working closely with the customers, plan, lead and manage mill software applications and projects

–SOM/SCORE–TMS–Panther–Majiq–CMS

IT ManagementCouncil

• Charter: Division IT and corporate IT management focused on cross sharing of ideas and experience. Will be used for issue resolution and enterprise IT strategy formulation.

Business Strategy

IT Strategy

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Two Examples of Best Practices for IT Governance Mechanisms

1. Develop chargeback (billing) systems to motivate behaviortowards cost minimization or service excellence

2. Develop service level agreements to articulate servicerequirements to stakeholders

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Best Practices for IT Governance Mechanisms:

Chargeback Systems

A chargeback system is an accounting procedure for allocating the IT operating budget to user departments.

“With a chargeback system, you get a bill that shows you here’s everything you ran for the month. And if you were wastingresources, and the bill jumps as a result of that, you’d be amazedhow much people reduce their costs the minute a chargeback

system is implemented.” -- Warren Gallent, Technology Partners

Chargeback systems range from general allocation systems toprofit centers.

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General allocation chargeback systems have set bills regardlessof IT use:

IT budget may be divided among departments based onsize of budget, number of users, etc.

Does not motivate efficient user behavior because users donot perceive that consumption is tied to a cost.

General allocation chargeback systems are easy to administer.


Chargeback Systems

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At the other extreme, all 500 services may be individuallypriced with a Profit Center chargeback system.

CPU minute: $ 8.00Gigabyte of storage: $ 100.00Printed page: $ 1.001 person-hour programmer $ 50.001 person-hour analyst $ 80.001 new workstation $10,000.00

etc….


Chargeback Systems

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Pros of using a profit center: Users take more responsibility for IT expenditures IT managers motivated to provide cost efficient service

Cons of using a profit center: Expensive to administer Difficult to set correct prices to re-coup IT operating budget Users may unfairly price shop:

“The purchase cost is the only cost the user sees. Maintaining itcosts five times as much as it does to purchase.” -- CSC QualityManager


Chargeback Systems

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Develop service levels for every service you want to control

Example: Service level for security request for new logon ID or access todata:

95% of security requests will be correctly processed within2 working days after receipt of the properly authorized andcorrectly completed security request form. 100% of security requests will be correctly processed within4 working days after receipt of the properly authorized andcorrectly completed security request form.


Service Level Agreements

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Example: Service level for security request for new logon ID or access todata:

Local security administrators will copy requestsCentral security administrator will copy and log requestsCentral security administrator will report on SLA once a

month to Data Center ManagerMissed SLA will be reported to Data Center Manager and

appropriate user managerCriticality of service: moderate



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Principles of Good Service Levels:

100% accountability Accuracy and Timeliness addressed Defines IT and user responsibilities Criticality of service rated SLA reporting system established Escalation procedures defined for missed SLA In cases of outsourcing, cash penalties may be awarded



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SERVICE EDS SOUTHAUSTRALIA

SHAREDEDS/SA

TOTAL

Mainframe 106 48 15 169

Midrange 111 47 14 172

LAN/WAN 150 62 17 229

Workstations 54 36 12 102

Infra-structure

30 18 6 54

TOTAL 726



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Principles of Good Service Levels:

“I think our conclusion is that we seek no more than a dozenkey performance indicators. Otherwise, yes the relationshipis more complex than that. But unless you pick the 12maximum most important keys, you again will have something that is unmanageable.” -- Bae General Contract Manager



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Session Objectives





EnsureValue for IT

Spend

to

nature of information technology within organizations

Documents

itspendtothe cio

credibilitythe cio

stakeholdersthe cio

cio magazine

role of assumptions

products services

major services

input costs