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Connecting IT to Business Strategy: Part I Connecting IT to Business Strategy: Part I Document Transcript

  • Business-IT Strategies Vol. 7, No. 8 Connecting IT to Business Strategy: Part I by Bob Benson, Tom Bugnitz, and Bill Walton, Senior Consultants, Cutter Consortium Despite all the strategic thinking and budgeting in which businesses engage, several factors can prevent organizations from accomplishing their goals. In this Executive Report, the first in a two-part series, learn how a company can reap the benefits of the Strategy-to-Bottom-Line Value Chain to align its IT investments with the goals of the business.
  • Cutter Business Technology Council Rob Austin Tom DeMarco Christine Davis Lynne Ellyn Jim Highsmith Tim Lister Ken Orr Ed Yourdon Access About Cutter Consortium to the Experts Cutter Consortium’s mission is to foster the debate of, and dialogue on, the business- technology issues challenging enterprises today and to help organizations leverage IT for competitive advantage and business success. Cutter’s philosophy is that most of the issues managers face are complex enough to merit examination that goes beyond simple pronouncements. The Consortium takes a unique view of the business-technology landscape, looking beyond the one-dimensional “technology” fix approach so common today. We know there are no “silver bullets” in IT and that successful implementation and deployment of a technology is as crucial as the selection of that technology. To accomplish our mission, we have assembled the world’s preeminent IT consultants — a distinguished group of internationally recognized experts committed to delivering top- level, critical, objective advice. Each of the Consortium’s nine practice areas features a team of Senior Consultants whose credentials are unmatched by any other service provider. This group of experts provides all the consulting, performs all the research and writing, develops and presents all the workshops, and fields all the inquiries from Cutter clients. This is what differentiates Cutter from other analyst and consulting firms and why we say Cutter gives you access to the experts. All of Cutter’s products and services are provided by today’s top thinkers in business and IT. Cutter’s clients tap into this brain trust and are the beneficiaries of the dialogue and debate our experts engage in at the annual Cutter Summit, in the pages of Cutter IT Journal, through the collaborative forecasting of the Cutter Business Technology Council, and in our many reports and advisories. Cutter Consortium’s menu of products and services can be customized to fit your organization’s budget. Most importantly, Cutter offers objectivity. Unlike so many information providers, the Consortium has no special ties to vendors and can therefore be completely forthright and critical. That’s why more than 5,300 global organizations rely on Cutter for the no-holds-barred advice they need to gain and to maintain a competitive edge — and for the peace of mind that comes with knowing they are relying on the best minds in the business for their information, insight, and guidance. For more information, contact Cutter Consortium at +1 781 648 8700 or sales@cutter.com.
  • Connecting IT to Business Strategy: Part I BUSINESS-IT STRATEGIES ADVISORY SERVICE Executive Report, Vol. 7, No. 8 by Bob Benson, Tom Bugnitz, and Bill Walton, Senior Consultants, Cutter Consortium Logical and practical disconnects carries forward that strategy Rather than focus on generic how- occur in how senior leadership through company planning, IT to process descriptions, we follow teams link their business strategy project development, investment Angus International and its senior to effective management actions. decisions, and annual plans and leadership team through planning, Ideally, a company’s IT invest- budgets. At all points along the budgeting, and action steps. ments clearly and directly carry way, the management processes (Angus is actually a composite of out strategy; ideally, the plans, use value chain tools to ensure several real Fortune 500 compa- budgets, and actions of every that plans, projects, budgets, and nies that have successfully applied company component should management actions are consis- the value chain.) We describe the clearly reflect a company’s strate- tent in carrying out the strategy. team’s decisions from the des- gies. The reality is that organiza- The idea is simple: a company cription of the business strategy tional silos, overconcentration should spend money on IT only if through the projects, budgets, on quarterly bottom-line results, those dollars directly support its actions, and metrics that track and sheer inertia prevent the business strategy and its opera- how well the team applies IT to ideal, and the result is an inconsis- tional effectiveness. execute the strategy; in effect, tent investment in IT and a lesser we show how all decisions are bottom-line impact. Our two-part series will provide an guided by strategy. At each point, end-to-end example of how the the decisions involved choices, The Strategy-to-Bottom-Line Value many tools and processes of the and the company’s senior leader- Chain is a consistent set of man- Strategy-to-Bottom-Line Value ship team made them using the agement processes that work Chain are consistently applied and tools of the Strategy-to-Bottom-Line from a common foundation and used to maximize the bottom-line Value Chain. We end by describ- a clear expression of the business impact of a company’s manage- ing how the team implements key strategy. The value chain effectively ment actions and investments.
  • 2 BUSINESS-IT STRATEGIES ADVISORY SERVICE initiatives to impact the Angus and scheduled); determine improve IT’s bottom-line impact bottom line. annual business plan (as it and at the same time control IT applies to the use of IT); and budgets and investments. The Through its application of the determine annual IT plan (as leadership team can do so by value chain, the company con- it applies to the supply of IT). consistently and persistently devel- ducted the following four basic oping and selecting the best IT management processes: 4. Budgeting-to-action plan: investments and eliminating exist- translate annual plans into ing underperforming IT activities. 1. Strategic planning: approved budgets; translate The value chain presents an inte- annual plans into performance Stage 1 — establish manage- grated approach to controlling IT measurements; and execute ment’s strategic intentions for budgets and getting the biggest and monitor action plans. the business bang for the IT buck. Its objectives In this Executive Report, we include the following: Stage 2 — create the strategic agenda for the use of IT in the describe Angus’s background and Creating better investment business (i.e., the business examine the first two stages of alternatives, which in turn “demand” for IT), including the strategic planning manage- creates better ideas for new strategic alignment and func- ment process, outlined above. development projects tional quality from the business Covering these two stages in such perspective detail is essential; these stages Choosing the right invest- establish the strategic context for ments and projects from Stage 3 — create the strategic Angus and the company’s basic those alternatives IT plan (i.e., the “supply” of IT), decisions about the use of IT to including technical and busi- Eliminating nonperforming and carry out its strategy. poorly performing existing IT ness risk from the technology perspective activities from current spending Part II will pick up where we leave Stage 4 — derive the strategic off here and finish the strategic Improving the performance IT requirements for the neces- planning management process of the remaining existing IT sary IT initiatives discussion before continuing on activities to examine the remaining three 2. Initiative and project devel- Implementing and following management processes imple- opment: translate strategic through on the right invest- mented by Angus. IT requirements and strategic ments and performance agenda into projects. improvements OBJECTIVE OF THE STRATEGY- TO-BOTTOM-LINE VALUE CHAIN 3. Annual planning:1 establish The value chain starts with a annual project plan (prioritized Every company’s IT senior leader- coordinated business-IT strategic ship team confronts the need to planning process and continues through to business-IT perfor- 1Formost companies’ business dynamics, an annual cycle is much too long. We use the annual mance measurement. The value framework for descriptive purposes and with the understanding that most companies perform chain applies a suite of tools for such tasks more frequently. Angus uses the framework but applies it quarterly. The Business-IT Strategies Advisory Service Executive Report is published by Cutter Consortium, 37 Broadway, Suite 1, Arlington, MA 02474-5552, USA. Client Services: Tel: +1 781 641 9876 or, within North America, +1 800 492 1650; Fax: +1 781 648 1950 or, within North America, +1 800 888 1816; E-mail: service@cutter.com; Web site: www.cutter.com. Group Publisher: Kara Letourneau, E-mail: kletourneau@cutter.com. Managing Editor: Rick Saia, E-mail: rsaia@cutter.com. Production Editor: Lauren S. Horwitz, E-mail: lhorwitz@cutter.com. ISSN: 1530-3470. ©2004 by Cutter Consortium. All rights reserved. Unauthorized reproduction in any form, including photocopying, faxing, and image scanning, is against the law. Reprints make an excellent training tool. For information about reprints and/or back issues of Cutter Consortium publications, call +1 781 648 8700 or e-mail service@cutter.com. VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 3 understanding, managing, and The company’s annual volume is planning. The CEO has posed four controlling all IT spending, aimed several billion dollars. Angus has key questions: at producing exactly the right IT more than 10,000 employees orga- actions for the organization. The 1. How do we know we are nized in six basic departments: result moves IT management deploying our IT resources operations (which includes manu- from a passive, prioritization-based in a fashion that will sig- facturing, R&D, and product devel- activity to an active, action-oriented nificantly carry forward our opment), sales (which includes one that produces significant, basic strategies? marketing), finance, human demonstrable bottom-line impact. resources, legal affairs, and 2. Will our investments in IT administration (which includes produce the business results BACKGROUND ON ANGUS most of the back-office functions). we need? INTERNATIONAL A Note About Angus International 3. Can we measure IT on an Angus International is a Fortune ongoing basis to prioritize our 500 manufacturing firm specializ- In this Executive Report, Angus allocation of resources and ing in “house brand” consumer International is presented as a improve over time? goods. Angus’s many products single line-of-business company. are rebranded by leading retailers The senior leadership team man- 4. How do we know if our mix of and other well-known distribution ages the components of one basic technology and staff capabili- channels (e.g., Web-based business. We also present Angus ties is appropriate to our busi- resellers and catalog merchants). as a domestic US company with- ness requirements for IT? Angus is more than 100 years old out the complexities of global In response to these questions, and has been profitable for most operations. We simplified the Angus’s senior leadership team of that time. It evolved from a sup- company’s position in order to commissioned a comprehensive plier of electrical goods to a com- focus on the basic processes and project to focus on two things: pany that produces a wide range examples. Though this report (1) to establish the exact business of electrical and electronics prod- describes a composite company, and IT strategy of Angus, down to ucts. Its primary market is the each process example and result the roles that each major compo- domestic US. The company is is based on one or more real-life nent plays in carrying it out; and headquartered in a southern state, company experiences. (2) to establish a significant IT with all its manufacturing located Angus’s Problem plan for the upcoming three years, within 50 miles. Angus’s competi- including the establishment of tion comes from similar compa- Although Angus has been prof- the best development projects nies in the US and many new itable, the senior leadership team to carry out the strategy. manufacturers overseas, primarily is concerned about how in the on the Pacific Rim. Angus has upcoming three years the com- The leadership team specified managed to stay competitive on pany can strengthen and enhance three basic objectives: price but is intent on strengthen- its ability to cope with new Pacific ing its capabilities for flexible and Rim competitors. These competi- 1. To establish a strategic plan- rapid response to customer tors can produce similar goods at ning and management process requirements. According to its less cost. Angus hopes to build on that confirms alignment of mission statement, Angus’s goal is its core strengths and strategies. functional department plans to conduct the business of manu- with Angus plans, aligns IT facturing and selling quality con- To that end, the senior leader- plans with Angus and depart- sumer goods in the most ethical ship team has undertaken a mental plans, and introduces and profitable manner possible. comprehensive review of its IT ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 4 BUSINESS-IT STRATEGIES ADVISORY SERVICE technology-enabled business consistency, they’ll find it very what each functional organization opportunities. difficult to agree with and under- intends to do to meet the strategic stand the IT strategic plan. Further, objectives and strategic intentions. 2. To apply an IT planning proc- many companies rarely strongly They, in turn, produced significant ess that produces a starter IT connect strategic input to annual numbers of strategic IT require- strategic plan, prioritizes and planning processes and, in par- ments, projects, budgets, and rationalizes resource alloca- ticular, IT project development. so forth. tion, and links to project-level In fact, it is a considerable con- planning. The Appendix at the end of this tribution to the business to create 3. To create an IT management alignment of organizational plans report includes three tables that process that provides a holistic, with the business’s plans. Such detail the complete results of enterprise-wide view of 100% alignment is the focus of this Angus’s application of the value of IT resources for planning, report. chain. For much of our discussion operation, and performance in the main report, we will focus measurement. We strongly recommend that on only one (profitable market strategic planning processes share) of the six strategic inten- To achieve these objectives, accomplish this objective of con- tions that Angus identifies. For Angus uses the Strategy-to- firming alignment of functional simplicity’s sake, we will follow Bottom-Line-Impact Value Chain department plans with company the steps of the value chain in framework. This report docu- plans. This creates a strong basis detail as they relate to this one ments how the components of for aligning IT plans with business intention. the value chain consistently carry plans and for ensuring that IT proj- out these basic themes. ects and initiatives are parallel to Table 1 presents a simplified view and support business plans and of the results of the steps that Note that the project objectives initiatives in each organization. Angus management completed. go beyond what might tradition- The senior leadership team was ally be viewed as appropriate for The Result for Angus able to convert the strategy (artic- a strategic IT planning project. ulated as specific strategic inten- The purpose of this two-part Specifically, the objective to tions) into the detailed business Executive Report series is to show “confirm alignment of functional and IT actions necessary to carry how a company like Angus has department plans with Angus it out. In the process, the elements used the four management plans” inserts the project into of IT spending that were previ- processes described in the side- business planning and, more ously unconnected to business bar “The Strategy-to-Bottom-Line particularly, into identifying and strategy were examined and, as Value Chain” (beginning on page assessing business-organization appropriate, reduced. The result 7) to produce effective IT actions plans at both the strategic and was a much closer link between and investments that positively the tactical (annual) levels. IT spending and what manage- affect the bottom line. The actual ment wants to accomplish (i.e., In our experience, however, it is process as applied at Angus pro- a completely linked, strategy- difficult to translate strategy into duced considerable information. driven IT process). Table 1 shows tactical and operational plans. In Each strategic intention, for exam- how the business strategic inten- fact, it does little good to do a ple, resulted in the definition of tion of profitable market share is strategic IT plan if the managers three to five strategic objectives reflected in specific decisions and organizations do not perform for that strategic intention and a about IT, projects, and budgets. consistently with the specified large number of specific strategic While Table 1 details only one business strategies. Without such initiatives. The latter represent VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 5 Table 1 — Angus International: From-Business-Strategy-to Action Plan and the Bottom Line Value Chain Process Step Partial Example of Profitable Market Share Strategic Intention Strategic planning. Stage 1: Strategic intention: profitable market share; to increase the number of to establish management’s prime customers and increase the percentage of house-brand products strategic intentions for the supplied to each. business.* Strategic planning. Stage 2: to Strategic intention for the use of IT: to make timely, integrated create the strategic agenda for information and analysis tools available to all at Angus who can influence the use of IT in the business profitable market share. (i.e., the “demand” for IT).* Strategic intention for the supply of IT: to establish industrial-strength, Strategic planning. Stage 3: large-scale warehouse (capability to collect, manage, analyze, and to create the strategic IT plan access information) for all relevant aspects of Angus’s business that (i.e., the “supply” of IT). influence profitable market share. Strategic planning. Stage 4: One strategic IT requirement: to create processes and capability of to derive the strategic IT integrating databases that underlie Angus’s investment decisions (e.g., requirements for the necessary promotions, products, and channels). IT initiatives. Initiative and project Projects to carry out strategic intentions: to rebuild the customer development. To translate information system; replace sales force automation platform; and convert strategic IT requirements and sales/marketing database. strategic agenda into projects. Included in departmental plans: to use business process to put Annual planning. To establish information in sales force hands and plan to enhance call center to annual project plan, annual provide instant customer information. business plan, and annual IT plan. Included in IT plan: to replace inadequate sales force automation package and install customer information warehouse. Budgeting to action plan. To Business budget: to project for training and process change program in translate annual plans into sales force and to project for call center enhancement. approved budgets; translate annual plans into performance IT budget: to project for infrastructure additions and upgrades, measurements; and execute and especially warehouse, and redeployment of sales force system monitor action plans. resources to warehouse. *These stages will be discussed in this report; Part II will cover the remaining concepts. outcome at each process step, the for IT by identifying business strate- and how strategic IT requirements report discusses multiple results gic intentions (including business are the outcome. (e.g., multiple strategic inten- strategic initiatives); it then defines tions for the use of and supply of the supply of IT as the means by This management process estab- IT, multiple strategic IT require- which the IT organization delivers lishes the basic strategic direction ments, etc.). business solutions to match those (in terms of strategic intentions) business strategic intentions. and produces specific strategic MANAGEMENT PROCESS 1: IT requirements as well as a STRATEGIC PLANNING (FOR IT) This process covers how strate- strategic IT plan. The strategic IT gic intentions are formed, how requirements state what IT needs Let’s begin by looking at the first they result in basic strategic initia- to satisfy in order to support the of the management processes out- tives and strategic requirements, business’s strategic intentions lined above and how Angus imple- how they are turned into the and objectives. mented it. The strategic planning strategic agenda for the use of IT, process first defines the demand ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 6 BUSINESS-IT STRATEGIES ADVISORY SERVICE As Figure 1 illustrates, the strate- annually. The purpose of each and deal with individual depart- gic plans for IT have two basic year’s cycle is to confirm what mental plans. components. For IT demand, the occurred during the previous strategic plan focuses on how IT cycle and to add any innovations. For Angus, the strategic plan- is to be used in the business and, ning (for IT) process was accom- in particular, how IT will support For Angus, the cycle described plished in four stages during the the business strategic intentions. in this report was the first. As year. This is the typical approach For IT supply, the strategic plan a result, all the deliverables for many companies, although focuses on how the IT organiza- were created for the first time. the actual steps done at any tion will satisfy those demands. There was a predecessor strategic company depend on the partici- plan for the business, produced pants as well as their schedules In simple terms, the inputs and through an engagement with a and objectives. As we’ve stated, outputs for the strategic planning (then) Big Eight firm, but the doc- a primary objective for Angus was management process include: ument was considered ineffective. to explore or develop in detail the Instead, the CEO had a business departmental strategic initiatives Input (or created): business vision and direction in mind that to ensure that the tactical plans strategic intentions, business he expected his direct reports were consistent with the corporate assessed portfolios (assessed could carry out. So for the CEO strategies and plans. This placed on alignment, service/quality, and for Angus, this was essentially significant emphasis on the middle technical risk), and innovations the first time a formal planning stages of the process. Generally, Output: strategic IT agenda, process was in place. Given that the four stages apply to any com- strategic IT plan, and strategic one objective was to ensure align- pany; the outcomes (e.g., strategic IT requirements ment of the departmental plans, intentions, objectives, etc.), are the it certainly was the first time that same, but how companies accom- The strategic planning manage- the strategic planning processes plish them may differ. ment process typically occurs were expected to influence Figure 2 on page 11 shows the four stages that Angus completed. We begin our discussion of Stages Strategic Plan Strategic IT Plan I and II below.2 for for Portfolio assessments IT Demand IT Supply Applications infrastructure Stage I: Establish Management’s Services Strategic Intentions management Business IT As Figure 2 shows, Stage I pro- Business Strategic intentions strategic intentions strategic intentions strategic intentions for each portfolio duces the company’s strategic for the use of IT for the supply of IT intentions. The senior leadership Business Business IT Strategic objectives team was led through the follow- strategic objectives strategic objectives strategic objectives for the use of IT for the supply of IT for each portfolio ing six basic steps to identify Angus’s strategic intentions and Business IT Business Programs strategic initiatives strategic initiatives strategic initiatives (strategic initiatives) for the use of IT for the supply of IT (Text continues on page 10.) Strategic IT 2See the “For Further Reading” section at requirements the end of this report for other publications, including Cutter Consortium journals, that describe the strategic intention concepts Figure 1 — Strategic plans for IT. applied to IT. VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 7 THE STRATEGY-TO-BOTTOM-LINE VALUE CHAIN The value chain is a series of connected management processes that culminate in project and operational budgets and performance metrics to monitor action and bottom-line impact. The value chain is made up of the following components: An integrated framework for the entire value chain that is based on shared and consistent business and IT management roles, responsibilities, and information. The framework uses tools such as IT portfolios as a kind of connective tissue. A set of interconnected and interrelated management practices that can take advantage of the overall framework and bring it to life. This requires that these practices be well defined with consistent roles and processes. The practices include the following: — Alignment — Strategic planning for IT — Prioritization — Performance measurement — Innovation A defined set of 12 deliverables that are consistent with one another, carrying through from business strategic intentions to the IT projects and budgets that produce action. Figure A shows the 12 deliverables, and Table A lists them. (See Appendix Table 4 on page 33 for definitions of these deliverables.) When integrated with the existing Angus management processes such as budgeting and annual planning, the five practices (listed above) give Angus a sound set of management processes that satisfy the goal of translating business strategy into IT actions that produce the right business results. The five practices are used in a connected set of management processes and enable management to control IT spending and improve IT’s impact on the bottom line. The value chain emphasizes that each management process about the planning and execution of IT needs to produce deliver- ables that connect between processes consistently and that are used consistently in all other processes. For example, a busi- ness strategic intention defined as part of the first deliverable (business strategic intentions) in Table A should be used in the strategic IT plan (item 4), the business plan (item 7), and projects budget (item 10). The connections include the following: (Sidebar continues on next page.) 1 Strategic IT planning Annual IT planning Business The business enterprise: lines of business, departments strategic intentions 7 Business plan 3 (annual) 10 (strategic Strategic IT Projects business agenda 8 budget 5 6 plan) Strategic IT Projects Project plan requirements (annual) Action 2 4 11 Assessed Strategic IT “Lights-on” portfolios plan 9 IT plan budget (alignment, (annual) service/quality, technology) The IT enterprise: four lights-on asset pools Performance measurement metrics 12 Effective planning Deliverables Business Appropriate resource decisions IT Bottom- in the strategies line Workable budgets, projects, action results Strategy-to- and operational plans Bottom-Line Performance measurement, metrics Value Chain Figure A — Overview of deliverables in the Strategy-to-Bottom-Line Value Chain. ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 8 BUSINESS-IT STRATEGIES ADVISORY SERVICE THE STRATEGY-TO-BOTTOM-LINE VALUE CHAIN (continued) Table A — Strategy-to-Bottom-Line Value Chain Deliverables Basic Processes Management Practices Intermediate and Value Chain Involved Deliverables Strategic Strategy-driven planning 1. Business strategic intentions, which planning to Innovation planning includes: strategic IT — Mission requirements Alignment (application portfolio) — Business-technology drivers Performance measurement — Strategic business initiatives 2. Assessed application portfolios 3. Strategic IT agenda for the use of IT 4. Strategic IT plan 5. Strategic IT requirements, which includes: — Strategic IT initiatives Strategic IT Performance measurement 6. (New) individual projects, which include: requirements Alignment (application — Individual project assessments to projects portfolio) with risk, architecture, etc. Projects to Prioritization 7. Business plan (annual) annual plans Lights-on alignment 8. Project plan (project book) (annual) Alignment (IT portfolios) — Also uses deliverable number 2, assessed portfolios 9. IT plan (annual) Annual plans Alignment assessment 10. Projects budgets (annual and capital) to budgets Performance measurement 11. Lights-on budget (annual) (to action) 12. Performance measurement metrics The connection from the information on one deliverable to the creation of the next deliverable in the value chain The connection of information from business sources (strategic intentions, business plans) to IT sources (portfolios and, within those portfolios, information from enterprise architecture and related technical planning processes) The connection to the budgeting business processes (and related processes of performance measurement) For example, the information on strategic intentions drives the creation of the strategic IT agenda, which drives strategic IT requirements, which are then turned into projects, and so forth. It is the connections that are important. MANAGEMENT DECISION MAKING The key, however, is the decision making that takes place. For example, while the annual project plan is a valuable deliver- able, the decisions of the senior leadership team in prioritizing the projects to be included in the annual project plan are more important. While the strategic intentions for the use of IT set the direction for IT, what is most important point are the decisions of the senior leadership team about how IT can influence and support the success of the underlying business strategic intention. Therefore, the value chain is an important framework defining deliverables and process. But its true value lies in the decisions made at each point, focusing management attention on the key variables and priorities leading from strategy to IT action and, hence, to impact on the bottom line. FOUR MANAGEMENT PROCESSES OF THE VALUE CHAIN In practice, most companies use four basic management processes that (hopefully) connect their strategic goals and objec- tives to the day-to-day actions of managers. These processes typically have specific, often annual, time cycles and clear beginnings and endings. (Sidebar continues on next page.) VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 9 THE STRATEGY-TO-BOTTOM-LINE VALUE CHAIN (continued) From the value chain perspective, these four basic processes can create and apply value chain deliverables. The outcomes of one process (the strategic IT requirements, for example) become the input for another process (the initiative and project development process, for example). (See Figure B.) Briefly, the following are the four basic processes: 1. Strategic planning (for IT). This process describes the company’s strategic intentions, assesses the as-is performance and align- ment of current IT activities, provides innovation input, and produces a strategic vision for the use of IT in the business (the strategic IT agenda), the strategic IT plan, and the strategic IT requirements that go on to become initiatives and projects in the second process. 2. Initiative and project development. This process picks up from the strategic plans and strategic IT requirements and results in prioritized initiatives and projects. With it, the company can translate its strategic plans into potential initiatives and projects. 3. Annual planning. This process establishes exactly which projects will be considered for implementation and creates a project plan, translates business-unit strategies into annual plans, and establishes the IT annual plan. In this way, the company can create a plan for certain projects and the business and IT annual plans that supported them. (For some companies, the project development and planning is done more frequently than annually. Also, the processes for identifying, prioritizing, and planning new requirements during the year or some other time period are part of this process.) 4. Budgeting-to-action plans. This process connects the annual plans to Angus’s budget and capital funding processes and results in the financial and operational plans for carrying out the projects and annual plans. This also provides for the meas- urement context for executing the action plans. In this way, the company can produce budgets consistent with its strategic plans and directions and consistent with the project plan. A major lesson from company experiences such as Angus International’s is that making the connections among the four management processes — to ensure that the outputs of strategic planning in fact drive projects, annual plans, and budget- ing processes — is often difficult or nonexistent. One purpose of this report is to show exactly how the connections can be made and to show through example and in practical terms how decisions at one point, such as those about strategy, do affect projects, plans, and budgets. MANAGEMENT ROLES IN THE FOUR PROCESSES Angus chose to use three leadership teams for the exercise, with their activities extending over the period of a calendar year. The senior leadership team consisted of the CEO, the COO, the CFO, and the senior vice presidents of operations, human (Sidebar continues on next page.) Strategic IT planning Annual IT planning Business strategic Business plan intentions (annual) Projects (strategic Strategic IT budget agenda Action business plan) (use of IT) Strategic Project and IT Projects plan bottom- requirements Assessed Strategic IT (annual) line portfolios plan results Lights-on (supply of IT) (alignment, IT plan budget service/quality, (annual) technology) Performance measurement metrics Strategic planning (for IT) Budgeting-to-action plans Initiative and project Annual planning development Figure B — Management processes and the Strategy-to-Bottom-Line Value Chain deliverables. ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 10 BUSINESS-IT STRATEGIES ADVISORY SERVICE THE STRATEGY-TO-BOTTOM-LINE VALUE CHAIN (continued) resources, legal affairs, and sales. The business leadership team was made up of the direct reports to the senior leadership team, about 15 individuals who were functional department heads (e.g., the controller, the vice president for product devel- opment, etc.). The IT leadership team was the CIO and his direct reports. Table B shows the role of each team in the four processes; the right-hand columns correspond to the four management processes. Table B — Angus Leadership Team Roles in the Four Management Processes and the Strategy-to-Bottom-Line Value Chain Process Three Process Four Process Two Process One Deliverables in the Business Senior Business IT Strategy-to-Bottom-Line Leadership Leadership Leadership Value Chain Team Team Team Business strategic 1 Perform Review Review X intentions Assessed application Perform Perform 2 Review X portfolios (business) (IT risk) Strategic IT agenda for the 3 Approve Review Perform X use of IT 4 Strategic IT plan Approve Perform Review X Perform 5 Strategic IT requirements Approve Perform (IT) X X (business) 6 Individual projects Review Joint Joint X X 7 Business plan (annual) Approve Perform X Perform 8 Project plan (annual) Approve Perform X X (schedule) 9 IT plan (annual) Approve Review Perform X Projects budget (annual Perform 10 Approve Perform X and capital) (costing) 11 Lights-on budget (annual) Approve Perform Approve X Performance measurement 12 Approve Joint Joint X metrics (Text continued from page 6.) Step 3: define Angus’s strate- The primary outcome is a simple gic intentions. statement of strategic intentions to identify IT’s value, potential and, in general, of where IT is contribution, and strategic IT Step 4: establish the relative deemed to be an important com- requirements. importance to Angus of the ponent of meeting those intentions. strategic intentions. Step 1: what goals are impor- The business strategic intentions tant for Angus to accomplish Step 5: identify strategic objec- are the core element of the strate- in the coming three years? tives and related metrics. gic planning management process. Strategic intentions express what Step 2: what, roughly, are the Step 6: identify strategic management wants to accomplish levels of importance for each initiatives. and the relative importance of of these imperatives? those accomplishments. Once VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 11 defined, the strategic intentions are Stage I Stage II Stage III Stage IV drivers for the development of the Establish Create the Create the Derive the strategic IT agenda and the strate- management’s strategic agenda strategic IT plan strategic strategic for the use of IT (supply of IT) requirements gic IT plan. intentions in the business for IT (demand for IT) initiatives Note that many companies do not Business Assessed Strategic IT complete Steps 5 and 6 at this imperatives Where can IT portfolios requirements: contribute? point. Recall that a specific Angus (technology) business objective is the alignment of Strategic intentions departmental plans with Angus Assessed portfolios Strategic intentions for Strategic IT requirements: plans. However, identifying spe- Strategic (business) the supply of IT IT objectives cific strategic objectives and functional organizational units is Strategic intentions for Department a very productive task; it results in strategies the use of IT a further grounding of the result- ing strategic IT plans and ultimate Figure 2 — The four stages of strategic planning. projects. In effect, if these things aren’t done at this point, they imperatives were the most impor- needed to be done rather than must be done when projects are tant. They did so individually and the “how” — that is, the “strategy” developed, prioritized, and incor- then consolidated their views involved. The CEO was particu- porated into annual plans and as a group. larly interested in this focus on budgets. As we’ll show below, outcomes because he believed for Angus the identification of Table 2 lists the three (out of the that it was important to connect department-level strategies was a total nine) imperatives that led early on to concrete statements vital step in identifying the precise to the adoption of the profitable of what each part of the business role that IT should play in the market share strategic intention, needed to accomplish. He was achievement of Angus’s strategic which is the example used outspoken in declaring that soft intentions. throughout this report. Table 2 or high-level statements of strat- also shows the relative impor- egy combined with no account- Step 1: What Is Important? tance of each imperative, with ability was not acceptable. Step 2: What Are the Levels of the number 5 representing the Importance for Each Imperative? highest level of importance. More than 50 candidate impera- To begin the development of strate- tives were identified, discussed, gic intentions, the CEO and execu- These steps engaged the leader- and ultimately reduced to the tive staff were asked to list what ship team in half a day’s worth nine that went on to the next was important for Angus to accom- of facilitated discussion. During step. A key part of the discussion plish in the upcoming three years. that time, the team brainstormed, centered on the question “Whose The senior leadership team created reviewed marketing reports, problem is this?” as a vehicle for a list of nine imperatives. A busi- heard comments from the CEO fully describing the imperative and ness functional area was also iden- and other senior leaders, and for identifying common themes tified as the key responsible party examined the latest industry con- from the original list of 50. for each imperative. ditions. The emphasis was on the necessary accomplishments for After the exercise, the executive The senior leadership team was the next three years, thus iden- team was asked for its view of then asked to identify which tifying the “outcome” of what the resulting nine imperative ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 12 BUSINESS-IT STRATEGIES ADVISORY SERVICE Table 2 — Strategic Imperatives That Led to the Strategic Intention ensure that each department fully of Profitable Market Share understood what its accomplish- Imperative Importance Department ments needed to be and that all departments understood how To clearly identify sales opportunities and 5 develop programs to optimize long-term profit their activities worked together to growth. achieve the strategic intentions. To effectively communicate the availability of 1 Sales our products and have an adequate platform Step 3: Statements of for advertising and promotion of products. To Strategic Intentions establish programs and actions to achieve this. To become viewed by prime customers as the 3 Based on the insight about what supplier of choice through efficient and effective is important, the senior leadership methods of delivering high-quality products to Operations team broke each of the nine each of these customers. To ensure that Angus is highly responsive to external customer imperative statements into its needs. parts and recombined them into six strategic intentions. The parts statements. Remarks included the In general, the CEO and senior were based on (1) which depart- following: leadership team believed they ments had to do something to had made progress in identifying carry out the intention; (2) the Is this strategic review missing way in which outcomes could be important accomplishments for anything (perhaps product measured; and (3) the intermedi- the future. That the results were development)? ate results necessary to carry out produced across organizational silos was highlighted. the overall intention. How can we corral (i.e., orga- nize and control) knowledge Both the CEO and the individual The team reconstituted the state- management across business leadership team members under- ments of what is important based units? stood that a main purpose of the on (1) the outcomes desired (the Some imperative statements exercise was to set the stage for goals); (2) the means for produc- are too complex or too much strategic IT planning. By identifying ing those outcomes; and (3) the of an umbrella statement. We the strategic imperatives, they metrics that measure the out- need simple statements that were told, they could move on comes. Table 3 lists the resulting everyone can understand. to identifying how IT could be six strategic intentions for Angus. Have we sufficiently accounted effectively used to accomplish This table is used again and again for sales and forecasting, focus- them, as well as to prioritize their in assessing existing portfolios; pri- ing on the demand side? IT investments to ensure linkage oritizing strategic IT requirements to what was important to them. This exercise meets the test and projects; and establishing the In this way, they understood why of communications and annual business, IT, and project the next three steps were under- appears to be comprehensive. plans. taken (establishing strategic inten- This is excellent because tions, their relative weight, and The six strategic intentions dif- we have done this as a team ultimately the business initiatives fered from the imperatives in representing all parts of the necessary to accomplish the that they established a concrete company. strategic intentions). In addition, goal along with key metrics for the CEO remained steadfast in tracking progress. With such state- wanting to use the process to ments, the leadership team said VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 13 Table 3 — Angus’s Strategic Intentions Strategic Strategic Intention Goal Key Metric Intention To increase the number of prime Number of prime customers Profitable customers and increase the percentage and percentage market share market share of house-brand products supplied to for each and for the group. each. Market-driven To expand the number of high-demand Percentage of reordered product products for prime customers. products. development Angus To grow the capabilities of Angus Percentage (general and company people and operate as a team with administrative). development common purpose. Regulatory Dollars of claims and To reduce exposures to product safety and legal settlements and percentage and financial disclosure. compliance of regulatory actions. Year-over-year unit-cost Expense To reduce unit cost of product and all change and percentage control forms of administrative overhead. (general and administrative). To maintain and improve long-term Percentage market share for Customer performance and relationship with prime each and customer satisfaction relationships customers. index. clearly, “This is what we intend to priorities. In addition, the CEO through further discussion of accomplish” and, by extension, made it clear that he expected the results. The process is “This is what our strategies and that the strategic intentions would intensely facilitated and works organizational efforts are intended also define his expectations for well to produce a result with to accomplish.” For example, prof- each department’s performance. which the senior leadership team itable market share was the result is comfortable. of discussing the three strategic Step 4: Relative Importance imperatives listed in Table 2. of Each Strategic Intention To illustrate the weighting process, The leadership team believed that all six strategic intentions are This exercise weights the the real accomplishment lay in listed in Table 4. six strategic intention state- the increase of business with ments according to a spread of Both dollar amount and impor- prime customers and the increase US $100 million to be invested in tance rankings resulted in the in the number of prime cus- Angus and according to an impor- same top strategic intention: prof- tomers. In the facilitated discus- tance for management attention itable market share. Those ranked sion, the team realized that the in the coming three years. The 2-4 by dollars (expense control, three imperative statements were senior leadership team is first market-driven product develop- the means for accomplishing the asked to imagine how it would ment, and Angus company devel- underlying profitable market share most effectively spread a “free” opment) scored equally when strategic intention. $100 million and then how it attention weights were used as the should spend its attention across measure. (Note: these three inten- The CEO and the leadership team the six intentions; the idea is to tions all rank 2 due to the tie.) understood that by defining these determine the relative importance strategic intentions, they were lay- of the intentions. The weights An examination of the results ing the foundation for identifying themselves are then established for strategic intentions 2 and 6 IT opportunities and establishing ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 14 BUSINESS-IT STRATEGIES ADVISORY SERVICE Table 4 — Determining the Relative Importance of Each Strategic Intention By Dollars By Attention Spread of Final Rank Weight/ Rank Weight Strategic Intention $100 Order Importance Order Million 1 Profitable market share 41 1 27 1 29 2 Market-driven product development 11 3 18 2 22 3 Angus company development 10 4 18 2 21 4 Regulatory and legal compliance 4 6 9 6 12 5 Expense control 27 2 18 2 9 6 Customer relationships 7 5 11 5 7 implies that Angus senior execu- The leadership team found that The Angus senior leadership team tives believe that the issues sur- the method of setting weights adopted the three-level strategic rounding product development added further understanding structure defined in the Strategy- and customer relations will not of what was important for Angus to-Bottom-Line Value Chain: require as much of a dollar invest- to accomplish. For example, sev- ment to achieve the desired result 1. Strategic intention: what the eral members expressed concern as, say, profitable market share company needs to accomplish that the first strategic intention, (strategic intention 1). This is profitable market share, could 2. Strategic objective: a time- arguable and would benefit from encompass the other five. How- boxed expression of specific further discussion and outside ever, once they identified the goal goals and metrics expertise to validate. of this intention (to increase the 3. Strategic initiative: the number of prime customers and Strategic intention 4 (regulatory specific actions to be taken increase the percentage of house- and legal compliance) has the by departments brand products supplied to each), least allocation of dollars shown, they agreed that most of the initia- This structure allowed the team to though the company is devoting tives to accomplish this goal were clearly identify what its planning considerable resources to it — separate from those that fell under should accomplish, oriented to perhaps the most of any of the the other five intentions. individual departments and their strategic intentions (via an enter- activities. prise resource planning [ERP] Step 5: Identify the Strategic project). Either the priority of Objectives Relating to Each 3 intention 4 is understated, or Strategic Intention Step 6: Identify Strategic Initiatives perhaps Angus is expending The senior leadership team identi- Each organizational unit’s busi- too many resources on it. Alterna- fied a total of 17 strategic objec- ness leadership team considered tively, if the ERP investment is also tives to be accomplished. It then the six strategic intentions and expected to address, say, inten- determined which of the organiza- resulting 17 strategic objectives tions 2 and 6, then Angus should tional units should begin to pre- and then created a set of specific pay more of its management pare detailed strategic initiatives strategies it believed it needed to attention to getting the results to achieve those objectives. Table of intention 2 and intention 6 (in 3For 5 shows the three objectives that some companies, these are called particular) from the ERP project. detail strategies. relate to profitable market share. VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 15 Table 5 — Example of Strategic Objectives for Profitable Market Share, Including Metrics Strategic Operational Strategic Objectives Intention Metric 1. New and existing To identify, develop, and exploit new Number of prime market and existing market opportunities. customers opportunities Profitable 2. Production To achieve efficient and effective Current operations market and distribution production, distribution, and inventory index share excellence of all product sectors. To protect and sustain Angus market Market share 3. Sustained market leadership within consumer products — for each prime leadership house-product sectors. customer achieve in order to attain those suggests that executive attention CEO: “Are we spending enough objectives. These 17 strategic ini- is needed to ensure that proper on the important initiatives?” tiatives represent what each orga- energy will be devoted to the nizational unit expects to do over items most likely to achieve Overall, for all six intentions a three-year period to accomplish success in the directions Angus and 17 initiatives, the analysis the strategic objectives and wants to take. demonstrated that each strategic thereby the strategic intentions. intention is supported by several The CEO and leadership team strategic initiatives. However, it is The senior leadership team was were very surprised to find that interesting to note that in looking asked the following: (1) whether it almost none of the 17 strategic at all six strategic intentions, the was satisfied that enough energy initiatives had sufficient energy most important strategic intention was being devoted to each strate- devoted to them, in spite of the (number 1) appeared to be the gic initiative; (2) whether current finding that some work was being least well supported by initiatives. effort was underway and in what done on all of them and that each And the second most important form; and (3) whether there was had some degree of ongoing IT (number 2) was also insufficiently IT support for the strategy. Table 6 investment. This led to several supported. shows the answers to these ques- comments and questions: tions, as well as the number of During the process of conducting strategic intentions supported by CEO: “Does this mean we’re the exercise with the senior lead- the initiative, for the two of the spending money across the ership team, individual senior 17 initiatives that relate to the board but are unlikely to be executives voiced opinions that profitable market share strategic successful in any initiative?” varied considerably regarding the intention. Operations Vice President: strategic initiatives that support “Now that we’ve formally each strategic intention. This We’ll look specifically at Table 6 identified these as strategic ini- variation may be a function of below; in general, however, the tiatives, we really have to moni- incomplete information about the areas where the senior leadership tor expenses and progress.” implications of each strategic ini- team didn’t know whether suffi- tiative. However, it is important for cient energy was being applied CIO: “We need to prioritize the senior leadership team to have appear to be the ones most con- and concentrate on the most a common view of the strategic nected to the actual strategic important initiatives.” initiatives and implications for IT intention statements. This support. The variation suggests ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 16 BUSINESS-IT STRATEGIES ADVISORY SERVICE Table 6 — Example of Strategic Initiatives for Profitable Market Share Is Is Dept. Is IT Support of Total IT Enough Department Strategic Initiatives Working Working Strategic Needed Energy on It? on It? Intentions Score Applied? New Process — ongoing product quality and review: to assess whether product development and 3 Five product quality are maintained as Not sure intentions (Major Operations well as meet future needs through Ongoing Ongoing (or no) are projects technical support and innovation, supported needed) defined quality systems, consistent measurement standards, and management oversight. New Process — geographic and A possible prime customer sales analysis: 3 enterprise Two to analyze sales trends and Not sure resource intentions (Major Sales develop/maintain product offerings Ongoing (or no) planning are projects in identified geographies that (ERP) supported needed) return established volume and solution profit objectives. that additional attention can be strategic intention. Note that this Now let’s take a closer look at given to this issue. After this exer- count includes “minor” support Table 6, which serves as our cise, the Angus CEO was deter- as well as “major” support example for accomplishing the mined to devote a future senior responses. major task of Step 6: identifying leadership team meeting to further the strategic initiatives. For each discussion of exactly what the Also shown in Table 6, the senior strategic intention, the team must company was planning to do in leadership team was asked to identify exactly which initiatives each strategic intention area. estimate the amount of IT support each department within the com- needed to meet the requirements pany plans to undertake. Table 6 shows the initiatives for of the strategic initiative (note the just one strategic intention (prof- scale is as follows: 0 is none; 1 is For the first strategic intention of itable market share) and looks at based on existing support; 2 is profitable market share, two initia- the connection between strategic minor project(s) required; 3 is tives were identified. For each of initiatives and the strategic inten- major project(s) required). In those two initiatives, the leader- tion statements, in the opinion of the view of the senior leadership ship team answered the following the senior leadership team. team, both initiatives in Table 6 five questions: require major IT projects. In All 17 initiatives sorted the depart- examining all 17 strategic initia- 1. Is the senior leadership team mental strategic initiatives in the tives, more than half suggest that devoting enough management order of the number of strategic major projects may be needed energy and resources to ensure intentions that the senior leader- to meet the requirements. This success of the initiative? For ship team believed the statement is daunting and underscores the the two shown in Table 6, the supported. The example in Table 6 need to have a good IT strategic answer is “not sure (or no).” demonstrates this. Here, the first plan to sort out the priorities 2. Is the department currently initiative was viewed to support and the necessary resources working on the initiative? For five (of the six) statements of and/or allocations. VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 17 the two shown, the answer is sense of creeping commitment leadership team noted, and the “yes” (work is ongoing). was also reflected in the team’s team expected some improve- judgment that it was likely that ments in subsequent planning 3. Is IT currently working on insufficient non-IT resources were cycles. During the departmental projects related to the initiative? also devoted to the initiatives. planning cycle that followed, For the two shown, the answer this was emphasized, and depart- is “yes.” Summary of Stage I ments were expected to produce 4. How many of the six strategic additional initiatives and plans. intentions does each depart- At this point, the senior leadership ment’s initiative actually sup- team had three basic documents: Also, the leadership team noted port? One initiative supports (1) a statement of strategic inten- that profitable market share is five, the other supports two. tions with each weighted for rela- probably directly influenced by This result supported the tive importance; (2) a statement success in the other strategic importance of the initiatives, of strategic objectives, which car- intentions. For example, if market- particularly the first one. ries out each strategic intention driven product development is with specific goals and metrics successful, it should have some 5. Is further IT investment with targets; and (3) a statement positive influence on market required to complete the of strategic initiatives, which share. In subsequent steps, we’ll initiative? Both require major establishes exactly what each see that the strategic intention 1 IT projects. department intends to do to and its objectives and initiatives achieve the goals of the strategic will focus on the development In sum, these results were intentions. of prime customers and product extremely important for the senior leadership team and to the proc- performance, as well as business For Angus, these documents intelligence about competitors. ess of developing the strategic IT were published in a formal report plan. The team was confronted This will focus heavily on manage- of 15 pages. It was used as a ment understanding of current with facts that its most important beginning point for departmental intentions were not getting and future performance and will planning, annual planning, and not overlap with the initiatives in enough attention, that (despite budgeting for that fiscal year. It this) work was ongoing on initia- the other strategic intention areas. was also used in the subsequent tives, and that future IT investment steps of strategic IT planning. Stage II: Develop the Strategic was required to complete the ini- Agenda for the Use of IT tiatives. This created a sense of Rather than include all 15 pages in the Business urgency to complete the next in this report, we chose to show The goal now is to identify the steps of the strategic planning only those documents relating to key IT requirements necessary process. The team was concerned the intention of highest priority — to meet the strategic objectives. that previous decisions about IT profitable market share. Angus’s senior leadership team investments on behalf of the 17 did this by following three steps: initiatives had been made from a Tables 5 and 6 detail the strategic largely tactical rather than a strate- objectives and initiatives for the 1. Determining where IT can gic perspective and that the need profitable market share intention. contribute for further IT investment was a It might appear that Angus’s “creeping commitment” that 2. Assessing the as-is application departments have relatively flowed from the (strategically and service portfolios from the sparse strategies for the highest- untested) assumption that the business perspective priority strategic objectives. This initiatives were all-important. This is something the Angus senior ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 18 BUSINESS-IT STRATEGIES ADVISORY SERVICE 3. Establishing the strategic directly from the strategic inten- time, the team was asked which agenda for the use of IT in tion statements to a consideration intentions appeared to be the the business of the specific technical invest- most difficult to achieve. ments required. Instead, the team The result is a concrete state- first determined exactly how IT The first question began with a ment of exactly what must could help. The team focused review of the results of Step 6 be accomplished with the use more on how its internal opera- described above. These results of IT in the business. This allows tions could exploit IT rather than included the 17 strategic initiatives the Angus leadership team to on the bells and whistles of the and whether further IT investment define exactly where IT should technology. was necessary to complete the fit in — a combination of strategic initiatives. The question now, intentions matched with the however, was whether the team Step 1: Determine Where IT specific departmental activities Can Contribute4 believed that the IT investments intended to carry out the strate- were an indication that the team gic intentions (see Figure 3). The Angus senior leadership team could be a major contributor to Ultimately, this leads to the finan- was asked to list which specific the achievement of the strategic cial decision of whether to invest strategic intentions had the great- intention. in development or enhancement est potential for IT investment for of IT applications or, in some the purpose of improving the like- This produced an energetic and cases, to reduce investment lihood of achieving the strategic lengthy discussion about exactly and redeploy those resources intention’s goals. At the same how IT (that is, IT-enabled infor- to other areas. mation and process automation, 4The as well as Web-enabled customer innovation practice can be used here to Originally, Angus’s senior leader- further develop new strategic intentions and and internal activity) could be a ship team had expected to move specific areas for possible IT utilization. critical part of the company’s Strategic Intentions 1 IT’s (Potential) Contribution Management establishes which strategic intentions have the greatest potential for IT contribution. This encourages them Application Portfolio to think about how IT should be used to advance their strategies. 2 2 Business Application Assessment 3 Strategic Intentions for the Use of IT Management assesses the existing application Management expresses their portfolio for (a) how well each application supports specific intentions to use IT to achieve strategic intentions and (b) performance intentions, strategic objectives, and and quality. This identifies where changes departmental strategies. This formalizes what IT needs to accomplish and what the in existing applications are needed business needs to plan to do. to match intentions to use IT. Business-Assessed Strategic Intentions Application Portfolio for the Use of IT Figure 3 — Angus’s logic for producing strategic intentions for the use of IT. VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 19 approaches to the 17 initiatives. potential for IT are also the most This step was important to the The discussion included expert problematic for Angus (profitable senior leadership team. From input provided by subject matter market share and expense con- a strategic perspective, it oriented experts, as well as industry/ trol). This suggests that decisions the team’s thinking toward where competitor practices and about IT’s deployment should be exactly the company should direct input from the IT staff about made carefully and with the full its IT investments. It allowed the possibilities. support of Angus executive man- team to understand where it agement. It also suggests that sim- should spend its time and energy Based on these discussions, the ply employing the IT investment and in what areas it should expect senior leadership team was asked would certainly be insufficient for to further develop the strategic to rank the six strategic inten- achieving the results; considerable IT plan. tions in terms of what they now business and departmental issues believed were the greatest areas would also have to be effectively Step 2: Assess the As-Is of possible IT impact. Table 7 addressed. That is, executive Application Portfolios5 from shows the results (1 is greatest management must pay close the Business Perspective possible impact, 6 is least possible attention to these areas and fully At this point, the senior leadership impact). support the IT initiatives. team had two tasks: The senior leadership team was In Table 7, two strategic intentions 1. To assess the existing applica- also asked to rank the strategic that rank low in potential techni- tion portfolio for how well each intentions on the level of difficulty cal impact (regulatory and legal application supports strategic in actually achieving the hoped-for compliance and customer rela- intentions results. This focused not so much tionships) also do not have a cor- on IT but on the overall challenges 2. To consider how well the exist- respondingly high dollar ranking of developing solutions and the ing applications perform in Table 4, as measured by man- related change-management agement’s inclination to spend This sets the stage for identifying issues within Angus. A rating of 1 money on them. This suggests the changes and investments indicates the greatest difficulty that, although IT investment was needed to match the strategic (problematic), and 6 is the called for in the strategic initia- intentions to the use of IT. easiest. tives examined in Step 6, it would be much less important to actually It is interesting that the two strate- do so for these intentions. 5IT services assessments are not included in gic intentions with the most this Executive Report. Table 7 — Example of IT Impact and Problematic Status for Strategic Intentions IT’s Impact Problematic Weight Strategic Intention Rank Rank Rank 1 2 Profitable market share 1 4 5 Market-driven product development 2 3 6 Angus company development 3 5 4 Regulatory and legal compliance 4 2 1 Expense control 5 6 3 Customer relationships 6 (For IT’s impact rank, 1 = greatest possible impact; 6 = least possible impact. For problematic rank, 1 = most difficult, 6 = easiest.) ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 20 BUSINESS-IT STRATEGIES ADVISORY SERVICE The basic issue is twofold. First, supporting the company’s strate- Strategic alignment. To assess from the strategic perspective, gic intentions. how well each application sup- how does the existing IT applica- ports each strategic intention, tion portfolio perform? Are there Angus has 25 basic applications including whether the appli- significant threats to the accom- in its portfolio (see Table 8).6 The cation may be an impediment plishment of specific strategic Angus senior leadership team to achieving the strategic intentions? If the answer is that commissioned the assessment of intention there are considerable risks, or these applications by its direct reports, a group of roughly 15 Service level and quality. if the portfolio does not perform managers. (We use the term From the business perspective, well, the Angus senior leadership “business leadership team” for to assess how well the applica- team determined it would need this group; it included functional tion performs in terms of accu- to examine why and take appro- directors such as the controller, racy of data, availability of priate investment action. Second, sales managers, manufacturing required functionality, and again from the strategic perspec- managers, human resources availability and reliability of tive, is Angus spending the right division managers, and so forth.) the application’s operation amount on IT? Should Angus spending (both on projects and The team did the assessments Dependency and breadth. To on “lights-on” functions) be signifi- with the assistance of the IT lead- assess whether the application cantly changed? If the answer to ership team (the CIO and his is actually used in the business the question is no, the Angus direct reports). Technical risk. To assess the senior leadership team would The business assessments degree to which applications consider how best to allocate the covered the following areas: threaten increased costs or level of spending to maximize its failure impact in terms of supporting the company’s strategic intentions. If 6 In its assessments of each appli- Here we report only on applications and the answer is yes, the senior lead- not on specific modules within an ERP . cation, the business leadership ership team would consider Angus management also limited the granu- team was asked the following larity of analysis to 25 applications. For our where spending should be examples in this report, we further limit to specific questions. Figure 4 shows adjusted, again in terms of best 12 applications. Table 8 — Angus’s Current Application Portfolio Accounts payable General ledger and financial Production planning consolidations and management Accounts payable, Human resources planning Quality examination system receivable systems Customer information Maintenance management Retail shipment data warehouse Design/build specification relay Marketing customer support Sales decision support systems Electronic bill tracking Marketing geographic planning Sales force automation Financial consolidations Merchandising payment systems Sales marketing database Financial planning/forecasting Order-processing systems Sales, use, federal, and state tax systems Finished goods inventory Prime customer Internet portal Warehouse replenishment system Five-year customer history VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 21 the results for each application in intention. (The six columns or strategic initiatives? Each the portfolio. correspond to the six Angus application is assessed for strategic intentions and are service level and quality on a Support of strategic inten- labeled with the name of 0-to-5 scale. The results are tions. Does the existing appli- the strategic intention.) The listed under the Functional cation portfolio appropriately Alignment column, to the right Alignment heading in Figure 4. support strategic intentions of these six, is the weighted and/or pose any threats to the Breadth and dependency. Is total (the sum of -5 to 5 scores accomplishment of strategic the application portfolio actu- times the weight for each intentions, strategic objectives, ally used (i.e., does the com- strategic intention). The higher and strategic initiatives? A pany depend on it)? How the total, the better aligned the related question is this: from widely is the application used application is with Angus strate- the strategic perspective, are (i.e., is use restricted to an indi- gic intentions. Angus’s IT resources being vidual, or is it company-wide)? invested in the right strategic Service level and quality. In Each application is assessed on areas? In Figure 4, the six detail terms of how it functions, does a 0-to-5 scale, and the results columns under the Strategic the existing application port- are under the Functional Alignment heading indicate the folio pose any threat to the Alignment heading in Figure 4. relative support each applica- accomplishment of strategic Technology risk. In terms of tion has for each strategic intentions, strategic objectives, technical risk, does the existing Application Portfolios Strategic Alignment Technical Risk Functional Alignment Market-driven product development Regulatory and legal compliance Angus company development Vendor stability and support Access/responsiveness Customer relationships Profitable market share Average technical risk Technical complexity Expense control Internal support Service level Dependency Alignment Cost ($M) Breadth Quality Weight 29 22 21 12 9 7 1 Customer information $4.00 4 0 0 3 0 3 173 4 1 3 4 3.25 2 2 5 5 2 Electronic bill tracking $2.25 4 0 3 3 3 3 236 4 3 2 4 3.25 4 5 5 2 3 Sales force automation $1.00 3 3 -1 -3 -1 -3 75 2 3 1 2 2.00 3 2 5 4 4 Sales/marketing database $2.00 3 -3 -1 -3 -1 3 -57 2 2 1 1 1.50 2 2 4 3 5 Sales decision support $2.50 2 -1 -1 -3 -1 3 -42 2 2 1 2 1.75 3 2 5 3 6 Accounts payable $4.00 0 -3 -1 -3 -1 3 -144 2 2 1 1 1.50 2 2 4 3 Design/build specification 7 $2.75 0 0 3 3 3 3 120 4 3 2 4 3.25 4 5 5 2 relay 8 Financial consolidations $1.00 0 -3 -1 -3 -1 -3 -144 2 2 1 1 1.50 2 2 4 3 9 Five-year customer history $0.75 0 0 0 -1 0 -1 -19 2 2 1 1 1.50 3 3 4 2 10 General ledger $1.75 0 0 0 3 0 3 57 2 2 3 3 2.50 4 4 5 3 11 Human resources planning $3.00 0 0 0 3 0 3 57 1 2 3 3 2.25 2 2 5 2 Marketing geographic 12 planning $3.00 0 4 0 3 0 3 145 1 2 3 2 2.00 2 3 5 2 Figure 4 — The detailed application assessment, ordered by support of profitable market share. ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 22 BUSINESS-IT STRATEGIES ADVISORY SERVICE application portfolio pose risks Figure 4 shows the detailed Scored a rating of 3 — of increased costs or threat- assessments for 12 of the applica- “medium support” for regu- ened failure that relate to tions in the portfolio. Each assess- latory and legal compliance strategic intentions? Each appli- ment is done on a scale of –5 to 5. and customer relationships cation is assessed for each of The list displayed in the figure is four types of risk on a 0-to-5 sorted in the third column: sup- Technical risk: scale, and the results are port for profitable market share Scored a rating of 1 — “high shown under the Technical (the highest-priority strategic risk” for vendor stability and Risk heading in Figure 4. For intention). This sorting shows support this assessment, a high risk that the customer information (defined as risk of future application (in bold in the table) Scored a rating of 3 — increased costs or possible is one of two applications that “medium risk” for internal application failure) is scored strongly supports profitable mar- support as 0, and a low risk is a 5. ket share (the other is electronic Performance (the Functional bill tracking, also in bold), as Further investment. Depend- Alignment heading in Figure 4): reflected by the rating of 4 in ing on how IT can support the strategic intention column. Scored a rating of 2 — “poor future business initiatives with However, the customer informa- performance” for service respect to strategic intentions tion application has one signifi- level and quality (see Step 6 discussed previ- cant technical risk (vendor ously and Step 1 in this sec- Scored a rating of 5 — stability and support) as reflected tion), is it warranted to invest “very high dependency”; by the rating of 1 in that column; it further in the application set the company depends on also has a bad service level and that relates to these business the application poor quality (as reflected by the initiatives? From a strategic per- rating of 2 in those columns). Scored a rating of 5 — “high spective, do significant areas require long-term investment breadth”; use of the application The business leadership team is company-wide despite poor to repair or replace significant examined the first application portions of the application performance (customer information) and con- portfolio? By examining the cluded that it had the following The business leadership team combination of current strate- characteristics. examined all applications in this gic intention support, technical fashion. To provide input for the risks, and service and quality, Support for strategic intentions strategic planning process, the the business leadership team (the Strategic Alignment applications were scored accord- begins to analyze the desirabil- heading in Figure 4): ing to each strategic intention. ity of abandonment (e.g., the The purpose was to understand application simply doesn’t sup- Scored a rating of 4 — “strong how well existing application port- port company strategic inten- support” for profitable market folios support the strategic inten- tions and/or has lousy quality share tions. Low levels of support, or and service level) or further Scored a rating of 0 — “no high risks and poor performance, investment (e.g., the applica- support” for market-driven could result in the adoption of tion is important, is depended product development, Angus strategic IT investments to repair on, but has bad service level company development, and the gaps in support. and quality). expense control VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 23 In Figure 5, for example, this The senior leadership team noted necessary to replace current scoring information is shown for that the technical risk for the applications and extend their all four applications that received sales-related applications (items capabilities to meet the strategic a score of 3 or 4 (strong support) 3 and 4 in Figure 5) was assessed requirements. for the strategic intention of prof- quite high by the business leader- itable market share. The business ship team. Under the Functional In examining Figure 4, the leader- leadership team reviewed the Alignment heading, service level ship team also noted that several results and prepared a presenta- and quality also caused significant of the 12 applications that seemed tion for the senior leadership concern. Yet Angus relies heavily appropriate to the strategic inten- team with observations and rec- on these applications, especially tion of profitable market share ommendations for further invest- customer information and sales had little impact, namely five-year ment in support of the strategic force automation, which was customer history, marketing geo- intention. used company-wide. This raised a graphic planning, and design/ red flag in team members’ minds. build specification. As shown Based on the analysis, Angus’s When compared with the strate- in Figure 4, these applications senior leadership team concluded gic objectives and strategic initia- received scores of 0 for support that some applications strongly tives, these findings created of the strategic intention. The support the strategic intention of substantial concern that the exist- team questioned whether it profitable market share, but with ing application set would be an should continue investing in those considerable technical risk and inadequate foundation from applications and/or why company poor performance. Clearly a which to move forward with the departments weren’t taking change was necessary. The result strategic intentions. The leader- advantage of these applications. was to add to the strategic require- ship team concluded that a sig- ments for IT. nificant investment might be Finally, the team noted that the distribution of IT investments Note that these application port- folio assessments focus on the future strategic aspects of IT. Application Portfolios Technical Risk Functional They will also be used in two Alignment other aspects of the Strategy-to- Bottom-Line Value Chain: (1) for the IT strategic plan, issues Vendor stability and support related to cost and effectiveness Profitable market share Access/responsiveness Average technical risk will be addressed using the Technical complexity assessment; and (2) for the IT Internal support annual plan and lights-on budget, Service level Dependency Cost ($M) issues related to costs, service Breadth Quality levels, and quality are addressed using this assessment. In that dis- Weight 29 cussion, technical risk is a main 1 Customer information $4.00 4 4 1 3 4 3.25 2 2 5 5 point of interest as well. 2 Electronic bill tracking $2.25 4 4 3 2 4 3.25 4 5 5 2 3 Sales force automation $1.00 3 2 3 1 2 2.00 3 2 5 4 Figure 5 looks at the assessment 4 Sales/marketing database $2.00 3 2 2 1 1 1.50 2 2 4 3 for the applications specifically related to profitable market share. Figure 5 — Strategic assessment of applications for profitable market share. ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 24 BUSINESS-IT STRATEGIES ADVISORY SERVICE in application areas seemed The Angus senior leadership In Part II of this series, we will disproportionate. In evaluating the team put the overall results into consider these assessments again dollar amount directed toward a management dashboard form, when we discuss the remaining profitable market share, the team as shown in Table 9 (although two strategic IT planing steps and discovered that the application we are describing the results for in the annual plan and budget portfolio wasn’t as strong as the only one strategic intention in this steps. other areas. This might be accept- Executive Report, it is interesting able if the application portfolios to look at all six strategic inten- The senior leadership team were especially effective, but tions together). used the dashboard shown in given the above assessments, Table 9 as the basis for an in-depth perhaps this is not the case. discussion of needs. The CIO Table 9 — Summary of Assessments for All Strategic Intentions Profitable Market Angus Company Expense Control Market-Driven Development Development Relationship Compliance Regulatory Customer and Legal Application Portfolio Assessments Product Share Weight 29 22 21 12 9 7 Support of strategic intentions. Does High High Medium Medium Medium High the existing application portfolio pose risk/ risk/ risk/ risk/ risk/ risk/ any threats to the accomplishment of high high medium medium medium high strategic intentions, strategic need need need need need need objectives, and strategic initiatives? Investment in appropriate strategic High High Medium Medium Low Low areas. From the strategic perspective, risk/ risk/ risk/ risk/ risk/ risk/ are Angus’s IT resources being high high medium medium low low invested in the right strategic areas? need need need need need need Service level and quality. In terms of how it functions, does the existing Medium Medium Low Medium Medium Medium application portfolio pose any threats risk/ risk/ risk/ risk/ risk/ risk/ to the accomplishment of strategic medium medium low medium medium medium intentions, strategic objectives, or need need need need need need strategic initiatives? Technology risk. Does the existing Medium High Medium Low High High application portfolio pose risks to risk/ risk/ risk/ risk/ risk/ risk/ Angus regarding increased costs medium high medium low high high or threatened failure? need need need need need need Further investment. Depending on how IT can support future business High High Medium High Medium High initiatives with respect to strategic risk/ risk/ risk/ risk/ risk/ risk/ intentions, is it warranted to invest high high medium high medium high further in the existing application set need need need need need need relating to these initiatives, or should it be replaced/abandoned? Long-term investment. From a strategic perspective, do significant areas require long-term investment Yes No No Yes No Yes to repair or replace significant portions of the application portfolio? VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 25 remarked that this was a highly Step 3: Establish the Strategic elaborate on how each of its productive discussion in that the Agenda for the Use of IT departments should use IT to in the Business issues turned on connection to achieve the strategic intentions. strategic intentions rather than on From the overall perspective, the In a work session, the individual simple needs. Team members strategic agenda for the use of IT members expressed their specific took specific note of the fact that evaluates the need and direction intentions to use IT to achieve the most important strategic inten- for investment from two areas: their strategic intentions, strategic tions had the worst assessment (1) the analysis of Angus’s strate- objectives, and departmental outcomes. This led to further dis- gic intentions through the strategic strategies. This formalized both cussion about where IT money initiatives, accomplished in Step 2, what IT needs to accomplish and should be invested. above; and (2) the strategic analy- what each part of Angus must sis of the as-is application portfo- plan to do in order to be able to The outcomes of this assess- lio, also done in Step 2. Taken use IT. The business leadership ment were used in Step 3, out- together, the strategic agenda team worked out specific depart- lined below, to identify where IT represents the demand for IT. mental goals and related appli- could be used more effectively. cations developments that The outcomes were also used in The senior leadership team had they would need. Ultimately, the development of strategic IT previously examined the role IT these would be reflected in the requirements (to be described should play in each strategic annual business plans, IT depart- in Part II of this series). intention (see Stage I, Step 6 and mental plans, and business and Stage II, Step 1 above). Now the IT budgets. (Part II of this series team asked the business leader- will detail how these results ship team to evaluate and further were produced.) The business Table 10 — Strategic Intentions for the Use of IT Rank Strategic Intention Strategic Intention for the Use of IT To make timely, integrated information and analysis tools available 1 Profitable market share to all at Angus who can influence profitable market share. To apply integrated information about product, product testing, 2 Market-driven product development consumer response and complaints, and worldwide product content/specifications throughout product development. To make information about jobs and job requirements, training and career development, and individual status against job development 3 Angus company development objectives available to Angus employees and potential recruits. To make relevant IT-enabled training available to Angus employees. To have departments use common systems throughout Angus. To gives executives and managers access to current litigation 4 Regulatory and legal compliance and compliance information. To employ comprehensive record management. To give executives and managers access to appropriate information that bears on minimizing cost of processes. 5 Expense control To have departments employ a business review and assessment of application portfolio effectiveness. To communicate electronically with relevant customers. 6 Customer relationships To give executives and managers access to information about customer performance and customer relationships. ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 26 BUSINESS-IT STRATEGIES ADVISORY SERVICE leadership team then summarized profitable market share, as shown CONCLUSION how it expected to use IT to in Table 11. We have described in detail achieve each strategic intention Table 11 also adds to the strategic how Angus International’s senior and reported its statements about agenda for the use of IT the leadership and business leader- IT to the senior leadership team. results of the application portfolio ship teams progressed from their The senior leadership team then analysis. In addition to the specific business strategic intentions to established the strategic intentions objectives from each department, the development of strategies for for the use of IT, as shown in the objectives for repairing the the use of IT in the business. Table 10 on the previous page. problems in the relevant applica- Part II will describe how this trans- The senior leadership team then tions are also included. lated into a strategic IT plan (for asked the business leadership the delivery of IT to meet the team to examine each strategic By performing this task for each strategic demand), specific IT intention and break it out into strategic intention, the business projects, an annual business, IT more detailed strategic objectives leadership team worked across its project, and IT plan, and associ- for the use of IT. These are organizational silos to develop the ated budgets. reflected in Table 11 and make up strategic intentions for the use of IT. The process highlighted several The examples shown illustrate the strategic agenda for the use of cross-silo opportunities for gather- the details of each part of the IT, in this case for the single strate- ing and applying information. As puzzle for the strategic intention gic intention profitable market one departmental manager noted, of profitable market share. To share. This activity helped specify this was the first time the com- see the effectiveness of the result, the efforts each department pany actually considered how to Table 12 collects all parts for this should carry out for the use of IT. use information across depart- one strategic intention. The table Again, for brevity, we display the mental boundaries. emphasizes the top-down devel- results of only this exercise for opment of a strategic intention, Table 11 — The Strategic Agenda for the Use of IT for Profitable Market Share Strategic intention To make timely, integrated information and analysis tools available to all at for the use of IT for Angus who can influence profitable market share. profitable market share Strategic objectives To use sales and customer information to focus Angus’s energies and for the use of IT for attention on the consumers and distribution channels who are likely to buy profitable market product. share To put timely, integrated information and analysis in the hands of executives and managers. To place information about sales in the hands of representatives. To gain information about unvisited stores for promotional purposes. To provide information on demographics, utilization, geographic areas, and ROI on promotions to sales. To develop an information strategy to measure profitability of prime customers. Strategic objectives To attend to the technical risks of high-support applications (e.g., customer related to the existing information). application portfolio To attend to the poor performance of high-support applications (e.g., customer information). VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 27 and the left-to-right cause-and- Strategic intention: to increase exploit new and existing effect relationship between the the number of prime cus- market opportunities strategic intention — and objec- tomers and increase the One strategic objective for tives and detail strategies — into percentage of house-brand the use of IT: to use informa- the related strategic agenda for products supplied to each tion to focus Angus energies the use of IT. Consider, for exam- One strategic objective: on the consumers and distribu- ple, this excerpt from Table 12: to identify, develop, and tion channels who are likely to buy the product Table 12 — Angus’s Strategic Plan for IT Demand Strategic Intentions, Description Strategic Agenda for the Use of IT Objectives, and Departmental Strategies Strategic intention: To increase the number of prime To make timely, integrated information and Profitable market customers and increase the analysis tools available to all at Angus who share percentage of house-brand can influence profitable market share. products supplied to each. Strategic To identify, develop, and exploit To focus Angus’s energies and attention on objectives: new and existing market the consumers and distribution channels 1. New and opportunities. who are likely to buy product. existing market To achieve efficient and effective To put timely, integrated information and opportunities production, distribution, and analysis in the hands of executives and 2. Production and inventory of all product sectors. managers. distribution To protect and sustain Angus To place information about sales in the excellence market leadership within hands of representatives. 3. Protected and consumer products/house- To gain information about unvisited stores sustained product sectors. for promotional purposes. Angus market To provide information on demographics, leadership utilization, geographic areas, and ROI on promotions to sales. To obtain information to measure profitability. To attend to the technical risks in the existing high-support applications (e.g., customer information). To attend to the poor performance in the existing high-support applications (e.g., customer information). Departmental For Operations: to ensure that To cultivate the ability of Angus executives strategy or strategic product development and and managers to think in data terms, to use initiatives: product quality are maintained the analysis tools. • Operations as well as meet future needs through technical support and • Sales innovation, defined quality systems, consistent measure- ment standards, and management oversight. For Sales: to analyze sales trends and develop/maintain product offerings in identified geographies that return established volume and profit objectives. ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 28 BUSINESS-IT STRATEGIES ADVISORY SERVICE One departmental strategy (customer information, sales IT can and should contribute for the use of IT: to build force automation) to the business. In Strategy-to- the ability of executives and Bottom-Line Value Chain terms, managers to think in data We use the term “strategic agenda this defines the demand for IT. terms and use the analysis for the use of IT” to describe all tools these activities, because together In addition to giving an overview they reflect Angus management of composite Angus International, One application portfolio: strategies for how IT should be this report details how Angus to attend to technical risks used to meet strategic intentions. completed Stages I and II of the in high-support applications This is the core of the outcome — strategic plan for IT under the the specification of exactly how Strategy-to-Bottom-Line Value Table 13 — Angus’s Results: From Strategy to the Bottom Line Business IT and Business Action Bottom-Line Strategic Impact Intention Strategic Business: action in annual operational The leadership intention: plans (for each department); these items team expects Profitable are included in departmental plans: that by placing market share 1. Business process to put information in superior — to increase sales force hands. information in the number the hands of 2. Process to build complete awareness of sales force of prime customer and its products. customers and and other increase the 3. Plan to enhance call center to provide executives, the percentage of instant customer response. company can house-brand IT: Action in annual plan; these items are respond with products included in the IT plan: proposals and supplied to concepts to 1. Project to replace inadequate sales force each customer each. automation applications. and to each 2. Project to install customer information customer’s Strategic warehouse. requirements. intention for This grows 3. Project for nationwide network availability the use of IT: market share to sales force and customers. to make and profitability Business provisions included in by customer. timely, departmental budgets: integrated information 1. Project for training and process change and analysis program in sales force. tools available 2. New staff for customer data acquisition to all at Angus and validation. who can 3. Project for call center enhancement. influence profitable IT Provisions included in IT budget: market share. 1. Project for infrastructure additions and upgrades, especially warehouse. 2. Redeployment of sales force system resources to warehouse and network. Metrics employed to track impact of action: • Number of prime customers added. • Percentage increase in market share for each. • Percentage increase in profitability by prime customer. VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 29 Chain (see Figure 2 on page 11 budget. By using the Strategy-to- described here. The CEO for a review of all four stages). Bottom-Line Value Chain, the remarked that it was now clear company established strategies that what the company needed to Part II will complete the strategic through analysis and prioritization invest in — applications and other planning process discussion and and created action in the annual aspects of IT — were developed also cover the other management plan and budgets, which produced from Angus’s business strategic processes outlined earlier: initiative the basis for bottom-line impact. intentions. The result was a truly and project development, annual Metrics provided tracking of the business-driven IT strategic plan. planning, and budgeting to action business benefit. As the CIO commented, in some plan. As a preview of Part II, Table ways, the company knew that 13 on the previous page shows an At the end of the process, Angus these were important things, but example of the detail outcomes, management reviewed the results just didn’t know why. focusing on the business plan and of the strategic planning steps APPENDIX strategies are expressed as strate- Parker, Marilyn M., and Robert gic intentions for the supply of IT. J. Benson, with H.E. Trainor. The tables in this Appendix Information Economics: Linking provide the results of Angus Appendix Table 3 shows how the Business Performance and International’s strategic planning IT organization expects to deliver Information Technology. Pearson work. In the main report, we IT and identifies which of the four Education, 1988. focused solely on the single strate- IT portfolios (applications, infra- gic intention of profitable market structure, services, or manage- Cutter Consortium share. In these tables, we show ment) are affected. In Part II of Executive Reports the results for all six strategic this report, we’ll show how these Benson, Bob, Tom Bugnitz, intentions. translate into specific projects and and Bill Walton. “Finding the IT investments as well as budget. Improvement Zone.” Cutter Appendix Table 1 lists all the strategic objectives for the use of Consortium Business-IT Strategies Appendix Table 4 provides a short Executive Report, Vol. 6, No. 12, IT in the business. This is the best description of each of the 12 deliv- expression of exactly how Angus December 2003. erables in the Strategy-to-Bottom- management might use IT to Line Value Chain. In this report, Benson, Bob. “Business and IT: A achieve the strategic intentions. we have focused on the first five; Gap Analysis.” Cutter Consortium In Part II of this report, we’ll in Part II, we’ll complete the des- Business-IT Strategies Executive show how the strategic objectives cription of the deliverables for Report, August 2001. translate into business plans and Angus International. budgets. Cutter Consortium Business-IT FOR FURTHER READING Strategies E-Mail Advisors Appendix Table 2 shows the high- level strategic intentions for the Books Walton, Bill. “Getting New use of IT (expressing a demand Business and IT Management Benson, Bob, Tom Bugnitz, for IT) and links it to the IT organi- Roles Right.” Cutter Consortium and Bill Walton. From Business zation’s plans to respond to the Business-IT Strategies E-Mail Strategy to IT Action: Right demands (expressing the strate- Advisor, 3 December 2003. Decisions for a Better Bottom Line. gies for the supply of IT). These John Wiley & Sons, 2004. ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 30 BUSINESS-IT STRATEGIES ADVISORY SERVICE Benson, Bob, Tom Bugnitz, and Benson, Bob, Tom Bugnitz, Benson, Bob, Tom Bugnitz, Bill Walton. “The Strategy-to- and Bill Walton. “Assessing IT and Bill Walton. “The Strategic IT Bottom-Line Value Chain.” Cutter Portfolios to Maximize IT’s Plan: The Supply Side of Business- Consortium Business-IT Strategies Bottom-Line Impact.” Cutter IT Planning.” Cutter Consortium E-Mail Advisor, 4 February 2004. Consortium Business-IT Strategies Business-IT Strategies E-Mail E-Mail Advisor, 7 April 2004. Advisor, 26 May 2004. Benson, Bob, Tom Bugnitz, and Bill Walton. “Adopting Benson, Bob, Tom Bugnitz, Strategic Intentions for the Use and Bill Walton. “Strategic Agenda of IT.” Cutter Consortium for the Use of IT: The Missing Link Business-IT Strategies E-Mail in Business-IT Planning.” Cutter Advisor, 3 March 2004. Consortium Business-IT Strategies E-Mail Advisor, 28 April 2004. Appendix Table 1 — Strategic Objectives for the Use of IT for All Six Strategic Intentions Strategic Intentions Strategic Objectives for the Use of IT 1. Profitable market share: To focus company energies and attention on the consumers and to increase the number of distribution channels who are likely to buy product. prime customers and To place timely, integrated information and analysis in the hands of increase the percentage executives and managers. of house-brand products To provide information about sales to representatives (e.g., information supplied to each. about unvisited stores for promotional purposes). To provide information on demographics, utilization, geographic areas, and ROI on promotions to sales. 2. Market-driven product To provide consumer preference information. development: to expand To enable and encourage consumer contact for consumer responses the number of high-demand to product. products for prime To work together across silos — IT-enabled. customers. To ensure integrated and available R&D and other product development information. 3. Angus company To provide IT-enabled recruitment information. development: to grow the To cultivate comprehensive individual-focused capabilities for job, capabilities of Angus people career, and training. and operate as a team with To provide timely availability of company information. common purpose. To create a company-wide focus on business systems and data. To ensure accountability in every department for data accuracy. 4. Regulatory and legal To make information about Angus litigation and compliance activities compliance: to reduce available to relevant executives and managers. exposures to product safety To make current information about legislation, regulation, and public and financial disclosure. policy developments throughout the US available to relevant executives and managers. To enable record-management capabilities throughout Angus. 5. Expense control: To engage in periodic portfolio review for replenishment; to modernize to reduce unit cost of the applications to reduce cost. product and all forms of To track the effectiveness and use of software that has been installed. administrative overhead. 6. Customer relationships: To ensure that customers have easy access to Angus information. to maintain and improve long-term performance and relationship with prime customers. VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 31 Appendix Table 2 — Linking Business Strategic Intentions (Demand) to IT (Supply) Business Business Strategic Intentions IT Strategic Intentions Strategic for the Use of IT for the Supply of IT Intentions 1 Profitable market To make timely, integrated To establish industrial-strength, large- share: to increase information and analysis tools scale warehouse (capability to collect, the number of available to all at Angus who can manage, analyze, and access prime customers influence profitable market share. information) for all relevant aspects and increase the of Angus business that influence percentage of profitable market share. house-brand products supplied to each. 2 Market-driven To apply integrated information To install integrated data collection product about product, product testing, and analysis capabilities throughout development: to consumer response and laboratories, manufacturing, and expand the number complaints, and worldwide product consumer preference studies. of high-demand content/specifications throughout To initiate steps to extend data products for prime product development. warehouse to include the capability customers. to collect, manage, analyze, and access information for laboratories, manufacturing, and consumer preference studies. 3 Angus company To make information about jobs To provide the capability for job and development: and job requirements, training and career development information, Web- to grow the career development, and individual based training, computer-based capabilities of status against job development training, and measured progress. Angus people and objectives available to Angus To enable access to relevant job, operate as a team employees and potential recruits. career, and training information to with common To make relevant IT-enabled every Angus employee. purpose. training available to Angus To implement ERP software. employees. To ensure that applications and To ensure that departments use development methodologies take common systems throughout enterprise perspective and apply Angus. appropriate enterprise-wide standards. 4 Regulatory and To ensure that executives and To enable secure, integrated data legal compliance: managers have access to and record collection, analysis, and to reduce exposure current litigation and compliance retention capabilities throughout to product safety information. Angus. and financial To ensure that Angus employs disclosure. comprehensive record management. 5 Expense control: To ensure that executives and To continuously renew and modernize to reduce unit managers have access to the application portfolio. cost of product appropriate information that bears To eliminate poorly performing portfolio and all forms on minimizing cost of processes. elements. of administrative To ensure that departments overhead. employ a business review and assessment of application portfolio effectiveness. 6 Customer To communicate electronically To develop Web and electronic relationships: with relevant customers. business capabilities for relationship to maintain and To ensure that executives and with customers. improve long-term managers have access to performance and information about customer relationship with performance and customer prime customers. relationship. ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • 32 BUSINESS-IT STRATEGIES ADVISORY SERVICE Appendix Table 3 — Identifying Specific Strategies for the Delivery (Supply) of IT Strategic Intentions Strategic Objectives for the Delivery of IT Portfolio Profitable market share: to To create a robust data warehouse with the Infrastructure increase the number of prime capability to manage enormous amounts of data. customers and increase the To provide access to data warehouse (e.g., percentage of house-brand Application, timely, integrated information) to all in the services products supplied to each. company; to use methods to include all relevant data in the warehouse. To cultivate the ability of Angus executives and Services managers to think in data terms and to use the analysis tools. Market-driven product To provide a warehouse for analysis and Infrastructure development: to expand the presentation. number of high-demand products To use the Web site for consumer responses. Infrastructure for prime customers. To provide a collaborative environment. Infrastructure To create the availability of data generated in Information R&D about product development. Angus company development: To provide Web-based and computer-based Services to grow the capabilities of Angus training. Information employees and operate as a team To provide Web-enabled recruitment and job with common purpose. Application information. To provide an integrated suite of human resources applications. Regulatory and legal To offer record-retention capabilities Application compliance: to reduce exposures To offer a case management database. Information to product safety and financial disclosure. To offer billing tracking. Application Expense control: to reduce unit To provide information accessibility through Information cost of product and reduce all warehouse and inquiry tools. forms of administrative overhead. To strengthen ability to operate and integrated set Infrastructure of platforms, including mainframe, AS400, Unix, and NT. Infrastructure To focus new development and acquisitions on smaller number of platforms (e.g., Unix and NT). Customer relationships: to To integrate information about customer Information maintain and improve long-term performance. Infrastructure performance and relationship with To provide Internet-based access with/for prime customers. customers. VOL. 7, NO. 8 www.cutter.com
  • EXECUTIVE REPORT 33 Appendix Table 4 — Strategy-to-Bottom-Line Value Chain Deliverables Deliverable Name Deliverable Description 1 Business strategic intentions Mission plus weighted strategic intentions. 2 Assessed application portfolios As-is alignment, service, quality, technology, Strategic Planning and use. 3 Strategic IT agenda for the use Strategic intentions to strategic initiatives. of IT 4 Strategic IT plan Strategic intentions to strategic initiatives. 5 Strategic IT requirements Initiatives — three-to-five-year horizon — portfolio format. 6 Individual projects Real, doable projects and their descriptions. 7 Business plan (annual) Documentation according to company practices. Annual/Tactical Planning 8 Project plan (annual) One-year annual horizon — with portfolio format. 9 IT plan (annual) Documentation according to company practices. 10 Projects budgets (annual and Documentation according to company capital) practices. 11 Lights-on budget (annual) Documentation according to company practices. 12 Performance measurement Documentation according to company metrics practices. ©2004 CUTTER CONSORTIUM VOL. 7, NO. 8
  • About the Practice Business-IT Strategies Senior Consultant Team Practice The Cutter Consortium Business-IT Strategies Senior Consultant team includes seasoned The Business-IT Strategies Practice area focuses on the intersection of business and experts in the business technology arena. IT. Through the subscription-based Advisory Service, the Business-IT Strategies team Several are former CIOs; many have served of Senior Consultants guides companies to optimize their IT investments by ensuring as business management consultants; others they validate business requirements prior to making investments in technology, have served as professors at prestigious technology acquisition strategies, and day-to-day management of technology. universities. Collectively, the Senior Consulting and training services within this practice area are customized to meet Consultants on the Business-IT Strategies your needs; they cover assignments such as harnessing IT as a competitive weapon team have decades of experience both inside through sound business-IT alignment, developing an IT strategic plan, and corporate IT and business groups, and reorganizing and transforming your IT department. working with organizations in a consulting capacity. The team includes: The Business-IT Strategies Practice guides you to identify the IT investments that make the most sense for your business, avoid those that fail to support your • Steve Andriole business objectives, and position your enterprise so it can leverage IT for competitive • Robert D. Austin advantage. • Bob Benson • Stowe Boyd Products and Services Available from the Business-IT Strategies Practice • Thomas Bugnitz • The Business-IT Strategies Advisory Service • David Caruso • Consulting • Mark Cotteleer • Inhouse Workshops • Christine Davis • Mentoring • Carole Edrich • Research Reports • Don Estes • Michael Guttman Other Cutter Consortium Practices • Ian Hayes Cutter Consortium aligns its products and services into the nine practice areas • Maxwell Hughes below. Each of these practices includes a subscription-based periodical service, • Tim Lister plus consulting and training services. • Michael C. Mah • Agile Project Management • Jason Matthews • Business Intelligence • Peter O’Farrell • Business-IT Strategies • Ken Orr • Business Technology Trends and Impacts • Wojciech Ozimek • Enterprise Architecture • Helen Pukszta • IT Management • Ram Reddy • Measurement and Benchmarking Strategies • Alexandre Rodrigues • Risk Management and Security • Michael Rosen • Sourcing and Vendor Relationships • Mark Seiden • Richard Sneider • Borys Stokalski • Rob Thomsett • William Ulrich • Bill Walton • George Westerman