by Marcos Jimenez, CEO of Softtek USA & Canada
Today, it’s not just the Microsofts, Oracles, or IBMs of the world that are software companies; businesses in every industry are becoming increasingly dependent on their software investments to generate revenues.
Media companies now have a wide range of digital distribution capabilities, not only through services like Netflix, or iTunes, but also through developing their own software tools, like HBO GO. Banks have a long history of migrating from brick and mortar to virtual channels. Every device no matter how big or small has a piece of software in it.
The winners will be those that can develop the best software: Why has the iPhone dominated the market? It’s not the hardware, it’s the software, i.e., its ability to run the applications that the users want and need.
Companies are fast realizing that IT applications are becoming an ever increasing critical component to generate revenue, profits and to remain competitive. Executive boards are realizing the tremendous value around application portfolios. That’s why they keep raising their expectations from the IT departments as high-value generators.
Indeed, the world has changed. In a 2011 survey for CIOs conducted by the Gartner-Forbes Board of Directors, results revealed that pressure is mounting for IT performance. Approximately two thirds of respondents reported having “high” expectations for the strategic business value contribution of IT — more than double the results from the previous year. Yet 67 percent of new IT projects are unsuccessful, according to a 2010 report by the Standish Group Chaos Report. Adding insult to injury, 66 percent of companies’ software and services budget is spent on keeping the lights on.
So, how does today’s CIO respond to this challenge? How can the IT department meet the boards’ expectations and remain on the right side of value generation? The following is an analysis of how factors like size, geographies, governance and business culture can be aligned to transform IT organization from laggard to an organization driven by continuous value generation.
Organizations that are not shifting gears to change this equation will pay a price. With this in mind, companies must change their spend and seek ways to maximize the value of the application portfolio through:
- Increasing business alignment;
- Improving success rate of new projects;
- Reducing cost of keeping the lights on; and
- Improving overall performance and predictability.
We’ve learned that the solution to this dilemma is more straightforward than what may be perceived. Failed IT engagements and projects, for example, stem from the simplest of reasons, such as lack of proper communication. Ensuring that objectives are clearly communicated is a critical component, but one too often ignored.
Continuous value generation is more than going through the motions. It is an ability and attitude that requires regularly questioning the prevailing status quo. Perhaps surprisingly, the main inhibitor for innovation and value generation in corporate America is fear of change, fear of exploring new ways of doing business and challenging the status quo. This is the reason we see smaller start-ups taking over businesses and reshaping traditional industries.
The six key practices we’ve seen work to be on the right side of value generation are:
Institute the right culture: It is increasingly important for companies to build a client-vendor culture centered around value, change, efficiency and flexibility. To achieve this, both parties must have a clear understanding of the end goal. Who’s to blame? People, not technology, are responsible for changing the “2/3 rule” (spending two thirds of IT’s budget on keeping the lights on) with regards to IT expectations and performance. And, underperforming isn’t necessarily due to lack of seniority or talent.
Implement the right execution process: The 2/3 rule is evidence that execution remains a key challenge for most organizations. Business requirements must be met on budget, on time, and be first-time-right. Companies must adopt mature project and operations management processes and align all execution elements. Improving portfolio value through ongoing conversation with end users (as opposed to release and support functionality only); and following a lifecycle approach (many organizations do not do this) will help achieve right execution through continuous improvement by using mature, process-driven methods that are measured by business-relevant metrics.
Use the right quality metrics: Companies should measure the business impact of quality-related aspects of software and IT services, not just the number of defects in systems entering production. Quality starts with the original end user and business needs, and centers on customer experience. If an application is cumbersome to use, it will negatively affect team productivity. Furthermore, productivity correlates with revenue and cost; finding the right balance of the cost of quality vs. the cost to the business is key.
There is also a fine line between too much vs. too little testing. How do companies achieve right quality? Business performance baselines, cost-effective service levels, mature process framework through Lean Six Sigma are just some ways. Establish periodic goals for whatever you want to improve or innovate. Timing is everything!
Apply the right governance system: This is the core of the value generation model. You can’t improve what you can’t measure. Creating a digital governance system is easier and faster to implement than many people think. Define your IT Service Catalog (the simpler the better); define a Service Delivery Lifecycle (SDLC) for each service within the catalog (the leaner the better); define key metrics or KPIs at critical points in the SDLC. Automate SDLC with a digital governance tool (there are many in the market). Establish periodic performance goals for each KPI which will become your SLAs.
Once that’s tackled, it’s all about continuously measuring and increasing performance goals little by little. The governance system will provide you visibility across all aspects of your IT organization and will enable proactive management; the digital governance system will facilitate managing IT services and initiatives (innovation, development, AMS). The SDLC starts with needs of the end user and concludes with the approval of the end user.
Choose the right place for service delivery: Where it makes the most sense for the business considering the right balance of cost, skill sets, and service quality. Once you have a process in control, leveraging capabilities around the globe becomes easier. Whether motives are driven by costs or skills, you will seamlessly and effectively integrate them as part of your SDLC because you will have visibility at all times through your governance systems.
Ensure a team that is the right size: As a natural consequence of setting periodic performance improvements, you will notice that your teams will become more productive which will enable adjusted team sizes for specific functions, such as IT support (applications, infrastructure, users, etc.), and you will be able to allocate more resources to application innovation.
Therefore, little by little you will change the spend equation from 2/3 on support and 1/3 on innovation to 1/3 support and 2/3 innovation, without increasing your total IT budget. Building the right size of teams, servers, infrastructure, facilities, adjusting teams to KTO mode, reviewing the application portfolio to virtualize, consolidate and retire, leveraging cloud where it makes sense (internal, hybrid, public) are all crucial aspects of determining an optimal work force.
As technology is steering today’s economy and enterprise competitiveness, overcoming the “fear factor” and starting to transform your IT organization is critical. If you don’t do it, somebody else will. While applications continue to become the business, CIOs need to focus on generating the right value through innovating and modernizing the application portfolio.
Marcos Jimenez is the CEO for Softtek USA and Canada, while continuing as a member of the organization’s Executive Board. Marcos joined Softtek in 1992, and quickly became a partner of the Banking business unit, to later venture into opening Softtek Peru. Since 2004, he has been responsible for Sales and Marketing of Softtek USA, where he managed to double the company’s profitability within a short time frame. He holds a B.A. in Electronic Engineering from Universidad Autónoma Metropolitana.