A New Framework for Technology Strategy and Governance
By Ayesha Khanna
INTRODUCTION
Most organizations today continue to regard technology as merely a back-office cost center, a viewpoint that diminishes the breadth of IT’s impact on a firm’s competitive profile. In fact, increasing innovation in global markets requires that IT take a far greater role in helping the enterprise differentiate itself from competitors. To address this deficiency in the linkage between IT and enterprise strategy, this paper revisits the seminal paper by Michael Porter, “What is Strategy?” and proposes a framework called Meta-IT that would leverage IT as a partner in attaining competitive advantage.
To contribute to strategic growth, IT’s role has to be understood as far more than a repository of software and hardware applications. Instead, it should be seen from a Meta-IT perspective, which views the management of IT as a firm-wide service and infrastructure fabric that collaborates with business units to respond rapidly, innovatively, and cost effectively to changing market conditions. When firms employ a Meta-IT approach, they find that IT quickly becomes a dynamic contributor to the enterprise vision.
“CIOs are now expected to deliver the solutions that make the enterprise different in a way that matters to company performance and customer satisfaction,” according to Mark McDonald, head of research at Gartner EXP, which recently published Making the Difference: The 2008 CIO. The trend toward a greater role for IT in business strategy is also prevalent in the media. In CIO Magazine’s State of the CIO ’08 survey, CIOs are divided into three categories: functional, transformational, and business strategist, with the latter described as the future state of the CIO.
Yet despite broad acknowledgement of IT’s greater role in revenue generation, there is no holistic framework that ties this goal to an IT management strategy. Traditional IT strategy and governance models fail because they do not take into account the changing needs of the markets in which businesses operate, and the new technologies that are now available to expedite and facilitate IT management. This paper fills this void by introducing the Meta-IT model in which IT is positioned as complementary to other strategies of attaining greater market agility.
THE DISCONNECT: BETTER TECHNOLOGIES, SAME ISSUES
The world that firms compete in today in terms of markets, customers, and supply chains is drastically more competitive than a decade ago. Simultaneously, recent technologies such as Virtualization and Web 2.0 have the potential to help organizations navigate these waters deftly and leapfrog over their competition. But in most firms, business and IT have not managed to effectively form a successful partnership. In fact, they continue to dodge the same obstacles that have bedeviled IT services for decades with complaints such as business-IT misalignment, inability to prioritize projects, IT’s failure to be agile and innovative, and the continuing frustration with modernizing legacy infrastructure. Why does IT management fail in making the crucial link between business needs and IT services?
Several key business challenges are worth noting:
* Globalization: New markets and consumers have appeared from China to Brazil, India to Eastern Europe, but pressure has commensurately grown for 24/7 operational connectivity and processing.
* Competition: Innovative rivals have emerged in all corners of the world.
*Profitability: Margins are falling as consumers increasingly expect free services—this requires conceiving new ways to generate profits while providing value-added services.
* Skills Shortage: CEOs of companies across the globe are vying for an elite group of skilled experts, and are struggling to develop their human capital and prevent the high turnover that has become typical in recent years.
* Cost Cutting: Except in the energy sector, most firms are bracing for a recession.
* Technological Advances: Staying on top of new standards, technologies, and frameworks are essential to retain an edge.
* Regulation: The U.S. credit crisis will likely result in a deluge of new regulations as financial markets seek to prevent future asset bubbles. Meanwhile, emerging markets will also formalize regulations to raise their legal and accounting standards to global levels.
* Client Expectations: Clients are more discerning of quality than ever before, and demand interactivity, real-time information, and superior quality interfaces from all their service providers.
* Green Infrastructure: Concerns about climate change have finally crossed a tipping point where all firms are judged on their eco-efficiency.
In this intensely competitive and unpredictable landscape, some new technologies and processes have emerged that can help organizations to confront these challenges. Foremost amongst these are the following:
* Service Orientated IT, which has accelerated the ability to reuse modular services and scale them rapidly to meet new business demand, leading to faster time-to-market and greater productivity for a base fixed cost.
* Real Time Infrastructure (RTI), which is the creation of a dynamic IT infrastructure that matches the demand for infrastructure resources with supply in real-time, thus enabling greater efficiency and higher utilization of the infrastructure. RTI employs the concept of virtualization which allows central management of diverse resources by inserting a virtual layer of abstraction between the end users and the resources.
* Web 2.0 and Social Computing, which affords companies a treasure of information and a set of creative, interactive tools that gives them insights into customer behavior and preferences.
* Data Governance Standards, which provide guidelines on the collection and organization of information which can be used to analyze business models, markets, and competitors more accurately.
* Agile Development Best Practices, which have transformed the whole lifecycle of application development into a series of lightweight and agile processes, and allow firms to move quickly to capture market share when opportunities arise.
According to Gartner’s 2008 Worldwide Survey of CIOs[1], 85% of CIOs realize the potential of IT to help firms meet today’s business challenges, and are looking toward “IT to make the difference in their enterprise strategy”. Yet many feel frustrated by their inability to propel IT to this stage because traditional IT management frameworks are not conducive to building IT and business partnerships. IT is still governed as a function separate from revenue generating units, instead of a holistic fabric that contributes to value creation. The Meta-IT framework attempts to correct this deficiency through its more holistic and enterprise driven model for IT governance.
THE META-IT FRAMEWORK
Meta-IT represents a new IT management framework and governance packaged into set of results-oriented best practices. Even though it is vendor neutral, it is not divorced from the technological capabilities that make the pursuit of business-IT alignment more achievable. The fundamental premise of the Meta-IT model is that IT management must be viewed holistically from the enterprise level, abstracted away from the conglomeration of software and hardware components. In other words, IT has to be viewed as more than the sum of its parts.
In his definitive paper “What is Strategy?[2]” Michael Porter highlighted that competitive advantage is a consequence of differentiating strategies, not operational effectiveness:
“Operational effectiveness (OE) means performing similar activities better than rivals perform them. Operational effectiveness includes but is not limited to efficiency. It refers to any number of practices that allow a company to better utilize its inputs, by for example, reducing defects in products or developing better products faster. In contrast, strategic positioning means performing different activities from rivals’ or performing similar activities in different ways.”
Differentiation stems from making unique choices both in firm activities and in how the firm performs those activities. Firms must make certain choices vis-à-vis IT as well—choices that include but are not limited to management techniques, and software and hardware decisions. Historically, IT has oscillated between roles geared toward operational efficiency or effectiveness, but has rarely been elevated into a strategic positioning role (see Figure 2).This can be attributed to the fact that the average tenure of CIOs has for some time been limited to only a few years, mainly due to an inability of Executive Management to understand, assess and value the CIO’s role. As a result, CIOs were changed quite often as firms promoted CIOs to more prominent posts, or replaced them when their performance was dissatisfactory. This created an inherent instability in the principles by which the organization managed IT across departments. Each new CIO came armed with a set of initiatives that were promptly turned over by the next CIO, forcing IT managers in each line of business to become more independent and siloed, and less reliant on a holistic strategy.
Thus, IT never came into its own with a centralized coherent strategy: it was endlessly trapped oscillating between directives from department IT managers and the conflicting signals from different CIOs. As a result, there were some efficiencies and effectiveness but never to the degree which alignment within IT itself would create. Fortunately, CIO tenures have recently stabilized to slightly over four years[3], which points to both an appreciation of the CIO’s role, and to the opportunity for a new management approach such as Meta-IT to take root.
Meta-IT is able to help firms break out of a siloed approach to IT management, allowing it to unlock the full force of its potential as a strategic thought partner for business innovation. This is because Meta-IT is a governance strategy that enables IT to be an organizational lever by institutionalizing a set of holistic best practices based on latest technologies.
META-IT BEST PRACTICES
Meta-IT can be achieved through a set of systematically institutionalized practices:
1. RECOGNIZE IT’S VALUE: Acknowledge IT as Part of the Revenue-Generating Value Chain
Meta-IT calls for a new mindset that recognizes IT as part of value creation. Without this shift in thinking, IT cannot fully embody its expanded role as a thought and execution partner in mapping strategy, and creating value-added products and services for the organization.
2. ALIGN BUSINESS AND IT: Trust to Educate, Educate to Trust
The single biggest obstacle in forming a strategic business‐IT partnership is lack of trust—the belief that the other party just ‘doesn’t get it’. This calls for business and IT to educate each other on their respective goals and competencies in simple conceptual terms. Such discussions align business and IT priorities and efforts, create a shared sense of common objectives, engender trust, and stimulate innovation.
3. THINK LIKE AN INVESTOR: Understand the Economics of Supply and Demand
The most appropriate way of evaluating ROI (return on investment) on IT investments is by examining IT supply and demand, i.e. mapping business processes (that are weighted by their contribution to enterprise goals) to IT services. Inadequate staffing and skills often doom IT projects. Matching IT supply and demand prevents investments in low-value services, which deflect resources away from high-impact initiatives. Like any investment portfolio, IT services are retired when their ROI is low and ramped up when their ROI is high. This represents a fundamental shift in the rigor with which IT is viewed, and brings IT to the same scrutiny as business units, thus elevating it to the same responsibility and same benefits.
4. BREAK SILOS: Invest in a Portfolio of Common Services
Services are those software components that can satisfy more than one business demand, and the identification of these services is a key outcome of the business process mapping exercise. The set of reusable software services, such as data and computing services, form the foundation of Service Oriented Architecture (SOA), and facilitate rapid time to market for new applications. Together, they form a portfolio of common reusable technology services, which are regularly evaluated for their ROI.
5. BE EFFICIENT AND ECO-FFICENT: Construct a Real-Time Infrastructure Utility
Most firms find themselves in a constant cycle of energy waste and underutilization of resources, most visible in the hugely inefficient and costly data centers that are the hallmark of every large company today. Organizations need to manage their infrastructure like a utility, such as an electricity grid: a real-time infrastructure that is able to pool and direct resources to meet fluctuations in business demand. The technology for managing IT infrastructure like a utility is variously called grid computing, cloud computing, and virtualization. For example, instead of dedicating a server to each business process, virtual infrastructure management directs several lines of business to use the same servers, often leading up to fifty times the performance at one-third the cost.
6. EMPOWER IT PERSONNEL: Create a Product Management Environment
One of the best ways to empower the federation of IT staff is for the central enterprise team to create a product management environment. This is an environment where a network of developers can coalesce around a core set of guiding standards and products, where they feel empowered to be innovative and yet trust that they have the support they need. For example, common services developed by various groups can be placed on an in-house virtual shelf, where other developers can access them and receive instructions on their usage. Very quickly, this environment will begin to migrate the developer community toward reuse, which will result in cost savings and faster time to market when creating new applications.
7. CREATE TRANSPARENCY: Measure Performance and Conduct Forensics
Systematic ways of monitoring the performance of IT are enabled by utility computing or real-time snapshots of IT utilization. There exist in the market today analytical tools that map IT usage to business processes, providing insight into whether IT is directing its efforts in line with strategic goals. In addition, they allow rapid investigation of root causes when problems occur and quick readjustment of resource allocation if wasteful consumption of services is identified.
8. SUSTAIN IMPACT: Build Skills through Education and Training
The only way to sustain the impact of current development and to continue to plan for the future is to build skills through education and training. Educating Operations on how to handle problems through simulated exercises, for example, is critical for maintaining the value proposition of a product or service. CIOs also have to look beyond the capabilities required today and plan for future skills. Having an adaptable workforce is now considered an essential capability for CEOs. More than half of the CEOs interviewed in a recent IBM study indicated that “the inability to rapidly develop skills is a primary workforce challenge”[4].
9. ENCOURAGE OWNERSHIP: Institutionalize Incentive Structures
In order for IT to rise to the occasion and take ownership of IT’s new expanded role—and accept the accountability that accompanies this ownership—it will have to be given incentives both in terms of recognition and reward. Incentive structures will have to be built along two dimensions: calibrating bonus structures to IT’s contribution to profitability; and aligning remuneration with use of Meta-IT principles, e.g. providing reward for efficient leveraging of existing IT as much as for creation of new modules.
10. VISUALIZE THE FUTURE: Use Playbooks to Imagine Scenarios
The ability to capture and analyze massive amounts of data is an extremely powerful capability that was not previously available to CIOs. It allows for the creation of playbooks whereby executives can evaluate strategies under different market scenarios and calculate the IT resources that will facilitate these strategies. IT can thought-partner with business units on which options to pursue by providing quick insight into IT capabilities currently available to service different scenarios scenario, and the time it will take to build new capabilities if needed.
11. DELIVER RESULTS: Plan Strategic Solutions with Short-Term Benefits
Businesses need to continue to operate daily, even as they plan for longer-term strengths and capabilities. The Meta-IT model is a results-based framework that emphasizes short-term delivery of high-quality results. New technology frameworks such as Service Orientated Architecture (SOA) are structured for such an approach. In SOA, even legacy components can be reused as the firm moves toward modernization, illustrating yet another example of how technical innovation can enable managerial best practices.
12. EVOLVE CONTINUALLY: Adopt an Iterative Approach
Businesses are not static: they are constantly responding to changing market conditions and evolving in response to competitor innovations. Thus, IT also has to continually collaborate with business to review the IT portfolio and ensure that it’s aligned with and providing input into the latest vision and direction of the organization.
LEARNING FROM SUCCESS STORIES: THE CASE OF WACHOVIA
The best way to prove a hypothesis is to test it, and even better, to have the evidence based on the testing someone else has already done. Does the Meta-IT approach work? While there are several examples of successful strategic use of IT in silos within an organization, one firm has particularly shown the benefits and value of using the right technologies the Meta-IT way: Wachovia Corporate and Investment Banking Technology (CIBT) division.
In 2004, Susan Certoma was hired as the CIO of Wachovia CIBT division with the explicit mandate to transform the organization into one of the leading investment banking divisions in the market. Even though Wachovia was the fourth-largest bank in the country, it lagged behind its competitors in its investment banking division and stood at an unacceptable position of No. 14. Certoma noticed that even though there were nine lines of business, each competing in different markets, they were using the same kinds of technology services. The lack of standardization amongst these services, however, meant that each line of business was creating its own set of software applications, often using servers, computing power, and code redundantly. The cost inefficiencies were astronomical.
Certoma decided that instead of finding specific answers for each line of business, her team would look at the infrastructure of the investment bank in a holistic manner and identify common services that could be leveraged across lines of business. “As part of our SOA strategy, our goal is to provide a single infrastructure that will provide multiple services that can be very differentiated based on each of our businesses,” she told Wall Street & Technology in an interview[5]. For this purpose, she hired Tony Bishop as director of product management, and they set out to transform Wachovia to become a serious competitor in the investment banking space.
What followed were four years of an effort that won Wachovia accolades and awards for innovative and transformational activities, including InfoWorld’s “Top 100 IT Project Awards” two years in a row for its Service Oriented Architecture & Utility Computing projects. These projects enabled $50 million in new revenue and $100 million in cost efficiencies (for an investment of $20 million over two years). Wachovia achieved this success by applying principles which fall under the realm of Meta-IT best practices.
With an elite team of experts, Certoma’s group spent several months working with business units to understand Wachovia’s business model and enterprise growth strategy. They then mapped all the required business processes (demand) to IT services (supply). Wherever they noticed that a service could be used for more than one business goal, such as information management and desktop modules, they earmarked it as a common service. The team then created a product management environment where a core set of reusable services were made available, and coupled it with a virtual grid infrastructure which provided lines of business computing and processing power on demand.
Wachovia thus entirely restructured the way technology was created, valued, and utilized in the bank, resulting in several advantages for the firm including:
* Differentiation: Wachovia’s Meta-IT philosophy paid off when it was able to differentiate itself from its competitors. In 2006, CIB’s global financial institutions group won three multi-million dollar contracts, partly because they were able to show streamlined technology architecture and processes that could be easily integrated with clients[6].
* Agility: Wachovia was able to leverage common services to quickly enhance enterprise strategies to respond to market demands. For example, one of CIB’s groups wanted to develop an “equity desktop”, which would allow bankers to trade equities and run portfolio analytics. Usually, creating a new equity trading application would take about six months to a year. However, several components identified during conversations with the business were already available as common services, and were leveraged to create the new desktop in just three months, giving the bank a significant me-to-market advantage.
* Innovation: The new infrastructure fabric built by Certoma’s team won it the No. 8 spot in Information Week’s Top 500 IT Projects since it improved business service levels (100x) and reduced transaction costs (30x), paying for the investment in less than nine months. The benefits directly led to the creation of more innovative business products. Wachovia’s Equity Structured Products unit, for instance, had plans to offer new derivatives products to its clients. Traditional Excel-based risk calculators would take anywhere from 30 minutes to several hours to calculate volatility metrics, which was extremely frustrating since it directly affected the business’ ability to sell and monitor new products. All that changed with the new infrastructure fabric, which powered a ‘volatility surface’ service that was able to generate risk metrics under different scenarios within minutes.
* Eco-fficiency: Wachovia had pledged to reduce its greenhouse gas emissions profile by 10% by 2010.[7] Since one of the largest consumers of energy at any organization is IT, the bank looked to IT to help in this cause. The CIBT unit led the way by consolidating its infrastructure and overlaying it with a virtual grid that could serve computing power on demand to business units. The team was awarded Network World’s “Enterprise All-Star Award” for successfully consolidating infrastructure and applying “green” computing strategies to achieve a project ROI of 300% (50 applications over 300 servers were reduced to 50 shared/allocated servers).
THE NEW CHANGE AGENTS
Implementing the Meta-IT framework requires an elite team of experts well-versed in technology management, business domains, and the latest innovations in technology implementation. But just as importantly, it requires each of them to be change agents—individuals committed to a new wave of thinking even in the face of the organizational resistance. Organizational resistance is an unfortunate but common phenomenon whenever innovative processes and technologies are introduced in firms with an entrenched corporate culture. Change agency is thus the single most valuable trait in a Meta-IT team.
Listed below are essential traits that should be used as criteria when putting together this team:
* Change Agency: First and foremost, the team must be comprised of change agents committed to leading the transformation of the organization. For this they must possess leadership skills, emotional intelligence, and the ability to work with the organization through its resistance to achieve adoption of new paradigms. It requires them to have clear and strong understanding of Meta-IT best practices, and to convincingly and clearly draw line-of-sight between the Meta-IT approach and business results.
* Management, Business, and Technical Expertise: Technology managers, business domain experts, and senior IT architects form the core of the Enterprise Meta-IT team. They not only bring superior knowledge of latest technologies and business models, but they are adept at simplifying complex concepts and communicating their benefits to the rest of the team.
* Relevant Experience: Ideally, team members must have experience institutionalizing the Meta-IT approach for an organization. While it is rare to find such people, the value of their experience is priceless in terms of knowing what works and what doesn’t.
* Dedicated to Finding Best in Class for You: The Meta-IT approach does not exist in isolation: it is an agile framework for firm-wide partnership. The team is therefore sensitive to charting the most appropriate path to Meta-IT given a firm’s particular history, business model, and corporate culture.
* Ability to Communicate and Educate: Essential to change agents is the ability to constantly educate and empower others to partake in organizational transformation. It is an essential skill that each member of the team must possess, since they will again and again find themselves in the position of having to explain and persuade traditional managers of the strategic value of the Meta-IT approach.
Providers of Meta-IT
Today’s IT teams and consulting firms are not equipped to be change agents—they have neither the thought leadership nor the expertise for Meta-IT initiatives. Thus, there remains a veritable gap in the market for the kind of forward-looking and holistic approach advocated in this paper. For now, Executive Management will have to cherry pick a team of in-house experts and/or consultants to create the Enterprise Meta-IT team. One firm which is emerging as a market leader is Adaptivity, a consulting firm formed by the team that led and jump-started Wachovia’s successful transformation. Given its extensive experience and relevant expertise, Adaptivity’s team has devised a number of frameworks that align with Meta-IT best practices. Adaptivity’s proven track record for being effective change agents and the approach that it has developed for Meta-IT shows the demand for such advisory.
Three examples of how Adaptivity incorporates key principles of Meta-IT effectively highlight how to incorporate these principles into concrete implementation plans.
Service Orientation of IT: Adaptivity utilizes innovative techniques for aligning business and IT, emphasizing theimportance of every aspect of IT as being a service which is flexible, dynamic and consistently aligned with enterprise goals. It is the first step in their five-phased methodology called ADIOS (Align, Design, Integrate, Operate, Sustain), in which each phase is tailored to fit the unique circumstances of an organization.
Quality of Experience (QoE): Adaptivity’s QoE maturity model is premised on the belief that cost efficiency and service quality must be balanced in order for any technology approach to be sustainable, and have continued business buy-in. For this purpose, they employ a systematic investigative exercise which gives them insight into an organization’s holistic IT infrastructure. This information allows them to create a system which dynamically allocates infrastructure resources as needed, thereby preventing waste without compromising service quality.
Fit-for-Purpose: The Fit-for-Purpose design methodology includes creating an inventory of all IT services and understanding how how their quality is affected. The requirements for achieving quality service are then mapped to the supply of infrastructure resources available in the organization. Using virtualization platforms, Adaptivity is then able to show how supply can dynamically be fitted to demand, resulting in an optimized energy footprint.
CONCLUSION
The Meta-IT framework is a holistic view of IT as a partner in enterprise strategy and requires a fundamental shift in how the role and value of IT is traditionally perceived. Without it, successfully leveraging technical frameworks and best practices to compete in global markets will be next to impossible. The Meta-IT framework is implemented using a set of best practices, and can be facilitated by a team of business and technology experts who are proactive change agents. Case studies such as Wachovia prove that if undertaken correctly, these best practices directly translate into increased profitability, better resource management, and IT’s stronger participation in revenue generation.
REFERENCES
1. The Gartner EXP report “Making the Difference: The 2008 CIO.”
2. Michael Porter, “What is Strategy?” Harvard Business Review, November/December 1996.
3. Gartner EXP, “Making the Difference: The 2008 CIO Agenda.”
4. IBM Global Business Services “Unlocking the DNA of the Adaptable Workforce: The Global Human Capital Study 2008.”
5. Maria Walken, “Susan Certoma Takes Wachovia to the Next Level,” Wall Street & Technology, July 26, 2007.
6. David L. Marguluis, “Banking on SOA” Infoworld.com, July 17, 2006.
7. Stacy Collett, “Top 12 Green-IT Users: No. 12 Wachovia Corp,” Computer World¸ February 15, 2008.