sourcing i.t. value

Sourcing IT ValueWhy Strategy and Architecture

trump Performance in

the ROI of IT

© 2014 Malcolm Ryder / archestra research

How to use this notebook

The following series of notes is not a fast read, not a slide show, and not an ebook.

The sequence of notes goes over customary ways of viewing value and management,

and reorganizes their description as necessary,to show the logic required

to explain prevalent current real-world experiences and expectations

of IT usage and benefit.

No external citations are included or necessary in this notebook.

All text and images in the notebook are copyrighted.

©2014 Malcolm Ryder / archestra research

Automation, disruptive innovation, analytics, the economics of digital services,

and start-up business models have all forcibly modified the conventional views

on how to manage “value” derived from I.T.

Used in trying to represent the benefits of results, “value” is often misconceived, incorrectly tracked,

and mis-represented, creating confusion and inconsistency in

management, investing and governance.

Important restorations to its identification and use include definitions, comparisons, and relations

as argued in the following.

Understanding Value

The Easy View

TECHNOLOGY

ACTIONS

EFFECTS

BENEFITS

JUSTIFICATIONINVESTMENTplanning

evaluatio

n

sou

rcin

g

The easy view of “Business IT” works for many audiences, at levels ranging from the individual user to the full company. But it fails to distinguish where and how accountability for business opportunity and business performance are distributed.

Meanwhile, IT itself “takes over” more and more of the task-level effort required to cover provision of the things labeled in the view. As IT becomes more pervasive, it seems increasingly to blur the line between operating IT and running the business. As IT increasingly enters the business from external parties, the line fades between what is inside and outside of the enterprise.


The Who Cares TestI.T. is expected by stakeholders of the business to “support operational performance that generates value for the business”.

Measured benefits are a huge focus of performance management. The working assumption is that procedures, value and benefits are in sequentially causal relationship with each other.

Business uses designated benefits to “drive” (motivate) alignment of underpinning values and procedures.

The drawback is a risk of myopia: targeting certain types of benefits can weaken attention to types and levels of other value that may occur – either as outcomes of the same procedures employed to meet targets, or as outcomes of other procedures not even driven by those targets.

This clarifies that “IT stakeholders” are, said more precisely, stakeholders only in their chosen benefit’s dependency on IT.

IT Choice: Pros and ConsIT’s combined availability, pervasiveness, and scalability creates a super-abundance of choice.

The choice offers coverage of more new ideas and problems, and more flexibility in how things can be done.

But, there are multiple side-effects of that diversity: discontinuities, and incompatibilities.

• Like customers, businesses themselves are more and more prone to shopping for results while losing interest in responsibility for how the results are produced. Competition makes that habit into a vulnerability, because without warning or permission, competitors affect the supply. Except for the children of devoted parents, taking it for granted that the future will supply necessary results is not a credible path to sustained self-determination.

• The tendency increases to justify IT choices case-by-case. The emerging attitude is that wherever benefits can be proved, IT choices are legitimized. But without intentional coordination, incompatibilities readily accompany the choices. A collection of semi-independent performances may not add up to a whole (business) effectiveness greater than the sum of the parts.

Choosing BenefitsThe capability of generating necessary future results is the goal of “organization”.

Having the conversation about how IT supports that goal often swings between two different ideas. “What have you done for me lately?” is a typical business concern, but “How is this going to help me?” is an equally sensitive area of justifications.

Despite positive performance results, companies are continually warned of the high uncertainty of the future due to innovation, complexity, and “unknowns” in the presence of I.T. Instead, the survival mandates are to be analytical, agile, and lean – all of which are about capability.

This centrally positions the “business value of I.T.”, and the goal of investing in it, within capability as opposed to profitability, and within opportunity management as opposed to cost management.

Strategy, meanwhile, decides which future results are necessary, thus also what are prioritized as future opportunities.

Making IT WorthwhileDespite the highly advanced state of performance measurement, it continues to surface that current benefits may not align with future opportunity.

While performance management is necessary to manage “progress”, it doesn’t explain how the business should organize for its future in an increasingly unpredictable competitive world, and therefore it tells us less about the “value” of included IT.

The problem is in the concept of “progress” that performance intends to track.

A decade of stories preaching “change or die” have described companies that spent a lot on IT and executed well financially – yet meanwhile fell too far behind such changes as open source, virtualization, and Everything-As-A-Service; or disruptive product innovations, social networking, and mobility. Such lags then led to loss or prevention of significant competitive opportunity and to “IT-avoidable” failures in the business.

Those cases became prominent proofs that Capability for Opportunity has more critical impact than Profitability of Cost. The point: the amounts of spending, whether a lot or a little, can be misdirected and lead to falling worth and negative ROI.

Getting Your Money’s WorthThe future of a business is, of course, more critically dependent on opportunity than on past performance.

What is necessary is an understanding of how opportunity is systemically generated in circumstances increasingly dominated by IT.

With that kind of understanding, the strategic selection of opportunity is more rational.

As a result, IT investment in that selection is unambiguously relevant as a lever of achieving critical benefit.

Conversely, the less relevant that IT is to the opportunity, the less IT is worth.

The question for the business is how widespread the capability for opportunity becomes.

STRATEGY

OPPORTUNITY

CAPABILITY

I.T.


The Meaning of “Enterprise”

A Theory of EnterpriseAn Enterprise is a set of resources and relationships that explicitly provides a proprietaryenvironment for business operations.

• A proprietor possesses, owns, or exerts exclusive rights to something

• Being proprietary means that the interests and intentions of certain parties are held and secured in highest priority.

• The “holding” mechanisms for those priorities are mainly constraints

• The basic constraints that define and allow proprietorship are:

• terms of agreement

• the availability of information needed to assure support of those terms

• real-time identification of, and compliance to, the terms

The landscape of IT presence

ENTERPRISE

BUSINESS

COMPANY

ORGANIZATION

BUSINESS

COMPANY

ORGANIZATION

COMPANY

ORGANIZATION ORGANIZATION

Multiple businesses derived within the enterprise

Multiple companies in the business

Multiple organizations of the company

Proprietary environment of the business

We know, from real life, that as an ecological fact, any entity on a given level of this hierarchy can outlive any entity on the level below it.


A Glossary of entities

The word “enterprise” most often describes the actions of someone who has been setting up, investing in and running a business. However, this is not our focus. Instead…

As entities:

• An Enterprise is a set of resources and relationships that creates a proprietary environment for business operations

Additionally:

• A Business is a set of relationships and responsibilities associated by a model for commerce

• A Company is a set of responsibilities and processes organized to run as operations

• An Organization is a set of processes and resources executed by a workgroup as production


The IT “Enterprise”

• Relationships - a relationship is a connection maintained for cooperatively producing desired benefits.

• Resources - a resource is an asset designated for an objective. Resources are invested means.

An Enterprise is a set of resources and relationships that creates a proprietary environment for business operations

Without those IT-dependent relationships, the conditions and functions that they make available would not exist in the environment as options and enablers. The result is that IT is virtually what distinguishes the environment or “culture” that supports business behavior.

More and more typically, a key relationship can exist either primarily or exclusively because of IT usage. Similarly, a high level of physical fitness literally allows a team to behave in ways that otherwise it cannot. In the same way, there is an aggregate effect of having most key relationships be highly IT-dependent.

The world of business increasingly features using IT itself to make an environment of IT resources proprietary.


“Proprietary” is an aggregate response…CONDITIONS OF ENVIRONMENT

Business Ideal General Trend Challenge created by trend Response to the Challenge

Terms of availability

Scalable More ideal BudgetingFunding by Business Unit

Terms of use Tailored Less ideal Commoditized capability Innovation

Privilege to alter Lenient More ideal Uncertainty Policy

Responsibility to maintain

Minimal More ideal Reliability Monitoring

Ability to exclude Unilateral Less ideal Ownership Security

Facing the complexity of the modern environment, proprietorship is far more like authority than like anything else. Here, authority manifests as decisions made about how to respond to key challenges.


Using IT to make the environment Proprietary

Response to the Challenge

Funding by Business Unit

Innovation

Policy

Monitoring

Security

Development

Deployment

Proprietorship is like authority … overlapping decisions to be made, prescribing the handling of current and probable operational conditions.

IT is increasingly instrumental in offering, establishing and confirming this handling.

But people must still directly attend to decision-making.

Sourcing

Discovery

Compliance


Regulations

Assets

Infrastructure

Architecture

Systems

Operations

Policy & Sourcing

Design & Planning

Deployment& Provision

CAPACITYENVIRONMENT DELIVERY

AGREEMENTS ADMINISTRATION

User communities, whether they are market customers or partners, have demandthat “pulls” fulfillment from a company’s capability to leverage the environment.

Demand

A Company is a set of responsibilities and processes organized to run as operations.

Authority pro-actively decides and directs alignment of IT utilization.


Assessments Agreements Administration

VARIABLES WHAT Environment Capacity Delivery Best Case Worst Case

HOW Opportunities Resources Structure Process Relevance Obsolescence

WHICH Constraints Demands & Tolerances

Platforms & Services

Apps & Transactions

Breakthrough Rogue

WHY Goals Positions Growth Production Strength Damage

BENEFIT Needs Options Position Performance Gain Loss

RISK Requirements Access Continuity Impact Security Threat

Seeks Offers Enables

The alignment of business-focused operation

IT utilization’s Range of Results


Managing Results of IT usage

Understanding “Results”

The usual perspective on “results” is about prevailing definitions of effectiveness.

Effectiveness is usually defined in terms of current priorities.

Current priorities are contextual.

Contexts differ from each other andthey change over time.

Each different context has its own way of acknowledging the results of IT utilization versus its idea of “effectiveness”…

The same “result” can have different meaning indifferent contexts. This fact is also especially important regarding the possible differencebetween the present and the future.

Best Case Worst Case

Relevance Obsolescence

Breakthrough Rogue

Strength Damage

Gain Loss

Security Threat

IT utilization’s Range of Results

BUSINESS CONTEXT CBUSINESS CONTEXT BBUSINESS CONTEXT A

Outcome X

Impact A PRODUCTION CONTEXT X

Output 1

Benefit C

PRODUCTION CONTEXT Y

Benefit A Benefit B

ACTION

Risk 1 Risk 1Risk 2

Impact B

VALUE

WORTH

Outcome Y

CONSEQUENCE

Understanding “Results” In the real world, a single output can have a variety of impacts; outcomes can be both positive and negative; and the same risk can accompany various benefits.


DRIVINGDEVELOPMENTRANKINGS

Be First

Less time; arrive sooner

POSITION vs. NOW

Acceleration

Set record

POSITION vs. FUTURE

Get prize Prove engineCrash car Crash carLose lead

More cost; reduced fuel

Stop Sooner

Understanding “Results” (example: auto racing)

ACTION

VALUE

WORTH

CONSEQUENCE

“Performance” is about managing consequences, and “objectives” are about managing value. Regardless of its source, value must be recognized for its potential worth…


Effect vs. IntentTypical “performance management” systems encode the prevailing ideas of effectiveness, including:

• predefining benefits by type and level,

• tracking delivery of benefits as performance,

• and grading benefit levels as value.

There are two problems with that.

• First: the logic is wrong. Performance does not produce benefits; performance produces value. To reliably get benefits, value must be managed. Failing to realize this can cause significant performances, whether from inside or outside of the business, to be ignored or wasted.

• Second: results are not all intentional. If a recognition of unintended results is obscured, and if alternative results are affecting future enablement, then there is faulty transparency. In that case, the currently accepted leading indicators of “effectiveness” are not reliable predictors of futureconsequences, and current performance effects may or may not correlate well with future needs.

Visibility of effectiveness must be explicit and precise enough to: correctly identify performance; and to extend beyond it; and to be aware of both the intentional and the actual.

The real Semantics of Transparent “Results”

Result As Type As Level As Target Variance

a.k.a. “intended” “managed” “effective” “significant”

Performance Priority of a specifiedimportance produced

Similarity of actual impact to target

Desired level of specified benefit

Actual level of identifiable typeof benefit

Value Importance of a distinctive difference

Degree of impact that the difference has on goals

Desired type of benefit of the impact

Actual type of benefit

Outputs Products or conditionscaused by plannedprocedures

Volume of output expected for making a difference

Level of impact necessary for identified benefit

Actual impacts produced at any level

Procedures Prescribed groups of tasks

Completeness at difficulty of a given pace

Schedule of completeness

Actual pace of completions

Most of the observable phenomena of operations are colored with “alignment” qualifiers that gradually stop being distinguished from the raw observables. Ignoring the distinction is risky at best … leaving unnecessary openings for surprises, disagreements, or even disruption based on variances. Meanwhile, variances can prove to be more important than performance to real opportunity.

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Aligning Future ValueOpportunity is the degree to which future benefits are likely to be obtainable from the value of future consequences.

If overall management is not calibrated to generating future opportunity, it encourages current performance (managed consequences) to disconnect from future value.

By definition, that would leave the business in a low state of ongoing readiness, making current performance sub-optimal.

To address the optimal condition, managers must consider whether actual current results, including variances, include manageable consequences that are explicitly important to expected future requirements and compatible with available ways to get there.

Planning ahead can require changes in behaviors (to get different results) or changes in priorities (to use results differently).

Organizing Future Benefit

Aligning Future ValueOpportunity is the degree to which future benefits are likely to be obtainable from the value of future consequences.

Targeting future benefits is speculative unless there is some certainty about how to cultivate them.

• Benefits come from contextualizing value.

• Future business contexts, whether the same as current ones or different from them, host value.

• Future value is the significance of future consequences in a given production context, whether those future consequences will be the same as current ones or not.

Direction is what calibrates performance to value, and value to opportunity.

Since a given context is where value becomes a benefit, the main interest is to create a reliable “supply” of value to the desired context.

A Director will be accountable and responsible for the supply. The directorial challenge is to allow substantive value to be created and recognized both for current and future priorities.

Value EnablersThe main enablers of that supply of value are the investments and operations that allow outcomes to be produced on request, providing values.

Investments and operations provide the chance to create future value and convert it into opportunity.

To obtain the intended value, direction is applied to influence the investments and operations.

The critical success factor of that influence is the visibility of why things will work.

Business stakes Target (prioritized)

Enablers (of targets)

Future affected by enablers

Key organizational influencer

Value(“as requested”)

Type of benefit Types of investment Promoted Contexts Director

Performance(“as proposed”)

Level of specified value

Types of operations Available Impacts Manager


Directorial influence

Investments and operations share a point of view: that operational outcomes are subject to certain ways of using resources and the relationships that channel them.

The investment creates and sustains the resources and relationships which are the environment from which value is derived.

Operations produce value from the environment, and deliver the value.

Design and planning are explicit references to business intentions, mediating the management of the investments and the operations, and defining the capacity for delivering the value.


Managing Opportunity

Strength of InfluenceDirectorial influence relies on having visibility of the status of both the investments and the operations. Visibility informs the logic of directorial decisions.

The confidence of directorial decisions comes from the visibility.

The influence of the decisions, however, results from:

• authority (proactive) that chooses what to include;

• momentum (defacto) that effectively excludes changes;

• or some combination of the two, which may render the influence weaker or stronger.

Decisions are implemented in a variety of forms to actively exert influence on production.

IT provides many of the forms. And because of the power and pervasiveness of IT, human directors must actually compete with automation to wield a prevailing influence on operations.

Authority: Design and PlanningThe goal of directing is for performance to promote additions to value.

Usually, because of some given context of opportunity, certain kinds of value are given higher priority than others. But over time, to continue to obtain opportunity, new kinds of value must be considered along with enhancements of older kinds. This makes intent more important over time than is performance.

Patterns, models and rules formulate production according to the current intended state of the business. They implement the authority needed to enforce influence on operations.

But they may also be found, not made, as the defacto state of the business regardless of intent. For that reason as well, directorial influence must include the ability to change the current state.

Intentions Patterns Models Rules

Value enhancement(opportunity types)

Processes Preferences Assurances

Enabling authority Definitions Standards Policies

Performance choices(impact levels)

Trends Success factors Permissions

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Momentum: AutomationIT performs more and more of the activity that makes up production.

Increasingly, IT also detects more about the environment, activity and impacts than does the human stakeholder, and IT is more consistently in a position to do something about it immediately.

As IT capability is further developed to allow IT to react automatically to what IT detects, the key issue in IT usage will be the way that people intervene in the presence and ongoing flow of IT functions.

The ubiquity of IT makes it a requirement both to choose interventions and to know what choices have been made.

Definitions, standards and policies predispose the reach and range of IT influence, and also the level and visibility of its type of impacts.

The guidance produced by those choices is the key constraint on IT’s influence on value and benefits.

Guidance vs. Control

Current interactions within the flow must be actively compared to business intentions. For that to occur, direction must take place within the flow, not afterwards. Directors must establish intervening terms of effectiveness. The terms predisposing eventual action are patterns, models and rules implemented in the flow. IT forms of implementation can both strengthen or resist the intent.

Research

Sensors

Analysis Patterns Models Rules ActionVA

RIA

BLE

EN

VIR

ON

MEN

T

TO TO vs. vs. TO

The general flow of current conditions to analysis to design to planning to action can be composed. But with increasing I.T. automation, the execution speed and cycle time of the flow and any of its changes can become virtually invisible. Along the way, capacity and delivery variables may or may not be realigning with each other. Additionally, the decided eventual action can loop back to change the environment – altering the environment variables entering the next cycle. The risk is that behaviors driving further outcomes will be unpredictable, or that outcomes will be inexplicable and therefore unreliable. That obscurity creates an extra challenge: knowing when to adjust predisposition (intent) versus when to adjust responses (behavior). Environment

Resources

Demands & Tolerances

Positions

Options

Access


Implementing GuidanceDesign and planning decisions about IT utilization constrain the effects of IT-based activity.

Directorial presence through design and planning takes two modes of prescription: architecture and process. Their influence is in the criteria they impose for including available forms of IT. Their use of decisive patterns, models and rules proactively guides IT in two ways:

• the forms of functions that IT provides,

• and the relations of the forms.

By bringing regularity to the conditions of operation, their results drive the effects of IT utilization towards identifiable business benefits.

Using IT to embed that guidance within operations increases the need for control of that IT.

Design/Plan Forms of function Relations of forms

Architecture components configuration

Process method interactions

Directorial Mode Patterns Models Rules

Architecture Persistent preconditions Prescribed functions Interaction Methods

Process Repeatable interactions Specified progression Thresholds & Limits


Administration: the transparency of ITThrough automation and especially systems, IT is used to perform functions that expose, generate, organize and restrain activity. As a result, IT can choose something to happen, cause something to happen, and/or tell us what happened.

Our ability to understand what IT itself is doing, and what that activity is worth, requires a consistent view of where it is affecting (influencing) things we care about, and how those affects logically foster our intent.

The administration of the IT systems prevents automation from simply creating defacto patterns, models and rules on its own. Administration actson intents (of cause) and evidence (of effect) to establish a necessary degreeof directorial influence regarding performance, value and worth.

Functions

Influenced .target discovery analysis design planning execution supervision

Worth Benefit monitoring grading prescribing promoting options evaluation

Value Outcome detecting profiling communicating supporting progress accounting

Performance Impact comparing correlating selecting assigning scope compliance

IT administration’sRange of Results


Summary

Opportunity

Opportunity is the prime directive of a business.

The business intent is to select and exploit available opportunity.

Without opportunity, there is no reason to be in business.

Providing opportunity requires supplying value in a given context.

Strategy identifies, prioritizes, and selects the contexts.

Direction aligns capabilities to supply the value.

Administration validates the implementation of capabilities.

IT resources the implementation.

STRATEGY

DIRECTION

ADMINISTRATION

I.T.


CapabilityAn enterprise defines the environment in which the business pursues its intent.

The enterprise stages capability for sustained presence of opportunity.

Creating the capability calls for operations that are designed to drive outcomes having valuable impact.

Producing value requires generating outcomes of identified importance to opportunity.

Importance relates to both current and future priorities.

Production exploits obtainable resources and relationships to generate important outcomes.

STRATEGY

OPPORTUNITY

CAPABILITY

I.T.


ROIIT automates activity.

Architecture and systems allow automation

to be a directed beneficial impact of IT

on operations.

The significant difference (value) of IT to the business is based in that beneficial impact.

Investments and operations cultivate the activity driving outcomes.

The ROI of IT is the degree of opportunity that is generated and sustained by its use.



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sourcing i.t. value

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benefits of results

necessary future results

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startup business models

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