CIOs must position the IT organization to improve operating efficiency without subjugating efficiency, quality of service, or value to the enterprise.
META Trend: Throughout 2002/03, IT organizations will create measurement methods to define IT value, with leading organizations mastering the management (and communication) of value. By 2004, IT organizations with consistently high ratings will deliver value through processes such as project and change management, adaptive IT organization and infrastructure development, and human capital management.
CIOs must strike a balance between cost efficiency and performance effectiveness, delivering more with less and adopting cost-cutting (efficiency) tactics without subrogating effectiveness, performance, and IT organization (ITO) value. CIOs must map a course to address the need for greater efficiency and effectiveness, or the enterprise will recruit a CIO that will maintain the balance and deliver value to the enterprise.
As a result of the declining economy, CIOs must manage expectations to lower levels, especially as they position the ITO to reduce core, non-discretionary budget investments. However, Global 2000 (G2000) CIOs face two major problems: 1) we believe more than 60% of G2000 CIOs currently have various projects and investments in IT initiatives (e.g., replacing legacy applications, upgrading infrastructure, enabling CRM initiatives, e-commerce) that may be overdue or overbudget, at the same time that the ITO budgets are undergoing increasing scrutiny or contraction; and 2) more than 75% of G2000 ITOs are still perceived as order takers/cost centers and not strategic to the enterprise (see ED Delta 215, 18 Dec 2001).
In an era of amalgamation between the ITO and lines of business (LOBs), being efficient is no longer enough. Before the economic downturn, CIOs were already under tremendous pressure, both in human capital management (e.g., recruiting/retention of top performers) and in organizational development (i.e., structure, process, and culture).
Currently, fewer than 50% of G2000 CIOs are focused on productivity/efficiency as a prime directive. However, we expect during 2002/03 more than 70% of G2000 CIOs to increasingly focus on driving up productivity and minimizing costs, while undertaking a massive reordering of business/IT priorities. This will require unprecedented ITO restructuring and adjustments. To manage these leadership challenges, CIOs must adopt IT portfolio management techniques to map a course around the cost-versus-performance and human capital management barriers.
During 2002/03, we believe 30% of G2000 CIOs operating in the lower left quadrant of the META Group Credibility/Dependency Matrix (see ED Delta 15, 29 Jul 1999) will improve their perceived value to the enterprise as a result of adopting a value management paradigm. This will focus on creating trust to earn respect and ultimately playing a greater role in the transformation of the business processes. We expect this number to improve to 70% of G2000 firms by 2004/05.
We believe that in 2002/03, 40% of G2000 CIOs will adopt portfolio management techniques (asset management, real-options analysis, and digital planning) and by 2004/05, 60% of G2000 CIOs will focus on strategic IT investments that will produce greater efficiencies (i.e., spending money to save money).
To ride the road to recovery, CIOs should undertake the following activities:
- (Re)align business and IT strategies: CIOs must create an adaptable IT infrastructure and environment, with an IT strategy that is intertwined with the business strategy. Otherwise, the ITO will squander corporate resources and damage the CIO/ITO reputation (see ED Delta 115, 24 Oct 2000).
- Partner with LOB colleagues: CIOs must recognize that partnering with their LOB colleagues is critical to their own survival – they must change the perception that the ITO is an entrenched bureaucratic, unaccommodating, and self-serving culture (see ED Delta 141, 8 Mar 2001).
- Develop an ITO marketing campaign: It is crucial that the ITO develop additional sales and marketing skills to spur LOB investment as well as improve its own perception of credibility and the businesses’ sense of dependency on ITO products and services (see ED Delta 126, 27 Dec 2000).
- Master relationship management: CIOs must realize business executives and consumers of technology value the relationship more than the set of product functions. Ignoring the impact of relationship management will force the ITO into a cost-center mentality. Savvy CIOs realize that individuals buy, groups pay. They also realize that in the absence of a compelling ITO value proposition, price determines value and the services (and IT budget) will be consigned to the lowest-cost provider (see ED Delta 21, 7 Sep 1999).
- Design an IT governance framework: CIOs should advocate immediate implementation of a governance board. This board is composed of senior executives from IT and LOB groups and is responsible for setting investment priorities, approving IT strategy, and communicating high-level business requirements. Once organizations have aligned their business and IT strategies, they must design and implement adaptable, unambiguous management principles that define how the ITO will deliver value. It is implemented to enable both freedom of decision making and freedom of action, with the given awareness that those decisions and actions will be in the best interest of the enterprise.
- Create, capture, and communicate the ITO’s value: CIOs must collect, analyze, and report on the right set of performance metrics 3/4 that is, on what really affects business performance (i.e., report the value/results that IT projects bring to the business, rather than overwhelm business with the technical details of the project). CIOs must invest in measurement programs (including product, process, and human capital engineering categories) and link their value chain with that of their LOBs to define both technical measures and business equivalents. These measures must be baselined, and targets must be set for value improvement. In other words, what is not measured cannot be fully valued.
Other Recent META Reports
What Are Web Services, Anyway?
Avoid Paying Extra for Licensing Fees
Protecting Internet Assets
- Use the enterprise program management office (EPMO) to manage the project portfolio management according to business value: Beyond the normal infrastructure requirements, project management will continue to be a defining core competency of ITOs. The EPMO can bring together ITO and LOB leaders to maximize the synergy among the internal and external “partners” that collectively form the IT ecosystem. CIOs must capitalize on this fundamental competency and leverage the role of the EPMO. They can accomplish this by making it a highly visible, permanent organizational component that manages the risk and value of large, cross-functional projects and ensures compliance of proposed projects with architecture/infrastructure principles and design, while reducing integration complexity and costs.
Business Impact: CIOs must focus on high-impact IT programs that will generate the greatest business value.
Bottom Line: CIOs should create initiatives that drive business alignment, promote service value, ensure customer intimacy, and challenge and manage business expectations.
By META Group analyst Al Passori