Team 11: Alissa Crescimano, Maurice Granfield, Bonnie Losty, Ramanathan Ramanathan
August 1st, 2009 Final Report on IT Management I. Introduction
In this report, our team has summarized key findings on information technology (IT) management. We utilized various research methods including articles, interviews, cases studies, textbooks, and personal experiences. In the following sections, we discuss the main areas of IT that companies must consider in order to be competitive in today’s world. These include governance, budgeting, outsourcing, project management, key issues, and the future of IT.
II. IT Governance
Historically, IT governance did not receive a lot of attention. With the speed of globalization and rapid changes in technology, IT governance has become a crucial and necessary aspect of business management and strategy. The main areas of governance include the management of central and support IT functions, project management, budget allocation, outsourcing, and strategic planning. We discuss each of these areas in detail throughout the paper.
Today, most organizations separate IT into 3 areas: infrastructure, applications, and special (or departmental) projects. In general, the IT organization is split between a central IT group and a support IT group, which works closely with a specific department. The support groups report directly to the IT, but also report dotted-line to their functional area. Outsourcing is often used for infrastructure management, software development, and administration functions (i.e. payroll, accounts payable, etc.) Contractors are also used as needed. IT is an extremely cross-functional unit as it must support specific areas while also leading company-wide initiatives[1] .
While every business must adapt their IT efforts to the specific needs of their company, there are some underlying keys to successful IT governance. First, IT must be given the same attention and time as any other business function, such as accounting, marketing, operations, etc. The CIO must be someone with a technology background, but also have a keen business sense and knowledge. All employees must understand the basic functions of IT and be involved in major initiatives, as should IT employees be involved in the business. To get to this level, many organizations have found the need for a total shift in culture to eliminate preconceived notions about IT. Second, IT must also be given the same executive support as other areas. To do this, the importance of IT in sustaining a competitive advantage must be emphasized by top executives and the board of directors. Support and direction is mainly needed for decision-making, prioritization of projects, and funding support. Third, IT must have both a short and long-term vision, which must be driven by the company’s strategic goals. Fourth, IT is best governed when there is a unifying platform across the organization. The ideal IT organization will speak the same language and operate against a simple, well-understood set of principles and processes[2] .One successful way to do this is through the utilization of an enterprise-wide system, which allows for consistency in information, analysis, and support. Another aspect of this is project management. Specific and company-wide initiatives must be prioritized and tracked by IT to ensure goals are being met. Finally, IT must be governed by a clear-cut funding process. There must be a balance between return on investment and risk, as well as development of new ideas, when allocating funding[3] .
One key takeaway found from our research is that the management of IT is always evolving. IT governance, like technology, must constantly be reassessed and adapted to new business needs. Cisco provides a great example of the progression of IT governance. Over a 10 year period, Cisco has adapted its governance from one end of the spectrum to the other. When Peter Solvik, CIO from 1993-2001, joined the company, IT was an internally oriented cost center, where decisions and funding were highly centralized. During his time, Solvik disbanded the IT organization to get away from the perception of IT being “overhead”. This resulted in the successful implementation of the Oracle ERP system and improvements in technological capabilities, but it also lead to the creation of over 200 functional projects. When Brad Boston joined as CIO in 2001, the direction of IT had been lost and disjointed. The lack of centralized planning actually had a negative effect on the company. So, Boston revamped the group again, re-centralizing IT planning and spending of major projects. He also created a Business Process Operating Committee (BPOC), a cross-functional team that oversaw IT planning and prioritized projects. Cisco evolved its governance to come up with the right model of managing IT[4] .
Every business must adapt IT governance to its culture, processes, and goals. As this case and our research show, there is no one right model of IT governance, but by following the key factors noted above, a company is much more likely to successful.
III. IT Budgeting
IT budgeting requires a company to spend wisely on the best IT system for your business. There is no one size fits all for an IT system and it is critical that you find the best fit. Integrated systems are the best if properly implemented. Band aiding old systems together may be a short term, less expensive fix but a long term expensive correction may be needed later. IT security is another area that must be considered seriously, even outside of budgetary limitations at times, as money saved in the short term can lead to system malfunctions that may be catastrophic later.
IT budgeting is extremely important, as a vast amount of companies are spending greatly on IT investments, but not generating the value to their business as they should be. Companies that are managing IT successfully generate returns that are as much as 40% higher than their underperforming competitors. Successful companies will define the strategic role that IT will play and then determine the level of funding needed to achieve that objective. Senior managers need to be able to recognize which projects will have a significant impact on the company’s success and those that provide some benefits but are not essential[5]. Managers must also ensure that all affected parties are involved in the decision-making process. The highest levels of management should be analyzing the costs, benefits, and risks of all IT projects[6].
Through interviewing managers in various companies, we found mostly that the CIO is the person who manages the IT budget. The CIO does rely on senior managers of the business units to provide him/her with the most critical IT projects for their area to be allocated a portion of the IT budget. In one instance, approximately half of the budget was being used for infrastructure while a smaller portion is used for immediate projects needed. The additional monies are then distributed for the best possible IT advancements. One small company that only had seven employees had outsourced their IT function as opposed to hiring a full time employee. Therefore, a budget was submitted to the partners of this firm on a yearly basis. It included basic service and any other IT tasks that the partners felt were needed in this time period. Certain IT items such as software expenses, basic network maintenance, and other fees were allocated across the firm’s client base and included as an expense in their quarterly retainer fees. In other companies, the IT expenses were allocated as part of overhead to each of the business units.
Information technology is a very costly support function to run and managers are often very critical of the overhead allocation of IT. Non-executives are unhappy with IT overhead because all they generally see is the high cost with a return on investment that is hard to measure. The school of thought to combat this is to align IT with the business strategy and have a commitment to cost management. Managers should not only think of cost cutting, but also determine overall measurements, assessments, and decisions involving budgets and capital investments. Communication between non-IT executives and IT executives are critical throughout the IT budgeting, as companies in the US typically spend anywhere from 50% to 75% of their annual equipment budgets for IT[7]. In an example from our interviews, one company invested $300K to attach RFID chips on parts and boxes. They later found the chips did not make part tracking easier, as the boxes did not always move with the parts, making this investment a waste of money.
As an example of budgeting with shortfalls, VW experienced difficulties in their budgeting process in 2004. Many executives were furious that high priorities for their areas of the company had not been funded. There were 10 business units that proposed more than 40 projects, $210 million worth, with only a budget of $60 million. Of the roughly $60 million available overall, $16 million was set aside to fund stay in business initiatives, most of them infrastructure projects under the discretion of the IT Lead, another $30 million would fund enterprise projects, and the remaining $14 million was left for the highest-priority projects. With little money left for the business units’ IT projects, a critical project was only partially funded. It was a multiyear SAP implementation that really needed VW’s full funding to stay on track. But it was a large project that would have wiped out a significant portion of the IT budget for 2004. It did not get funded, as its value would be recognized at the global level, not at the VW importer level. Although it promised savings, the big impact was global integration, which was sometimes a tough sell locally. To further complicate budget issues, there was little IT investment in the 1990s that created a need in the early 2000s for substantial IT investment. This caused many of the executives to view IT as an expensive item that usually fell short of what they needed from it. A goal of the IT Lead was to turn around the idea that IT is an obstacle[8] .
IT budgeting is no simple task. Lead by the IT team, all departments must collaborate to ensure that money is allocated in the best way to meet the company’s goals. From basic infrastructure needs to specialized projects to enterprise wide integration initiatives, IT spending must be monitored closely to stay on track and achieve the intended results.
IV. Outsourcing
One growing solution for addressing management and governance of IT within a firm is to outsource the entire function or select pieces of the IT department. Whether it is a small to medium sized entity lacking the capacity for a full-time IT staff or a Fortune 500 company looking for specialized support, outsourcing IT needs has become increasingly popular amongst many different industries. A simple Google search can result in a plethora of independent contractors and consulting firms offering network integration services, business application development, web-based solutions, technical support, and a whole host of other services.
As part of this assignment, a senior technology and networking engineer for ICorps Technologies was interviewed regarding the use of IT outsourcing within businesses in and around Boston and New York City. For small to medium sized entities, the most common IT function outsourced is overall IT consulting. Due to capacity issues within this size of business, there is simply not a need for a full-time IT position. Issues such as setting up the initial network, trouble shooting daily problems, installing updates, and 24/7 monitoring can be accomplished via quarterly visits and constant communication. Moreover, an unintended benefit of outsourcing is the high level of documentation the IT consultant is required to maintain. At ICorps, the Sr. Engineer is required to have all network and IT related procedures completely documented and is obligated to keep a secondary consultant apprised of any pertinent system information. When a full-time internal IT employee leaves, they typically take all the technical knowledge and overall company experience with them. Unless the entity and management have done their due diligence in regards to process documentation, turnover can cause massive problems. This problem does not occur when this function is outsourced. Transitions occur seamlessly even if it is the IT consultant who has moved on to another company.
Additionally, this interview shed light on some of the IT outsourcing needs of larger entities. Outsourcing the CIO position occurs with reasonable frequency. Whether it is a temporary situation aimed at updating and developing a current IT system, or the entity is using the connections a company like ICorps possesses to fill a full-time CIO position, the benefits are fairly obvious for a firm whose own IT employees may be inundated with covering the extensive daily desktop support needs. Other uses of IT outsourcing for large companies include managing special projects, such the Cisco ERP implementation, obtaining expert advice or completing small tedious projects that most try to avoid (i.e. transferring massive directory databases, etc).
Outsourcing IT has several benefits and risks that one should consider prior to making any potentially irrevocable decisions on the matter. Benefits include a higher level of systems documentation, greater access to technological skills that are not available internally (i.e. when working with a consulting firm you have the entire firms expertise at your disposal), improved company focus on core capabilities, reduction of IT headcount, and the ability to hold someone else contractually responsible for a very important business function. In terms of risks, there is the concern that the external IT individuals you are relying on are not very knowledgeable of your business, the fear that sensitive company information could be compromised, possible breach of contract by the vendor resulting in an “IT crash” and an inability for your company to complete vital daily tasks, and loss of control over crucial IT decisions.
In any event, a competent manager needs to weigh all potential benefits and risks of IT outsourcing and see how the results correlate with the specific IT needs of their firm. Outsourcing should ultimately enable a company to be more competitive by allowing it to focus on its core capabilities.
V. Project Management
Project management can be a daunting task for even the most competent managers. Projects are typically aimed at resolving a major issue, within a predetermined and often hurried period of time, with a team made up of individuals across all functions or departments of the business. Several projects, due to the magnitude of the undertaking, can take anywhere from several months to a couple of years and typically require significant capital outlays. Furthermore, the risk of failure always exists. Companies can contribute huge sums of money, resources and time to a problem with no guarantee that a reasonable solution will be generated. At times, as seen at Zara’s multinational retail business, the success of a project is not just imperative for maintaining the current position within the industry but for ensuring the company’s survival in the future[9]. In any case, it is clear that project management is of extreme importance to all team members involved as well as the company as a whole.
With regards to IT project management, there are typically two types of team members: IT personnel and non-IT personnel. Unfortunately, both parties rarely agree on all issues. The disconnect between IT personnel and non-IT personnel stems from the fact that non-IT individuals don’t understand information technology well enough to manage it in detail while IT individuals don’t seem to understand the very real business problems that the non-IT personnel face[10] .From the start, these two adversarial mentalities can wreak havoc in a team orientated atmosphere. So the first step in initiating a successful IT project is to have both IT personnel and non-IT personnel agree to disagree with regards to department mentalities. It is imperative to the success of the project that both viewpoints are taken into consideration and that all team members share a common goal (successful project completion). What can be detrimental is if these fundamental differences are not addressed in the beginning and the team becomes segregated amongst departmental lines. Second, a specific timeline needs to be set where benchmarks or milestones are used to assess progress. Uncertainty exists, especially in large, time consuming projects, and you need to have some means of qualifying the level of work completed prior to moving on to the next task. Failure to do so can result in an end product that does not address the original problem. Third, all outside contributions need to be filtered so that there are not too many “chefs in the kitchen.” Again, failure to address outside distractions and contributions can result in a disjointed final product. Finally, communication and organization are imperative to successful project management. A hierarchy of all team members needs to be constructed to quarterback the overall project.Furthermore, multiple communication channels need to be established and maintained so that each member of the team is informed of their cohort’s responsibilities, accomplishments and actions.
VI. Key IT Issues
Below we outline the key issues faced by IT in the 21st century, as well as strategies to make IT more effective and contribute to the growth of the business.
· Simplifying IT: Schwab, the leading full function eBroker in the USA had one of the best business alignment strategies for its IT[11]. However, over the years IT systems had become complex resulting in increased expenditure and delayed projects. It went on to simplify the IT systems resulting in a positive impact to the bottom-line and on-time project completions. IT simplification strategies have to be revisited on a regular basis to keep IT from becoming an inhibitor to business. A good indicator that IT needs to be simplified is the ratio of expenses on “keeping the lights on” type maintenance projects to the expenses on strategic new product development. If this ratio creeps up, the business needs to go for another round of simplification. One of our interviews describes the successful integration of the company’s ERP systems to simplify their IT infrastructure. · Contribute more towards strategic IT: Most companies spend more on IT support functions than on business alignment or strategic functions. The earlier point about ‘simplifying IT’ takes care of some this imbalance. Companies need to focus and spend the available IT budget in areas that have a business impact. This gives a better ROI for the IT investment. In an interview, Cisco CIO Rebecca Jacoby talks about how to go about moving IT towards strategic projects[12]. She says that effective communication skills are crucial to this transformation. Companies like Dell, Wal-Mart, and Amazon have revolutionized their respective industry segments with strategic technology models. · Effective communication with management and end-users: Communication skills are a key asset to the IT group and help in reducing end user discontent. There are three categories of relationships here: executive management, functional groups and end users. First, IT needs to hone their skills to be able to articulate technical issues to non-technical executive management. This will help the leadership to understand the value of technology and the role it can play in the strategic development of their core business. Second, in a centralized steering committee model like the Cisco BPOC (Business Process Operating Committee) under Brad Boston[13], the BPOC/IT needs to use its communications skills to convey to the functional silos that the project requested by them has not been approved or has been deferred. They need to make them understand the big company picture and what the current priorities of the business are. Finally, IT also needs to foster end-user relationships by establishing formal service level agreements (SLAs) with end users[14]. SLAs are contracts that specify division of responsibility, expected services and other metrics resulting in improved services for the company. · Business Savvy IT: IT folks need to understand the core business instead of just doing what is told. This allows them to understand the needs of the business and implement applications that can help the business forge ahead. · Outsourcing: IT needs to evaluate projects based on core competency and efficiency. Projects that are strategic in nature should be done in-house. Projects that are not the company’s core competency could be outsourced. One article, discussing how to avoid the alignment trap, talks about right sourcing[15]. IT needs to understand the functions that are being outsourced, so that vendors can be held accountable for price and performance. This might involve doing the job in house for a while before outsourcing it as discovered by De Beers CIO Debbie Farnaby. Volkswagen of America experienced the other side of right sourcing[16]. It outsourced its entire IT division and kept only a few full-time people. During this period, VW realized that it had insufficient IT knowledge to even administer the outsourcing contract. Lower IT knowledge within the business is also substantiated by our interview with an aerospace company. Another interview points to lower cost when outsourcing generic IT tasks, but also notes that worse response times when compared to an in-house IT group. Yet another interview shows difficulty in enforcing quality. · Centralized Planning: We have seen time and again that centralized evaluation and approval of IT projects benefits the business in the long run. In the De Beers case, each mine had its own applications. Even though individually the mines’ IT was aligned to its business, it was a nightmare to manage multiple platforms at the company level. Same was the case with Cisco under Peter Solvik. Cisco, at one time, had 9 different order status tools, 50 customer survey tools and 15 business intelligence tools for similar business purposes. · Cross-Functional Teams: Several cases, like the Cisco ERP implementation[17], show that involving IT and functional resources to manage IT projects is the best way to achieve success. An interview with a telecommunications company business manager shows that cross-functional teams are effective in understanding the requirements and developing a solid product. This company, like Cisco, has portfolio IT managers representing each department. · Role of CIO: CIOs traditionally have reported to CEOs or CFO/COOs. CIOs that have a seat at the CEO's table are in a better position to understand, help craft and drive the business strategy instead of taking an established business strategy and creating an IT strategy around it. One of our interviews talks about lack of involvement from top management. This is the opposite of the Cisco ERP case, where the management put its weight behind the project. · Security: This is a key issue for all the companies that we have interviewed. The companies have to implement security features (network security, data security) for their own protection and some features in order to comply with the law (i.e. Massachusetts Data Protection Act). If this issue is not dealt with adequately, it could lead to serious business/legal consequences as illustrated by the TJMaxx, Hannaford and Dept. of Veteran Affairs cases. · Cost: From our interviews, we have found that almost all the companies want a better IT department at a lower cost structure. Outsourcing the right projects plays a key part here. Some companies in our interviews are looking at Cloud Computing and SaaS (Software as a Service) to contain costs.
In order to build a strong, growing company, the business side and the IT side need to take stock of the current situation and work towards getting more mileage from IT through collaboration.
VII. The Future of IT
In recent years, IT has gone from being a technology support provider to a business enabler. For the future, IT folks will be expected to wear a business hat on top of their technology hat. The CIOs and other IT folks are expected to use their business and technology knowledge to help their companies venture in to new business models. The IT spending mix is going to be less favorable for maintenance projects and more favorable for strategic projects. This is substantiated by our interviews. For instance, a telecommunications vendor shared that the IT group will be working on engineering and sales tools that have a direct impact on the business.
SLAs and metrics are going to be very common for both in-house and outsourced IT projects. Accountability and return on investment must be monitored more than ever. The IT team will have to balance end user demands for the latest tools with manageability of the new tools and platforms.
Companies will move towards outsourcing in a big way. Almost all the companies that we have interviewed have experienced outsourcing of projects. While they see reduced costs from a contract perspective, quality and delays have been quite common leading to some dissatisfaction. In the future, IT needs to be able to efficiently complete the following: select projects for outsourcing, choose outsourcing vendors, track progress with performance metrics and develop a deep understanding of these projects (i.e. in-house knowledge). IT needs to be the bridge between outsourcing vendors and management/end users.
With increasing concerns on security and ethical use of personal data, IT will have to design internal controls to comply with the business goals and government laws. Companies must stay on top of following state and federal protection acts, ensuring Sarbanes-Oxley requirements, and respecting individual privacies.
More traditional companies will get into e-commerce models for sales, support, partner management and other facets of business. IT must be capable of supporting this evolution. An interview with an aerospace company talks about moving to web-based applications. Companies like Wiley publishers and Comcast are moving towards internet chat-type of customer support and away from the traditional phone support.
Green initiatives are also taking root at a lot of companies. IT will need to look at power consumption of their infrastructure during planning stages and/or upgrade of old systems to meet new environmental initiatives. For instance, in the request for proposals for telecommunication products, vendors have started seeing “watts/sq.inch” requests from carriers. If IT can offer more environmentally-friendly avenues for doing business, it will decrease the company’s harm to the environment while increasing the company’s image and competitiveness.
Going forward, IT will not only be expected to help the business achieve it current goals, but will also be a critical factor of a company’s future growth.
VIII. Conclusions
IT is no longer simply a support service, it is a business enabler. With proper governance, IT can help a company achieve, or miss, its strategic objectives. Proper budgeting and project management will ensure that a strong infrastructure is in place, while also allowing the exploration of new ideas. The choice to outsource will grow increasingly important, as companies must balance keeping strategic projects in house with outsourcing projects that are outside one’s core competencies. Staying on top of key issues will help a company avoid common mistakes, while looking toward the future of IT must play a part in the company’s long-term strategy. The future of IT has endless possibilities. With the help of IT, a company can truly form a sustainable competitive advantage.
IX. References
Avoiding the Alignment Trap in IT, SMR, Fall 2007.
CEO vs. CIO: Can This Marriage Be Saved?, Business & Strategy, Spring 2002.
CIO vs. CFO, Forbes video, 2009.
“Cisco Systems, Inc.: Implementing ERP.” Austin, Robert D.; Nolan, Richard L.; Cotteleer, Mark, Harvard Business School Publishing, May 2002.
Cisco’s CIO Talks about the Challenges and Opportunities for Making IT a Strategic Asset
“Enterprise IT at Cisco.” McAfee, Andrew; McFarlan, F. Warren; Wagonfeld, Alison Berkley, Harvard Business School Publishing, August 2007.
Getting IT Right, Feld and Stoddard, HBR. February 2004.
How to Tap IT’s Hidden Potential, WSJ, March 2008.
Information Technology for Management: Transforming Organizations in the Digital Ecomony, 6th Edition, Turban, Leidner, McLean, and Weatherbe, 2008.
In Search of Overhead Heroes, G. Tillman, Business & Strategy, Summer 2005.
Interviews with IT and business managers in various industries. (Names not disclosed.) July 2009.
IT and the Board of Directors, R. Nolan and F.W. McFarlan, HBR, October 2005.
Six IT Decisions Your IT People Shouldn’t Make, HBR, November 2002.
“Volkswagen of America: Managing IT Priorities.” Austin, Robert D.; Ritchie, Warren; Garrett, Greggory, Harvard Business School Publishing, June 2007.
“Zara: IT for Fast Fashion.” McAfee, Andrew; Sjoman, Anders; Dessain, Vincent, Harvard Business School Publishing, September 2007.
^Information Technology for Management: Transforming Organizations in the Digital Ecomony, 6th Edition, Turban, Leidner, McLean, and Weatherbe, 2008.
^Getting IT Right, Feld and Stoddard, HBR. February 2004.
^How to Tap IT’s Hidden Potential, WSJ, March 2008.
^“Enterprise IT at Cisco.” McAfee, Andrew; McFarlan, F. Warren; Wagonfeld, Alison Berkley, Harvard Business School Publishing, August 2007.
^Six IT Decisions Your IT People Shouldn’t Make, HBR, November 2002.
^How to Tap IT’s Hidden Potential, WSJ, March 2008.
^In Search of Overhead Heroes, G. Tillman, Business & Strategy, Summer 2005.
^“Volkswagen of America: Managing IT Priorities.” Austin, Robert D.; Ritchie, Warren; Garrett, Greggory, Harvard Business School Publishing, June 2007.
^“Zara: IT for Fast Fashion.” McAfee, Andrew; Sjoman, Anders; Dessain, Vincent, Harvard Business School Publishing, September 2007.
^Six IT Decisions Your IT People Shouldn’t Make, HBR, November 2002.
^Avoiding the Alignment Trap in IT, SMR, Fall 2007.
^Cisco’s CIO Talks about the Challenges and Opportunities for Making IT a Strategic Asset.
^“Enterprise IT at Cisco.” McAfee, Andrew; McFarlan, F. Warren; Wagonfeld, Alison Berkley, Harvard Business School Publishing, August 2007.
^Information Technology for Management: Transforming Organizations in the Digital Ecomony, 6th Edition, Turban, Leidner, McLean, and Weatherbe, 2008.
^Avoiding the Alignment Trap in IT, SMR, Fall 2007.
^“Volkswagen of America: Managing IT Priorities.” Austin, Robert D.; Ritchie, Warren; Garrett, Greggory, Harvard Business School Publishing, June 2007.
^“Cisco Systems, Inc.: Implementing ERP.” Austin, Robert D.; Nolan, Richard L.; Cotteleer, Mark, Harvard Business School Publishing, May 2002.
August 1st, 2009
Final Report on IT Management
I. Introduction
In this report, our team has summarized key findings on information technology (IT) management. We utilized various research methods including articles, interviews, cases studies, textbooks, and personal experiences. In the following sections, we discuss the main areas of IT that companies must consider in order to be competitive in today’s world. These include governance, budgeting, outsourcing, project management, key issues, and the future of IT.
II. IT Governance
Historically, IT governance did not receive a lot of attention. With the speed of globalization and rapid changes in technology, IT governance has become a crucial and necessary aspect of business management and strategy. The main areas of governance include the management of central and support IT functions, project management, budget allocation, outsourcing, and strategic planning. We discuss each of these areas in detail throughout the paper.
Today, most organizations separate IT into 3 areas: infrastructure, applications, and special (or departmental) projects. In general, the IT organization is split between a central IT group and a support IT group, which works closely with a specific department. The support groups report directly to the IT, but also report dotted-line to their functional area. Outsourcing is often used for infrastructure management, software development, and administration functions (i.e. payroll, accounts payable, etc.) Contractors are also used as needed. IT is an extremely cross-functional unit as it must support specific areas while also leading company-wide initiatives[1] .
While every business must adapt their IT efforts to the specific needs of their company, there are some underlying keys to successful IT governance. First, IT must be given the same attention and time as any other business function, such as accounting, marketing, operations, etc. The CIO must be someone with a technology background, but also have a keen business sense and knowledge. All employees must understand the basic functions of IT and be involved in major initiatives, as should IT employees be involved in the business. To get to this level, many organizations have found the need for a total shift in culture to eliminate preconceived notions about IT. Second, IT must also be given the same executive support as other areas. To do this, the importance of IT in sustaining a competitive advantage must be emphasized by top executives and the board of directors. Support and direction is mainly needed for decision-making, prioritization of projects, and funding support. Third, IT must have both a short and long-term vision, which must be driven by the company’s strategic goals. Fourth, IT is best governed when there is a unifying platform across the organization. The ideal IT organization will speak the same language and operate against a simple, well-understood set of principles and processes[2] . One successful way to do this is through the utilization of an enterprise-wide system, which allows for consistency in information, analysis, and support. Another aspect of this is project management. Specific and company-wide initiatives must be prioritized and tracked by IT to ensure goals are being met. Finally, IT must be governed by a clear-cut funding process. There must be a balance between return on investment and risk, as well as development of new ideas, when allocating funding[3] .
One key takeaway found from our research is that the management of IT is always evolving. IT governance, like technology, must constantly be reassessed and adapted to new business needs. Cisco provides a great example of the progression of IT governance. Over a 10 year period, Cisco has adapted its governance from one end of the spectrum to the other. When Peter Solvik, CIO from 1993-2001, joined the company, IT was an internally oriented cost center, where decisions and funding were highly centralized. During his time, Solvik disbanded the IT organization to get away from the perception of IT being “overhead”. This resulted in the successful implementation of the Oracle ERP system and improvements in technological capabilities, but it also lead to the creation of over 200 functional projects. When Brad Boston joined as CIO in 2001, the direction of IT had been lost and disjointed. The lack of centralized planning actually had a negative effect on the company. So, Boston revamped the group again, re-centralizing IT planning and spending of major projects. He also created a Business Process Operating Committee (BPOC), a cross-functional team that oversaw IT planning and prioritized projects. Cisco evolved its governance to come up with the right model of managing IT[4] .
Every business must adapt IT governance to its culture, processes, and goals. As this case and our research show, there is no one right model of IT governance, but by following the key factors noted above, a company is much more likely to successful.
III. IT Budgeting
IT budgeting requires a company to spend wisely on the best IT system for your business. There is no one size fits all for an IT system and it is critical that you find the best fit. Integrated systems are the best if properly implemented. Band aiding old systems together may be a short term, less expensive fix but a long term expensive correction may be needed later. IT security is another area that must be considered seriously, even outside of budgetary limitations at times, as money saved in the short term can lead to system malfunctions that may be catastrophic later.
IT budgeting is extremely important, as a vast amount of companies are spending greatly on IT investments, but not generating the value to their business as they should be. Companies that are managing IT successfully generate returns that are as much as 40% higher than their underperforming competitors. Successful companies will define the strategic role that IT will play and then determine the level of funding needed to achieve that objective. Senior managers need to be able to recognize which projects will have a significant impact on the company’s success and those that provide some benefits but are not essential[5] . Managers must also ensure that all affected parties are involved in the decision-making process. The highest levels of management should be analyzing the costs, benefits, and risks of all IT projects[6] .
Through interviewing managers in various companies, we found mostly that the CIO is the person who manages the IT budget. The CIO does rely on senior managers of the business units to provide him/her with the most critical IT projects for their area to be allocated a portion of the IT budget. In one instance, approximately half of the budget was being used for infrastructure while a smaller portion is used for immediate projects needed. The additional monies are then distributed for the best possible IT advancements. One small company that only had seven employees had outsourced their IT function as opposed to hiring a full time employee. Therefore, a budget was submitted to the partners of this firm on a yearly basis. It included basic service and any other IT tasks that the partners felt were needed in this time period. Certain IT items such as software expenses, basic network maintenance, and other fees were allocated across the firm’s client base and included as an expense in their quarterly retainer fees. In other companies, the IT expenses were allocated as part of overhead to each of the business units.
Information technology is a very costly support function to run and managers are often very critical of the overhead allocation of IT. Non-executives are unhappy with IT overhead because all they generally see is the high cost with a return on investment that is hard to measure. The school of thought to combat this is to align IT with the business strategy and have a commitment to cost management. Managers should not only think of cost cutting, but also determine overall measurements, assessments, and decisions involving budgets and capital investments. Communication between non-IT executives and IT executives are critical throughout the IT budgeting, as companies in the US typically spend anywhere from 50% to 75% of their annual equipment budgets for IT[7] . In an example from our interviews, one company invested $300K to attach RFID chips on parts and boxes. They later found the chips did not make part tracking easier, as the boxes did not always move with the parts, making this investment a waste of money.
As an example of budgeting with shortfalls, VW experienced difficulties in their budgeting process in 2004. Many executives were furious that high priorities for their areas of the company had not been funded. There were 10 business units that proposed more than 40 projects, $210 million worth, with only a budget of $60 million. Of the roughly $60 million available overall, $16 million was set aside to fund stay in business initiatives, most of them infrastructure projects under the discretion of the IT Lead, another $30 million would fund enterprise projects, and the remaining $14 million was left for the highest-priority projects. With little money left for the business units’ IT projects, a critical project was only partially funded. It was a multiyear SAP implementation that really needed VW’s full funding to stay on track. But it was a large project that would have wiped out a significant portion of the IT budget for 2004. It did not get funded, as its value would be recognized at the global level, not at the VW importer level. Although it promised savings, the big impact was global integration, which was sometimes a tough sell locally. To further complicate budget issues, there was little IT investment in the 1990s that created a need in the early 2000s for substantial IT investment. This caused many of the executives to view IT as an expensive item that usually fell short of what they needed from it. A goal of the IT Lead was to turn around the idea that IT is an obstacle[8] .
IT budgeting is no simple task. Lead by the IT team, all departments must collaborate to ensure that money is allocated in the best way to meet the company’s goals. From basic infrastructure needs to specialized projects to enterprise wide integration initiatives, IT spending must be monitored closely to stay on track and achieve the intended results.
IV. Outsourcing
One growing solution for addressing management and governance of IT within a firm is to outsource the entire function or select pieces of the IT department. Whether it is a small to medium sized entity lacking the capacity for a full-time IT staff or a Fortune 500 company looking for specialized support, outsourcing IT needs has become increasingly popular amongst many different industries. A simple Google search can result in a plethora of independent contractors and consulting firms offering network integration services, business application development, web-based solutions, technical support, and a whole host of other services.
As part of this assignment, a senior technology and networking engineer for ICorps Technologies was interviewed regarding the use of IT outsourcing within businesses in and around Boston and New York City. For small to medium sized entities, the most common IT function outsourced is overall IT consulting. Due to capacity issues within this size of business, there is simply not a need for a full-time IT position. Issues such as setting up the initial network, trouble shooting daily problems, installing updates, and 24/7 monitoring can be accomplished via quarterly visits and constant communication. Moreover, an unintended benefit of outsourcing is the high level of documentation the IT consultant is required to maintain. At ICorps, the Sr. Engineer is required to have all network and IT related procedures completely documented and is obligated to keep a secondary consultant apprised of any pertinent system information. When a full-time internal IT employee leaves, they typically take all the technical knowledge and overall company experience with them. Unless the entity and management have done their due diligence in regards to process documentation, turnover can cause massive problems. This problem does not occur when this function is outsourced. Transitions occur seamlessly even if it is the IT consultant who has moved on to another company.
Additionally, this interview shed light on some of the IT outsourcing needs of larger entities. Outsourcing the CIO position occurs with reasonable frequency. Whether it is a temporary situation aimed at updating and developing a current IT system, or the entity is using the connections a company like ICorps possesses to fill a full-time CIO position, the benefits are fairly obvious for a firm whose own IT employees may be inundated with covering the extensive daily desktop support needs. Other uses of IT outsourcing for large companies include managing special projects, such the Cisco ERP implementation, obtaining expert advice or completing small tedious projects that most try to avoid (i.e. transferring massive directory databases, etc).
Outsourcing IT has several benefits and risks that one should consider prior to making any potentially irrevocable decisions on the matter. Benefits include a higher level of systems documentation, greater access to technological skills that are not available internally (i.e. when working with a consulting firm you have the entire firms expertise at your disposal), improved company focus on core capabilities, reduction of IT headcount, and the ability to hold someone else contractually responsible for a very important business function. In terms of risks, there is the concern that the external IT individuals you are relying on are not very knowledgeable of your business, the fear that sensitive company information could be compromised, possible breach of contract by the vendor resulting in an “IT crash” and an inability for your company to complete vital daily tasks, and loss of control over crucial IT decisions.
In any event, a competent manager needs to weigh all potential benefits and risks of IT outsourcing and see how the results correlate with the specific IT needs of their firm. Outsourcing should ultimately enable a company to be more competitive by allowing it to focus on its core capabilities.
V. Project Management
Project management can be a daunting task for even the most competent managers. Projects are typically aimed at resolving a major issue, within a predetermined and often hurried period of time, with a team made up of individuals across all functions or departments of the business. Several projects, due to the magnitude of the undertaking, can take anywhere from several months to a couple of years and typically require significant capital outlays. Furthermore, the risk of failure always exists. Companies can contribute huge sums of money, resources and time to a problem with no guarantee that a reasonable solution will be generated. At times, as seen at Zara’s multinational retail business, the success of a project is not just imperative for maintaining the current position within the industry but for ensuring the company’s survival in the future[9] . In any case, it is clear that project management is of extreme importance to all team members involved as well as the company as a whole.
With regards to IT project management, there are typically two types of team members: IT personnel and non-IT personnel. Unfortunately, both parties rarely agree on all issues. The disconnect between IT personnel and non-IT personnel stems from the fact that non-IT individuals don’t understand information technology well enough to manage it in detail while IT individuals don’t seem to understand the very real business problems that the non-IT personnel face[10] . From the start, these two adversarial mentalities can wreak havoc in a team orientated atmosphere. So the first step in initiating a successful IT project is to have both IT personnel and non-IT personnel agree to disagree with regards to department mentalities. It is imperative to the success of the project that both viewpoints are taken into consideration and that all team members share a common goal (successful project completion). What can be detrimental is if these fundamental differences are not addressed in the beginning and the team becomes segregated amongst departmental lines. Second, a specific timeline needs to be set where benchmarks or milestones are used to assess progress. Uncertainty exists, especially in large, time consuming projects, and you need to have some means of qualifying the level of work completed prior to moving on to the next task. Failure to do so can result in an end product that does not address the original problem. Third, all outside contributions need to be filtered so that there are not too many “chefs in the kitchen.” Again, failure to address outside distractions and contributions can result in a disjointed final product. Finally, communication and organization are imperative to successful project management. A hierarchy of all team members needs to be constructed to quarterback the overall project. Furthermore, multiple communication channels need to be established and maintained so that each member of the team is informed of their cohort’s responsibilities, accomplishments and actions.
VI. Key IT Issues
Below we outline the key issues faced by IT in the 21st century, as well as strategies to make IT more effective and contribute to the growth of the business.
· Simplifying IT: Schwab, the leading full function eBroker in the USA had one of the best business alignment strategies for its IT[11] . However, over the years IT systems had become complex resulting in increased expenditure and delayed projects. It went on to simplify the IT systems resulting in a positive impact to the bottom-line and on-time project completions. IT simplification strategies have to be revisited on a regular basis to keep IT from becoming an inhibitor to business. A good indicator that IT needs to be simplified is the ratio of expenses on “keeping the lights on” type maintenance projects to the expenses on strategic new product development. If this ratio creeps up, the business needs to go for another round of simplification. One of our interviews describes the successful integration of the company’s ERP systems to simplify their IT infrastructure.
· Contribute more towards strategic IT: Most companies spend more on IT support functions than on business alignment or strategic functions. The earlier point about ‘simplifying IT’ takes care of some this imbalance. Companies need to focus and spend the available IT budget in areas that have a business impact. This gives a better ROI for the IT investment. In an interview, Cisco CIO Rebecca Jacoby talks about how to go about moving IT towards strategic projects[12] . She says that effective communication skills are crucial to this transformation. Companies like Dell, Wal-Mart, and Amazon have revolutionized their respective industry segments with strategic technology models.
· Effective communication with management and end-users: Communication skills are a key asset to the IT group and help in reducing end user discontent. There are three categories of relationships here: executive management, functional groups and end users. First, IT needs to hone their skills to be able to articulate technical issues to non-technical executive management. This will help the leadership to understand the value of technology and the role it can play in the strategic development of their core business. Second, in a centralized steering committee model like the Cisco BPOC (Business Process Operating Committee) under Brad Boston[13] , the BPOC/IT needs to use its communications skills to convey to the functional silos that the project requested by them has not been approved or has been deferred. They need to make them understand the big company picture and what the current priorities of the business are. Finally, IT also needs to foster end-user relationships by establishing formal service level agreements (SLAs) with end users[14] . SLAs are contracts that specify division of responsibility, expected services and other metrics resulting in improved services for the company.
· Business Savvy IT: IT folks need to understand the core business instead of just doing what is told. This allows them to understand the needs of the business and implement applications that can help the business forge ahead.
· Outsourcing: IT needs to evaluate projects based on core competency and efficiency. Projects that are strategic in nature should be done in-house. Projects that are not the company’s core competency could be outsourced. One article, discussing how to avoid the alignment trap, talks about right sourcing[15] . IT needs to understand the functions that are being outsourced, so that vendors can be held accountable for price and performance. This might involve doing the job in house for a while before outsourcing it as discovered by De Beers CIO Debbie Farnaby. Volkswagen of America experienced the other side of right sourcing[16] . It outsourced its entire IT division and kept only a few full-time people. During this period, VW realized that it had insufficient IT knowledge to even administer the outsourcing contract. Lower IT knowledge within the business is also substantiated by our interview with an aerospace company. Another interview points to lower cost when outsourcing generic IT tasks, but also notes that worse response times when compared to an in-house IT group. Yet another interview shows difficulty in enforcing quality.
· Centralized Planning: We have seen time and again that centralized evaluation and approval of IT projects benefits the business in the long run. In the De Beers case, each mine had its own applications . Even though individually the mines’ IT was aligned to its business, it was a nightmare to manage multiple platforms at the company level. Same was the case with Cisco under Peter Solvik. Cisco, at one time, had 9 different order status tools, 50 customer survey tools and 15 business intelligence tools for similar business purposes.
· Cross-Functional Teams: Several cases, like the Cisco ERP implementation[17] , show that involving IT and functional resources to manage IT projects is the best way to achieve success. An interview with a telecommunications company business manager shows that cross-functional teams are effective in understanding the requirements and developing a solid product. This company, like Cisco, has portfolio IT managers representing each department.
· Role of CIO: CIOs traditionally have reported to CEOs or CFO/COOs. CIOs that have a seat at the CEO's table are in a better position to understand, help craft and drive the business strategy instead of taking an established business strategy and creating an IT strategy around it. One of our interviews talks about lack of involvement from top management. This is the opposite of the Cisco ERP case, where the management put its weight behind the project.
· Security: This is a key issue for all the companies that we have interviewed. The companies have to implement security features (network security, data security) for their own protection and some features in order to comply with the law (i.e. Massachusetts Data Protection Act). If this issue is not dealt with adequately, it could lead to serious business/legal consequences as illustrated by the TJMaxx, Hannaford and Dept. of Veteran Affairs cases.
· Cost: From our interviews, we have found that almost all the companies want a better IT department at a lower cost structure. Outsourcing the right projects plays a key part here. Some companies in our interviews are looking at Cloud Computing and SaaS (Software as a Service) to contain costs.
In order to build a strong, growing company, the business side and the IT side need to take stock of the current situation and work towards getting more mileage from IT through collaboration.
VII. The Future of IT
In recent years, IT has gone from being a technology support provider to a business enabler. For the future, IT folks will be expected to wear a business hat on top of their technology hat. The CIOs and other IT folks are expected to use their business and technology knowledge to help their companies venture in to new business models. The IT spending mix is going to be less favorable for maintenance projects and more favorable for strategic projects. This is substantiated by our interviews. For instance, a telecommunications vendor shared that the IT group will be working on engineering and sales tools that have a direct impact on the business.
SLAs and metrics are going to be very common for both in-house and outsourced IT projects. Accountability and return on investment must be monitored more than ever. The IT team will have to balance end user demands for the latest tools with manageability of the new tools and platforms.
Companies will move towards outsourcing in a big way. Almost all the companies that we have interviewed have experienced outsourcing of projects. While they see reduced costs from a contract perspective, quality and delays have been quite common leading to some dissatisfaction. In the future, IT needs to be able to efficiently complete the following: select projects for outsourcing, choose outsourcing vendors, track progress with performance metrics and develop a deep understanding of these projects (i.e. in-house knowledge). IT needs to be the bridge between outsourcing vendors and management/end users.
With increasing concerns on security and ethical use of personal data, IT will have to design internal controls to comply with the business goals and government laws. Companies must stay on top of following state and federal protection acts, ensuring Sarbanes-Oxley requirements, and respecting individual privacies.
More traditional companies will get into e-commerce models for sales, support, partner management and other facets of business. IT must be capable of supporting this evolution. An interview with an aerospace company talks about moving to web-based applications. Companies like Wiley publishers and Comcast are moving towards internet chat-type of customer support and away from the traditional phone support.
Green initiatives are also taking root at a lot of companies. IT will need to look at power consumption of their infrastructure during planning stages and/or upgrade of old systems to meet new environmental initiatives. For instance, in the request for proposals for telecommunication products, vendors have started seeing “watts/sq.inch” requests from carriers. If IT can offer more environmentally-friendly avenues for doing business, it will decrease the company’s harm to the environment while increasing the company’s image and competitiveness.
Going forward, IT will not only be expected to help the business achieve it current goals, but will also be a critical factor of a company’s future growth.
VIII. Conclusions
IT is no longer simply a support service, it is a business enabler. With proper governance, IT can help a company achieve, or miss, its strategic objectives. Proper budgeting and project management will ensure that a strong infrastructure is in place, while also allowing the exploration of new ideas. The choice to outsource will grow increasingly important, as companies must balance keeping strategic projects in house with outsourcing projects that are outside one’s core competencies. Staying on top of key issues will help a company avoid common mistakes, while looking toward the future of IT must play a part in the company’s long-term strategy. The future of IT has endless possibilities. With the help of IT, a company can truly form a sustainable competitive advantage.
IX. References
Avoiding the Alignment Trap in IT, SMR, Fall 2007.
CEO vs. CIO: Can This Marriage Be Saved?, Business & Strategy, Spring 2002.
CIO vs. CFO, Forbes video, 2009.
“Cisco Systems, Inc.: Implementing ERP.” Austin, Robert D.; Nolan, Richard L.; Cotteleer, Mark, Harvard Business School Publishing, May 2002.
Cisco’s CIO Talks about the Challenges and Opportunities for Making IT a Strategic Asset
“Enterprise IT at Cisco.” McAfee, Andrew; McFarlan, F. Warren; Wagonfeld, Alison Berkley, Harvard Business School Publishing, August 2007.
Getting IT Right, Feld and Stoddard, HBR. February 2004.
How to Tap IT’s Hidden Potential, WSJ, March 2008.
Information Technology for Management: Transforming Organizations in the Digital Ecomony, 6th Edition, Turban, Leidner, McLean, and Weatherbe, 2008.
In Search of Overhead Heroes, G. Tillman, Business & Strategy, Summer 2005.
Interviews with IT and business managers in various industries. (Names not disclosed.) July 2009.
IT and the Board of Directors, R. Nolan and F.W. McFarlan, HBR, October 2005.
Six IT Decisions Your IT People Shouldn’t Make, HBR, November 2002.
“Volkswagen of America: Managing IT Priorities.” Austin, Robert D.; Ritchie, Warren; Garrett, Greggory, Harvard Business School Publishing, June 2007.
“Zara: IT for Fast Fashion.” McAfee, Andrew; Sjoman, Anders; Dessain, Vincent, Harvard Business School Publishing, September 2007.
X. Appendix
a. Case Analysis of Cisco (See Wiki page or click here)
b. Case Analysis of VW (See Wiki page or click here)
c. Interview Checklist (See Wiki page or click here)
d. Interview Results (See Wiki page)
e. Summary of Articles (See Wiki page or click here)