Business-IT Strategies

     Vol. 7, No. 8



                         Connecting IT to
                         Business ...
Cutter Business Technology Council

Rob Austin     Tom DeMarco   Christine Davis    Lynne Ellyn        Jim Highsmith      ...
Connecting IT to Business
                 Strategy: Part I
                 BUSINESS-IT STRATEGIES
                 ADVIS...
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EXECUTIVE REPORT                                                                                                  3


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

  1. 1. 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.
  2. 2. 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.
  3. 3. 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.
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. 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

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