An Oracle Thought Leadership White Paper April Shifting The Mix: A Practical Approach To Making IT More Strategic

Transcription

1 An Oracle Thought Leadership White Paper April 2009 Shifting The Mix: A Practical Approach To Making IT More Strategic

2 Executive Overview Today s IT budget is spent mostly on keeping the lights on. In fact, roughly 70% of the budget is spent on sustaining and running existing capability while only 30% is spent on providing new capabilities to the business 1. The business, together with IT, needs to find ways to increase the value created by the existing and new investments in IT. The ideal allocation of the IT budget would be to spend roughly 55% on existing capability and 45% on new capabilities that create value for the business. To that end, CIOs across the globe are focused on elevating the role of IT and the impact of IT investments - moving away from system maintenance activities and towards more strategic endeavors that help provide competitive advantage for the enterprise. IT Demand Management is a leading-edge practice not only for managing the often frictional relationship between IT and the business, but, more importantly, for shifting IT to a more strategic role and a higher level of value. One of the biggest challenges IT organizations face is becoming more strategic when they must maintain current systems and support processes on a fixed or declining budget. Improving IT demand management and resource allocation is a critical way to shift the IT budget to more strategic endeavors. This increases IT's impact to the business and elevates the role of the CIO. To accomplish both, a world class IT Demand Management process needs to be put in place. This requires a combination of the right people, working on the right strategic IT initiatives, meeting at the right frequency, and using the right information and tools for decision-making. 1 Gartner Making the Difference: The 2008 CIO Agenda (Jan 2008).

3 THE IT ORGANIZATION REALITY In today s economic climate, there is no doubt that CIOs, IT directors, and IT resource owners are under tremendous pressure to deliver more strategic value to their business stakeholders, while keeping the lights on operationally and positioning their company for innovation - all this on a fixed or declining IT budget. Accountability? In our experience, many governance forums and steering committees exist with no one entity to make ultimate prioritization decisions. Projects are often prioritized with no clear view of their value to the enterprise as a whole. Additionally, multiple demand sources, all categorized as priorities, compete for limited resources and ultimately, resource owners do not have the information required to accurately forecast incoming demand. Finally, planning and priorities constantly shift to accommodate new projects. Too many internal customers? When internal customers (e.g. business units, departments) are indeed engaged as a partner with the IT organization to help ensure mutual success, dedicated program managers want their own IT for their own internal customers. This mindset often results in competing demand for resources. Enterprise Standards? Systems are often developed in a stove-piped manner without awareness of an integrated vision for the business needs and supporting technologies, thereby undermining the ability for IT to provide integrated, cost-effective solutions. THE NEED TO SHIFT THE MIX The need to shift the mix spans industries and business functions. During an economic downturn, a few industry-specific strategic IT endeavors include the following: To maximize cash positions, Process Manufacturing companies need to more tightly manage working capital by better understanding inventories across the supply chain. CIOs should favor projects that bring supply chain and manufacturing visibility to bear. 3

4 Out-of-stocks represent a $69 billion dollar problem for the top 100 global Retail companies, and retailers are responsible for nearly 75 percent of all out-of-stock situations 2. The key message for retailers is to optimize planning and merchandising decisions by integrating merchandise planning & execution, including demand forecasting, promotional planning & optimization, and retail price optimization. As these capabilities reside most of the time in silo d applications, CIOs should focus on integrating and optimizing the end-to-end process. Financial Institutions have some unique challenges to overcome. This is an industry that is facing difficult times, and it is critical for these institutions to regain consumer confidence, improve their understanding of risk, and achieve merger-related cost synergies. CIOs should leverage Master Data Management (MDM) to replace homegrown CIF systems, deploy BI and risk management solutions, and rationalize their IT infrastructure. Companies in the Communications industry are faced with fierce competition, which makes the environment extremely dynamic and fast-paced. As the industry converges, it is imperative to establish a single customer view, accelerate innovation, and establish end-to-end processes spanning multiple systems and functions. As tax revenues decline, Public Sector agencies require increased spend visibility to minimize the impact of budget cuts on critical services. In addition, public demands for spend transparency intensify during a downturn. CIOs should give priority to IT projects around Business Intelligence (BI) and Analytics to meet the need for visibility and transparency. The strategic imperatives differ significantly by industry, but a common trend in all industries is the fact that demand for strategic initiatives exceeds the IT resources available to deliver them. In addition, the demand for these projects comes from multiple sources, which forces IT to deal with many layers of demand aggregation, unclear lines of communication, and sub par enterprise demand prioritization. Several shortcomings exist: No enterprise-wide demand view or monitoring mechanism exists to help focus on real strategic projects Demand is often assigned resources despite lack of clearly defined scope and business case Demand arises from multiple sources including governance forums, steering committees, and business partners Lack of thorough and widely-communicated forecasting makes demand impossible to predict 2 Oracle Retail Industry Solutions Portal. 4

5 Demand is in excess of available resource capacity IT resource owners make every attempt to accommodate incoming demand, slowing delivery of current projects in the pipeline and overburdening resources These shortcomings often result in serious implications for the business: Misalignment of enterprise strategy and project implementation Reduced ROI on substantial IT investment Wasted management time and effort renegotiating and rebalancing priorities Delayed deployment for new projects resulting in loss of market share or competitive advantage Increased development cost Improving IT demand management and resource allocation is a critical way to shift the IT budget to more strategic endeavors. This increases IT's impact to the business and elevates the role of the CIO. An effective business case-based prioritization and governance model should be put in place to integrate a company s IT demand and supply processes. In addition to elevating the role of the CIO, the target outcome for shifting the mix to more strategic projects is to achieve optimal strategic balance between demand and supply. On the demand side, business unit organizations aim to customize all services and investments to match business requirements. On the supply side, the IT leadership seeks to standardize, wherever possible, to achieve competitive cost. This results in an often frictional relationship between the two, as depicted in Figure 1. High Demand Alignment Low Target For Business Organization Demand Focus Strategic Balance (Customize) Lack Of Focus Supply Focus (Low Value) (Standardize) Target For IT Organization Low Figure 1: Demand vs. Supply Friction Supply Alignment High There are several enablers to achieve this strategic balance: Collaboration Provide a forum for surfacing and coordinating major issues that impact corporate and business units interests 5

6 Alignment Enable all critical stakeholders to have a voice in setting the priorities of IT Business Case Utilize standardized financial calculations, as well as an assessment of high level viability (scope, technical complexity, risk, etc.) as key components to a fact-based process for decision-making Education Educate stakeholders on critical developments that impact IT Compliance Ensure compliance in areas where necessary for legal, regulatory or economic reasons Accountability Provide a forum for attributing accountability for performance variances Ultimately, a good prioritization and governance management process can help shift IT s involvement to more strategic endeavors and improve delivery by better managing resources and planning ahead. Several advantages can be identified: Make decisions on solid, fact-based business case, with options Change the behaviors of all the stakeholders involved Deploy resources to the most important work Increase clarity into resource usage and deployment Identify need to change resource mix or number Potentially increase discretionary spend by prioritizing lights-on spend Enhance project management function by managing a higher level portfolio view of all work However, the goals of an effective prioritization and governance process are often easily understood but difficult to achieve: IT initiatives aligned with overall corporate strategy A business and IT partnership that drives how IT Investments are made and establishes priorities for the company One overarching governance forum that oversees the process and has control that spans both demand and supply Regular and active participation of business and IT senior management in the governance forum A process that is disciplined and structured yet capable of responding quickly to urgent requests Genuine collaboration between business and IT at all stages and levels of the process Standardized processes and tools to guide the governance process and the project lifecycle Shared performance measures that reward joint business/it success 6

7 A PRACTICAL APPROACH To accomplish these goals, a robust IT Demand Management process, with strong prioritization and governance management, needs to be put in place and requires a combination of the right people and roles, working on the right strategic, business case-driven IT initiatives that support a business strategy, meeting at the right frequency, and using the right information and tools for decision-making. Right People And Roles Right IT Strategic Initiatives Right Process Right Frequency Right Tools And Data Figure 2: Attributes of a world-class IT Demand Management Process The Right People And Roles In our experience, implementing the right people and roles requires cross-functional representation from the business and IT with appropriate decision rights and incentives. The responsibility for successful strategic project selection must be shared between the Demand Management lead, technology units and internal clients i.e. the business units. To that end, four functions with clear roles, responsibilities and decision rights should be put in place, as depicted in Figure 3. CIO BU VPs IT DM Director Business Liaison Director Applications Development Director Infrastructure Delivery Director 7

8 Figure 3: Business and IT Demand Management functions IT Demand Management Director Roles and Responsibilities The IT DM Director has the single point of responsibility and accountability for performance and delivery of all Business Unit-related IT solutions. The Director assists the business in developing a long term IT strategic plan that integrates both Corporate and IT strategies, working side-by-side with the business to prioritize projects and IT requests. He/she educates BU executive leadership on IT issues and assists them to make informed decisions on application of IT. Decision Rights The IT DM Director is the final decision-maker for all IT-related issues for assigned business units and makes resource decisions regarding approving, refusing, or re-assigning resources within the IT organization. Infrastructure Delivery Director Roles and Responsibilities The Infrastructure Delivery Director manages the delivery of multiple infrastructure projects with conflicting priorities and collaborates with the Applications Development Director to manage the demand of infrastructure resources. He/she assembles teams of appropriate resources to ensure timely and cost-effective delivery of infrastructure solutions. Decision Rights The Infrastructure Delivery Director has final decision-making authority on how Infrastructure resources are deployed and works with functional managers to assemble Infrastructure teams to deliver work. Application Development Director Roles and Responsibilities The Application Development Director is the primary point of contact for the business for all IT issues (e.g., status of current projects, ideas for new projects, issues with service delivery, questions regarding IT costs) and develops a trusted partnership with the customer, bringing IT expertise to enable the business and counseling the Business Liaison Director and BU VP on ITrelated matters. 8

9 Decision Rights The Application Development Director collaborates with the Business Liaison director to decide relative priority of business unit requests and relates those priorities to internal IT staff. He/she assigns specific tasks to the Business Analysts, Project Managers, and direct team members. Business Liaison Director Roles and Responsibilities The Business Liaison Director serves as the single point of contact from within the Business Unit to IT and consolidates and prioritizes IT requests from the Business Unit and presents requests to IT. He/she maintains alignment with the overall IT strategic plan as defined by the BU VP and the IT DM Director and prepares business cases with IT s help. Decision Rights The Business Liaison Director has final decision-making authority for sub-business Unit IT issues. Within budgetary limits, he/she makes funding decisions for projects within the scope of the sub-business Unit. The Right Strategic IT Initiatives As stated earlier, CIOs and IT Demand Management Directors should leverage standardized financial calculations, as well as an assessment of high-level viability (scope, technical complexity, risk, etc.) as key components to a fact-based process for decision-making and smart resource management. To supplement the business case, an additional strategic decision table will help stay pragmatic during the project evaluation, as presented in Figure 4. Business Case (NPV) Benefits are multiples of cost Clearly higher benefits than cost Benefits higher than cost Only slightly positive NPV Costs equal benefits Negative NPV Strategic Fit Enables new strategic options Helps implement many aspects of current strategy Helps implement some aspects of current strategy Supports one strategic aspect Little strategy impact No strategy impact Urgency Start requirements analysis as fast as possible Start requirements analysis within the next few months Within the next 3 months Within the next 6 months Within the next 9-12 months No urgent deadline at the moment Figure 4: IT Strategic Decision Table 9

10 The Right Frequency The four functions work together through scheduled and ad-hoc meetings and continuously manage, prioritize, and execute against demand. The ad-hoc meetings are used to set relative priorities for conflicting work. The governance process typically drives the scheduled meetings: Annual IT Executive Council focused on the annual planning (budget, resources, rough-cut priorities) Quarterly Business/IT Strategy Forum focused on business and technology top priorities, in addition to constraints and dependencies Monthly IT Demand Management Forum reviewing top priority lists from each business unit Daily/Weekly Project Management interactions including planned execution, un-planned work, prioritization and re-prioritization, completions and set-backs The Right Tools And Data The IT Demand Management Forum has many tools at its disposal to manage and audit the process such as high-level scope statement, business case, pipeline report, operational report, and checks and balances report. All data artifacts should be leveraged to inform decision-making: High-level scope statement description of the work, reasons for doing work, business areas impacted, potential benefits, preliminary sizing Business case financial benefits, strategic fit, business justification, risks, urgency Pipeline report Business and IT annually planned work, un-planned work, in-progress work, prioritizations, planned, actual, and variance Operational report resources available, resources allocated, rolling forecasts, planned, actual, and variance Checks and balance back-audit into how IT delivered relative to business case, back-audit into Demand Management decisions Technology capabilities are available to enable and facilitate decision-making. In addition to being recognized year after year in several IDC and Gartner surveys as the leader in Data Warehouse, Analytics Software, Enterprise Performance Management, and Pre-built Analytical 10

11 Applications, Oracle provides the most comprehensive and sophisticated set of Enterprise Project Portfolio Management (EPPM) capabilities in the industry 3 : Planning and Decision Making Prioritize IT projects by their measurable benefit to enterprise goals Rank the risks associated with projects based on resources demands Simulate what-if scenarios that show the ripple effect of investment, project or initiative changes throughout the organization Suggest course adjustment recommendations in real time Operations and Execution Provide detailed insight into the skills, preferences, and availability of employees Highlight surpluses and gaps by business unit, initiative, manager, or location Enable timely decisions based on actual skill sets, schedules, and costs Continuous Monitoring and Feedback Alert decision-makers to problems in time to allow effective adjustments Deliver timely updates on IT resource usage to the whole enterprise, so HR, Purchasing, and Operations can effectively respond to fulfill business needs Provide custom dashboards that deliver actionable information in a language that everyone can understand In short, strong EPPM capabilities need to be in place to expose the best paths to organizational growth and profit by: Identifying IT projects that can best serve strategic priorities Finding the right people to staff those projects Nimbly shifting personnel as strategic priorities change Keeping IT projects on time and on budget, and dramatically reducing failure rates The ability to do these things well is crucial to the ability to deliver measurable results and thrive. We have entered a new and more demanding era for IT organizations. The pressure is on to justify investment decisions and demonstrate their alignment with strategic objectives. 3 Primavera Optimally Align IT With Business Objectives And Deliver (2007) 11

12 What Benefits Have Others Achieved? Claro is a leading wireless carrier in Brazil that currently serves more than 30 million customers. Claro offers innovative content and services (it was the first to market 3G technology in Brazil), in addition to providing digital infrastructure and global mobile communications. America Movil, one of the five largest wireless telecommunications groups in the world, with 143 million clients worldwide in 17 countries, is Claro s parent company. The Challenge Claro had recently appointed a new CIO who wanted to derive more value and innovation from its IT organization and to identify more opportunities to improve its impact on the business. More specifically, Claro s new CIO aimed to, improve alignment between business and IT, provide more IT capabilities to the business, and reorganize his group for optimal performance. The Solution Teaming up with Oracle Insight, Claro identified several IT challenges around business enablement, IT performance and IT talent management and assessed their impact based on criteria such as ease of deployment, value vs. impact, etc. In addition, Oracle Insight identified strategic IT capabilities that could support Claro s new strategic direction, and produced an outline of expected benefits. A brand new business-aligned Office of the CIO to support Claro s growth goals was designed. The new IT Office diagram was supplemented with a prioritized roadmap highlighting short, medium and long-term steps to enable the change. The Results Oracle Insight provided actionable recommendations focused on elevating the role of IT and the impact of IT investments. These recommendations were specifically positioned to better: Align application strategy and IT priorities to business needs Improve response time to meet new business requirements Increase IT productivity to both support profitable growth and improve business user confidence in overall IT value proposition Attract and retain IT resources 12

13 HOW CAN ORACLE HELP? Oracle Insight Program 4 Oracle Insight uses a proven methodology which is flexible and customized to individual company objectives. Most engagements consist of four steps: Industry Perspective, Discovery, Solution Design, and Solution Presentation. Industry Perspective Given the plethora of acquisitions made by Oracle, we want to help you understand how these new capabilities have helped others in your industry. Oracle facilitates an in-depth discussion with your executives about industry trends, best practices, vision, strategy, challenges and roadblocks. Discovery Leveraging established industry frameworks and robust intellectual property, Oracle Insight collaborates with you to assess your current business processes and identify the capabilities required to achieve your corporate strategy. Solution Design Oracle recommends best practice processes and supporting technology, including a time-tobenefit analysis and implementation plan. Solution Presentation The Insight team works with you to create an executive presentation including supporting information, business benefits, and value drivers, to help you build consensus among colleagues and executive management or secure funding from your board. Oracle Insight engagements are flexible. Once executive commitment is secured, the program will be customized to your needs and objectives as it relates to your IT Strategy

14 CONCLUSION The current economic downturn is affecting IT departments and the way businesses use technology, and how IT can keep itself relevant. Basically, CIOs had to throw away any plan they had put together prior to the crisis and start over again. Having a robust and complete IT Demand Management process in place helps CIOs quickly adjust and decide which most strategic projects make the cut to improve business agility. This, in turn, will increase IT's impact to the business and elevate the role of the CIO and the standing of the IT department within the company. To achieve this, a complete IT Demand Management Process must be in place and include each of the following areas: Right people and roles: cross-functional representation from the business and IT with appropriate decision rights and incentives Right strategic IT initiatives: grounded in a business case and aligned with a business strategy Right frequency: combination of scheduled and as-needed meetings used for prioritization and conflict resolution Right information: data, tools and artifacts (dashboards, business cases, pipeline reports, operational reports, checks and balance) to inform decision-making. To learn more about the benefits of making IT more strategic, contact your Oracle representative to learn more about our IT Strategy Insight services. 14

15 Shifting The Mix: A Practical Approach To Making IT More Strategic April 2009 Author: Patrick Baesel, Oracle Insight Contributing Authors: Mark Stevens, Oracle Insight Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores, CA U.S.A. Worldwide Inquiries: Phone: Fax: oracle.com Copyright 2009, Oracle and/or its affiliates. All rights reserved. This document is provided for information purposes only and the contents hereof are subject to change without notice. This document is not warranted to be error-free, nor subject to any other warranties or conditions, whether expressed orally or implied in law, including implied warranties and conditions of merchantability or fitness for a particular purpose. We specifically disclaim any liability with respect to this document and no contractual obligations are formed either directly or indirectly by this document. This document may not be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without our prior written permission. Oracle and Oracle Insight are registered trademarks of Oracle Corporation and/or its affiliates. Other names may be trademarks of their respective owners. 0109