Angus Greigbusi n e ss t ech nol ogy of f iceReshaping IT management forturbulent times A new model for managing IT combines factory-style productivity to keep costs down with a more nimble, innovation-focused approach to adapt to rapid change.Roger Roberts, Despite decades of increasingly intensive use the forefront, with critical implications forHugo Sarrazin, and of information across industries, IT has remained business growth and customer engagement. InJohnson Sikes a black box for many executives. Too often, addition, established practices, such as the link between spending and performance has lean-management techniques, have highlighted been unclear, if not problematic. As a result, the value of IT in reducing waste and increas- leaders felt that their only course of action was to ing productivity. hire a competent CIO, throw increasing amounts of money at IT, and hope for the best. The This deeper recognition of IT’s potential has given economic disruptions of recent years, however, rise to a new management model consisting have tightened budgets and placed a premium on of two categories: “Factory IT” and “Enabling IT.” action, forcing companies to rethink IT’s funda- Factory IT encompasses the bulk of an orga- mental role. nization’s IT activities, applying lessons from the production floor—scale, standardization, and In most organizations, IT began as a support func- simplification—to drive efficiency, optimize delivery, tion, leading to a one-dimensional management and lower unit costs. Enabling IT is focused on approach. However, technology-enabled products, helping organizations respond more effectively to interactive communications, and an “always changing business needs and gain a competi- on” information environment have thrust IT to tive advantage by spurring innovation and growth.
2TakeawaysAlthough IT serves multipleroles within an organi-zation, it has traditionallybeen managed ina one-dimensional way.A new, dual-model This approach goes beyond simply relabeling func- Factory IT:approach to IT leadership, tions to include broader leadership, govern- More efficient IT servicesgovernance, and man- ance, and organizational changes, and IT leadersagement can help compa- will need very different skills to manage each The core elements of the typical IT function havenies drive better back- model. Business leaders will have to engage with changed radically over the past decade, andoffice efficiency and front-line innovation. IT in new ways. For instance, while IT stan- this evolution has enabled the Factory model. Ten dardization and consolidation increase responsive- years ago, a company might have felt compelled“Factory IT” couples lean- management techniques ness, speed to market, and cost effectiveness, to create its own software to manage the supply and process improvements managers may have fewer options to customize chain and other activities; today, many con- with advances in cloud solutions. Likewise, more transparency and figurable products can meet those needs. Similarly, computing and software better metrics may come at the expense of unres- expensive, single-purpose servers and the dedi- development to simplify the operating environment tricted choice for configuration and architec- cated support staff they require can be replaced and improve produc- ture. In return, business leaders would get a new by commodity servers, often managed from tivity and cost performance. type of IT partner to support innovation, with half a world away.“Enabling IT” embeds flex- skills to deliver IT-enabled capabilities quickly that ible IT workgroups directly drive both top- and bottom-line growth. But Moreover, these standardized platforms can now into the business to they’ll need to treat such IT staff as full members MoBT 2010 be coupled with mature processes for manag- support experimentation, collaboration, and data of their group, offering incentives and rewards New IT model ing broad swaths of IT, including basic infrastruc- mining in order to propel for exceptional 2 Exhibit 1 of performance. ture and many of the business applications. innovation and compe- titive advantage. Exhibit 1 In the Factory IT model, companies use a number of techniques to drive down In the Factory IT model, companies use a number of techniques costs and improve quality. to drive down costs and improve quality. Factory IT practices, % of respondents1 Industrialized IT: Flexible IT factories: Holistic business Applying traditional business- Building IT that’s more responsive to cases: management techniques to IT changing business conditions Cutting complexity through improved planning Lean IT Cloud computing Agile development Deployed at 17 27 18 24 scale Selected 28 33 34 35 deployment Piloting 19 22 19 16 Not used 36 18 28 25 1 Respondents who answered “don’t know” or “not applicable” are not included. Source: Oct 2010 McKinsey survey of 864 global executives on business and technology strategy
3 December 2010 Under this configuration, IT activities can be res- (essentially à la carte menus that specify the cost tructured and continually improved much as of each service). These improvements increase any other business process, using a combination cost transparency and highlight clear opportunities of lean techniques, automation, and outsourc- for further efficiency while also giving individual ing or cloud computing to drive down costs and business units the freedom to customize certain improve quality. Results from our latest tech- features and functions. nology survey1 demonstrate how companies have already begun to implement some of these Organizations should also recognize that not practices (Exhibit 1). all processes have equal value and should set service and support levels accordingly. For There are three key components of the instance, one bank applied the same exacting Factory model: levels of support and performance for its critical 1 core banking applications to an in-house Industrialized IT—applying traditional employee service portal. By increasing the service business-management techniques to IT portal’s allowable downtime to five days a Standardization decreases the resources year, from just five hours, the bank saved hundreds and specialized development needed to support of thousands of dollars in hardware, software, IT, allowing organizations to apply proven and staff expense. management methods from large industrial settings to reduce IT costs. Lean-management In our experience, these measures often double techniques have evolved well beyond manu- workforce productivity by redeploying or reducing facturing and are applicable to the types of skilled staff. A standardized IT environment also allows services found in IT. A company can typically companies to select from a wider array of vendors create 20 to 30 percent or more in additional IT whose scale and skills can further reduce costs capacity by streamlining processes, automat- and improve delivery. In addition, by avoiding cus- ing routine functions, and eliminating redundancy. tomized hardware and operating systems, Major sources of IT waste include unnecessary companies can more readily take advantage of a functionality (for example, gold-plated systems technology cost curve that has been dropping with extra, noncore functions), work flow by 4 to 5 percent annually. bottlenecks caused by inadequate cross-training, and frequent rework from bugs or constantly changing requirements. Companies can benefit significantly by replac-1 The online survey was in the ing customized systems with highly standardized field in October 2010 and includes responses from 864 offerings (for example, a Web server or e-mail IT and non-IT executives, platform that includes common hardware, applica- from a range of industries, regions, and company sizes. tions, and support levels) and service catalogs
Reshaping IT management for turbulent times 42Flexible IT factories—building IT that’s moreresponsive to changing business conditionsIT tends to operate on a very long-term investmentcycle consisting of large, multiyear projects,extended outsourcing deals, and durable infrastruc- agility can deliver new systems and capabilities in a matter of weeks or months instead of years. A frequent iteration cycle also keeps IT developers and business users in sync on requirements and priorities. Agile development may not be right forture assets. As the pace of business change every project. However, since this approach isaccelerates and organizations respond to shifting most effective when business needs are shifting, itmarket conditions or more frequent M&A, IT is gaining favor among many IT departments.leaders are often constrained by these investments.IT departments are starting to adapt in two ways: Together, the cloud and agility can make the IT factory more nimble, with lower costs andThe cloud. Cloud computing offers access to faster delivery.information, processing, and storage through the 3network or an external service provider. This Holistic business cases—cutting complexitymode of delivery allows companies to purchase through improved planningcomputer processing as a service, rather than For most companies, IT complexity increasesmaking up-front investments in IT capacity and gradually, as systems slowly evolve beyond theirin-house support staff. The New York Times, initial purpose, or through acquisitions, whenfor example, digitized and catalogued more than new, sometimes duplicative systems are built for100 years of archived articles for its Web site individual business units. Performance suffersin a 24-hour period by using Amazon.com’s cloud over time, as ineffective IT slows product introduc-offering, avoiding the need to configure tions, hampers customer interactions, andand operate a set of servers for a onetime effort. often makes postmerger integration more difficult.Agile software development. IT programmers IT leaders recognize the adverse effects of complex-are flocking to approaches that emphasize the ity, but replacing these systems involves avery fast, iterative development of systems through substantial commitment of resources: hardware,close interactions with users, allowing contin- new applications, and staff and vendor time.ual feedback and programming refinement. This The economics are difficult to justify given the
5 December 2010Implementing Factory IT might build on the investment. At one company, for instance, the business case to deliver a unifiedWhile a Factory IT model does not require radical restructuring, it view of all customer data showed how betterdoes involve targeted changes in talent, organization, accountability, information management could enable follow-onand governance. IT leaders should use this opportunity to streamline projects for marketing systems, enhancingthe IT function and create a new baseline that balances the cross-selling opportunities.measurable improvement of both cost effectiveness and delivery. The benefits of these business cases are twofold.To succeed, the model must achieve these goals: First, they ensure that the simplification of processes and systems is a starting point for new project investments. Second, better visibilityEnsure that external customers don’t see a material degradation can show how seemingly small IT projects canof their experience and that business users begin to see tangible deliver a high return on investment by improv-results in return. ing standardization and service levels across the entire business (see sidebar “ImplementingDeliver through a transparent process, with clear, relatable metrics Factory IT”).for all involved.Verify that planning for the IT information environment accounts for a Enabling IT:range of business needs and is aligned with larger market trends. Supporting innovation and delivering business valueEngage IT executives who have experience in applying leantechniques and driving continuous improvement and the right As the market-facing complement to the Factorytemperament and skills to form effective partnerships across the model, Enabling IT focuses on creating newbusiness. sources of value. This emphasis on innovation requires three things: ready access to relevant information, a willingness to test and learn, and close collaboration. Enabling IT supports these activities by developing the processes and technologies to launch a new sales channel, design a tech-enabled product feature, or increase short time horizons of many tough-minded customer retention through online offerings. CFOs, particularly since tangible benefits are often realized only in the longer term. Where Factory IT is housed centrally, Enabling IT’s employees function as an IT SWAT team To manage complexity, companies are starting to for new initiatives or business imperatives and employ a more holistic business case model are often closely integrated with—or even that goes beyond the traditional, IT-centric versions. embedded in—business units. The performance This model includes realistic, verifiable cost– of these employees is rated on metrics such benefit analysis to assess the impact of new systems as responsiveness and flexibility rather than on on the entire organization. Critically, such plans their ability to deliver low unit costs. And also require a road map for how future projects where Factory IT focuses on long-term projects
Reshaping IT management for turbulent times 6MoBT 2010New IT modelExhibit 2 of 2Exhibit 2Companies are using Enabling IT toIT to support growth andCompanies are using Enabling support growth and innovation inthree ways. in three ways.innovationEnabling IT practices, % of respondents1 IT teams tightly integrated Rapid New interaction with business partners experimentation models using Web 2.0Deployed at 11 12 24scaleSelecteddeployment 23 28 26Piloting 15 21 23Not used 50 39 271 Respondents who answered “don’t know” or “not applicable” are not included.Source: Oct 2010 McKinsey survey of 864 global executives on business and technology strategyand on-time delivery, Enabling IT is typified by capabilities to manage the massive amount ofrapid prototyping and iterative development. information, and IT leaders will need to collaborate more closely with management teamsOur survey results show that companies to extract its full value. 2deploy enabling IT to support innovation andgrowth in three ways (Exhibit 2): Supporting rapid experimentation1 Where lean manufacturing and Factory IT seekTurning raw data into insight to avoid errors, Enabling IT’s mind-set toleratesThe increasing volume of data is taxing the ability (and even encourages) the mistakes that resultof companies to track, filter, and analyze from experimentation and iteration as long as theyinformation and turn it into useful, actionable happen quickly, the outcomes are measured,insights. Organizations that build effective and the lessons are incorporated into the team’sinformation systems can take advantage of emerg- thinking. More companies are embracinging opportunities and respond more quickly to rapid experimentation as a way to develop, refine,unseen market changes. With the rise of electronic and upgrade their services or products.health records and prescription data, for example, Capital One and Google, for example, have beenpharmaceutical companies need systems to at the forefront of this trend with their creditstructure and mine this information for trends on cards and online services, respectively. That wavepatient compliance or drug efficacy. is spreading to traditional players: P&G’s Vocalpoint, a network of mothers, provides feed-Resolving these issues requires a cross-functional back on new product ideas. Similarly, a lead-group of IT experts, statistical analysts, and ing fast-food company is using IT systems andbusiness leaders. IT must develop new technical analytics at test sites to gauge the impact of
7 December 2010 new menu choices on store-level revenue, opera- business offerings, IT provides essential sup- tions, and customer experience. port to help build and modify business processes 3 and systems rapidly. Such experimentation requires the right set2 Michael Chui, Andy Miller, of technical capabilities and a flexible IT environ- Web 2.0—fostering new interaction models and Roger P. Roberts, “Six ment. Managers must employ tools to define, IT has historically focused on automating ways to make Web 2.0 work,” build, test, and improve new products quickly, high-velocity transactions for enterprise resource mckinseyquarterly.com, February 2009. integrating feedback from both internal planning (ERP), supply chains, and customer3 Bradford C. Johnson, James M. Manyika, and Lareina A. stakeholders and a set of users or customers. relationship management (CRM). That focus is Yee, “The next revolution in Responsive IT support is a vital component now shifting to lightweight Web 2.0 tools2 interactions,” mckinseyquarterly.com, of this effort. By assembling a team to work hand to support the more diverse transactions and November 2005. in hand with the managers on these new more complex interactions that shape, review, and inform innovation.3 Tools range in complex- ity from simple executive blogs to more robust portals where users can collaboratively access and analyze data sets. Often, these newer forms of knowledge shar- ing require little additional investment, since the content is largely user generated and the tools rely mostly on existing applications and infrastructure. In fact, these tools usually augment existing transactional systems rather Enabling IT: Bringing it together than replace them, thus increasing the value Enabling IT can help support an organization’s innovation culture. To of IT investments while holding down costs. Since work well, the model requires three components: users often drive the development of these collaborative tools, strategies that complement users’ work practices and styles are most Nimble, flexible, and focused work groups embedded in the busi- effective. Although such an endeavor is challeng- ness and responsible and accountable to both the business unit ing, the payoff can be substantial. leader and CIO (in contrast to a highly standardized and structured organization). Innovation is seldom neat, and these collabora- tive systems are no exception. Successful A more qualitative approach to measuring performance—focused initiatives usually start as small side projects or on the IT team’s contribution to the business unit and its overall tests that gain critical mass rapidly, often with results—rather than enterprise-wide goals for costs or efficiency. little regard for corporate technology or security standards. IT leaders can play a critical role Credible, deeply knowledgeable IT leaders and team members by selecting and validating platforms, setting who are seen as an integral part of the functions and businesses policies, and promoting capabilities to they enable. potential participants. Because Enabling IT