Editor's Note: Take a look at our featured best practice, Organization Design Toolkit (103-slide PowerPoint presentation). Recent McKinsey research surveyed a large set of global executives and suggests that many companies, these days, are in a nearly permanent state of organizational flux. A rise in efforts in Organizational Design is attributed to the accelerating pace of structural change generated by market [read more]
When Did You Last Have a Critical Look at Your IT (Service) Strategy?
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The CIO and the IT Department need to position themselves as a premium provider of IT services and focus on value to cost.
Nowadays, IT’s significance is often challenged: “Do we really need a CIO and IT department to bother us with technology when we can use the cloud?” To avoid this line of questioning, the CIO has to ensure that the business strategy and business objectives are supported by IT (from a Business and IT architecture perspective). IT Strategy needs to support Strategy Execution, “Time to Market,” Cost Effectiveness, and stakeholder expectations from an Executive, Business Unit, IT Management, and IT Risk Management perspective.
To deliver business value with IT, we need to focus on the business’s bottom line. How fast can we get our products and services to market (i.e. “Time to Market”)? How can the IT department support the business from a Cycle Time and Cost Effectiveness perspective.
The IT bottom line is that up to 40% of current IT spend occurs outside the IT budget (CRM, Cloud). The IT department needs to position itself as a facilitator to IT services and effectively address emerging needs, market opportunities, and demonstrate that the current Business Model is supported effectively. The IT department should facilitate the access to IT services to support new and current business initiatives. The business strategy emerge out of a number of initiatives that are successful or not. The IT department need to support the “Run” of day-to-day operations as well as new projects. The Cloud might particularly be of interest within this frame.
We believe that in order for the CIO and the IT Department to position themselves as a premium provider of IT services and focus on value to cost, we need to understand the Business (IT) Strategy and how the IT department can deliver effectively to business objectives. That is, to deliver business value with IT:
- What is the Business’s strategy and plans?
- What is the current business model that IT has to support?
- Where could IT make a significant impact on the business?
- Are there any further opportunities to use IT?
- How do we provide IT Services as we meet demand and cost drivers where the decision is to make (internal) or to buy (external service provider)?
We have identified 2 key trends for the CIO to focus on:
- Differentiation – That is, how does IT provide a competitive advantage for the business.
- Cost – How does the IT Department deliver IT Services cost effectively.
To do so, we need to build an effective IT Delivery Model to meet business needs and expectations, as we leverage business strategy execution and business processes supported by an IT Service strategy (ITIL; IT CMF; CobIT 5 – ValIT, CobIT 4.1, RiskIT; ISO 38 500; TOGAF and ISO 9001; ISO 27 001; COSO) delivered in a Business IT roadmap. In other words, we need to support business objectives and processes leveraged by IT and an effective IT Services strategy. Within this scope, we would address how we execute the IT service strategy (ITIL):
- Design– Spell out IT Activities from a demand and supplier side;
- Build – Set IT processes and key performance indicators; and
- Run – Aligned to described ITIL activities and processes and full IT Financial Management (supported by delivery capability IT CMF, COBIT 5).
Once services are defined, we can then decide where to run the application that support the IT and or Business Services (server / internal / external cloud / outsourced provider).
Within the frame of an acquisition, up to 80% of the value realization is (can be) on the IT side. The failure to address IT and the IT strategy can be an additional (1 out of 3) reason to M&A failure.
If we assume that to deliver business value with IT we need to support business objectives, the integration of a new entity is an optimization of the current IT strategy (how we support business objectives and processes). We would obviously need to understand (and hopefully have the opportunity) how the current IT run before the purchase (IT due diligence) with full IT Financial Management to figure out the actual cost of delivered IT services (cost, consumption, chargeback). Once services defined we can then decide where to run the applications that support the IT and or Business Service (server / internal / external cloud / outsourced provider). We also need to define the purpose of the purchase (invest / divest) in the overall corporate strategy where it is of little use and a significant cost to integrate all systems in to a common backbone if the company is to be divested only a few years later. We could use a an IT Scorecard to ensure that stakeholder expectations are met from an executive, business line, IT and IT risk perspective.
The CIO and IT department needs to support the run of the current business activities as well as new emerging initiatives that will eventually form the business strategy. The cloud (internal or external) would be particularly well placed to develop new services that can then be institutionalized as the success of the initiative is confirmed.
The CIO and IT Department that sit around and wait for the Business Strategy to be formalized to build an IT strategy and vision might not make the 18 months magic mark. The IT Bottom line is that the IT Strategy should support business objectives, with new technology as needed as the IT department delivers effective IT Services and innovative technology solutions to improve competitiveness, demonstrated and articulated.
To learn more about this topic, consult this document here.
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About Martin PalmgrenMartin Palmgren is a seasoned Senior Business / IT Strategy and Transformation Executive that has addressed Strategy formulation and roll out for Fortune 500 businesses internationally with a focus on how to ensure that the business strategy and objectives are supported by IT with an effective IT Strategy and Governance (that is how do we support business objectives and processes leveraged by IT and an effective IT strategy). He also has a large and growing collection of documents available on Flevy, which you can view here.
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