Matching Expectations

It's been a cause of simmering discontent in many businesses for some considerable time. St George CIO John Loebenstein was only the most recent to manifest the complaint, when he delivered what Computerworld called "a peppery wake-up call to business leaders" to stop blaming the IT department for project failures and take some responsibility for poor management culture themselves. Delivering a speech to the March METAmorphosis conference in Sydney, Loebenstein said it was about time IT broke out of the blame game which all too often saw it carry the can for the failures of others.

"You have to ask if there are clearly defined strategies and goals within an organisation. If you don't have these, there's no point in criticising IT," he said. "You have to ask if there are a few egocentric business unit leaders peddling their own bicycles. We are the ones that get blamed for a lot of ills; we have to [get a place at the boardroom table]. Business has to realise that [an IT] project often has more non-IT related costs than IT costs - you'll find it's less than half."

Loebenstein's comments reflect a mismatch of circumstance and perception so vast that something, somewhere, is inevitably going to have to give.

Technology today is so intrinsically integrated with business strategy and capabilities it has become rare in any organisation to find a new business-related initiative lacking some technical component. At the same time, the rising dissatisfaction with the value technology is delivering to the business shows little sign of abating. The situation is so bad that in a recent poll more than 75 per cent of major organisations complained to BearingPoint that they were not getting commensurate value for their investments in technology - a rate that has been steadily rising over recent years.

Business heads, says BearingPoint South Asia vice president financial services and telecommunications Kirt Gardner, believe they are getting very poor service to accompany the very poor return on their investment from their business and technology-related projects. Ask them why, and which areas are most affected, and most have no answer.

"There's very poor transparency, and there's also very poor ability for most of our customers to actually link measurement of value to technology spend," Gardner says. "Most large companies would find it difficult to tell you everything that they're spending on technology. It would be difficult for them to tell you how many projects that they have in train and the nature of those projects, and I know barely any companies at all that could talk to you about what level of return and value that they're getting from that spend.

"In a lot of cases the heads of business really don't understand technology, and so when they're critical of it, they don't know what better practices really are. That lack of understanding contributes to the perception and the problem and also the friction that exists between technology and the business, and in many cases poor delivery capability."

The comments clearly have resonance for many Australian CIOs.

Gardner says businesses are quick to point the finger at technology for all the ills of the world but to accept that view is to get in the way of fixing the root causes of the problem. "Like with any problem there are two sides of the argument, and they both contribute to this value perception issue," he says.

Now BearingPoint is working with major organisations including JP Morgan Chase, Merrill Lynch, Citicorp, First Union, HydroQuebec, SunTrust, PNC and others to set up totally new models for achieving IT alignment with the business, giving heavy emphasis to IT portfolio management.

And Gardner is happy to share the BearingPoint approach to resolving the issue with CIO readers.

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Eye on the Prize

A growing number of organisations are evaluating their it investments with a more discerning eye, treating technology assets and projects more like financial portfolios, and some companies using the portfolio management model are seeing a real bottom-line impact. (For a comprehensive look at the IT portfolio management model, see "Mix IT Up", February CIO.) Take BearingPoint client Merrill Lynch, which saved between $US25 million and $US30 million over a single year by slowing down or stopping planned initiatives and redirecting project funding faster and more effectively than it used to.

As reported in Computerworld last August, Merrill Lynch's asset management business in the UK ended up deferring two software development projects - one to develop a tool to help separate stock trades in investor portfolios and the other to create software for integrating market data about shifts in bond prices - once it discovered the firm's US asset management group had similar projects under way. That decision alone probably saved Merrill Lynch more than $US3 million in redundant development costs.

Another BearingPoint client, JP Morgan Chase, had used the IT portfolio approach in its three-year push to consolidate a series of global WANs left over from previous mergers, thereby generating "substantial" IT cost savings.

Gardner says the starting point for organisations lacking the kind of strong IT governance and discipline that can ensure IT-business alignment is to ensure the IT area has total transparency. Everyone in the organisation - but particularly the board - needs to know what IT is spending and the value being derived from that spend (see "Getting the Big Guns on Side", page 82). "At the board level, that gives them an ability to understand when projects start to go bad," he says. "With those early warning systems they can avoid some of the catastrophic examples of what happens when projects go really bad and fail. I think that's probably the most important critical starting point - transparency."

What follows here then, is a rough seven-step guide to the BearingPoint approach to achieving such transparency.

1. Clarify the Strategy

Gardner says whatever the rhetoric, the first thing which typically stands out about the clients who seek his help is their lack of a clear IT strategy and vision. Sure, most of them have a technology-driven IT strategy, he says. What's surprising is how many large and prominent organisations - both in Australia and internationally - do not have a business-driven IT strategy.

How does an organisation know if it has a business-driven strategy? Gardner says a good starting point is to ask the heads of business to articulate their IT strategy.

"If you find that they can't, or if you find that they articulate an understanding of strategy that's inconsistent across the organisation, that's usually a symptom of not having a very clear business-driven technology strategy," he says. "And usually if you look at the strategic planning process, there's not an explicit part of the strategic planning process that calls for the development and articulation of a business-driven IT vision and strategy. It's a gap in most strategy planning processes.

"And so the default is that IT will come up with a strategy just so that they have a strategy, and there'll be an architected strategy as part of that, but that's not necessarily well understood or consistent with the direction of the business. And without that clarity, then you don't have the melding of the minds between the business heads and the IT heads, and that really is one of the critical starting points, we find."

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2. Inventory the Entire Portfolio

Once the business has a clear vision and a strategy, it needs to determine whether existing IT investments, and the resulting IT assets, are consistent with the vision and strategy. Gardner says organisations without a clear business-driven IT strategy will inevitably find some existing investments are out of balance. The first step to resolving this problem is to gain something most companies have failed to achieve so far: a clear understanding of the project and IT asset portfolio, and the value of that portfolio.

"There is a need to go and do a foundation diagnostic, to go in and inventory all current IT projects but also to inventory IT assets and capabilities," he says. "And as part of this exercise, and quite important to the transparency and the understanding process, you have to recognise that there are different types of IT assets. And it's important, like with any portfolio, that you segment the portfolio into the different types of investments, and assets."

The ideal approach is to divide IT projects and assets into three core categories. First, the core infrastructure required to run the business: the data centres, the core communications infrastructure and the core infrastructure for supporting applications. Second, those IT assets and projects required to grow the business, to support growth and new value propositions. Third, and typically, the set of IT assets that is there to transform the business.

"It's important to understand those three different types of IT assets because you probably need to approach them differently in terms of how you value them, and also in terms of how you assess their performance and to what extent IT is delivering value," Gardner says.

You should also aspire to understand this portfolio by categorising and valuing the different components according to asset type, risk/return, purpose (run the business, grow the business, transform the business), discretionary/non-discretionary, cost, returns, timelines and so on.

3. Assess the Portfolio Against Business and IT Strategy

Once this work is done you can use this portfolio approach to make decisions regarding selection, acquisition, management and retirement of IT assets and projects.

"Once you understand where you are, you then assess the current portfolio against your business and your IT strategy, and where you want to be, and often you find again that you're out of balance and so there's a need to rationalise the portfolio. That will in many cases involve eliminating numbers of projects.

"Your IT portfolio strategy should align well with your business portfolio strategy, and again, it often doesn't. You need to highlight that; you need to rationalise the portfolio and then take some steps to realign it in terms of how you look at your investment and spend."

4. Develop a Strategy to Plug the Gaps

Once you have assessed the portfolio against the new business-driven technology strategy, you need to determine what measures need to be implemented on an ongoing basis to secure the future.

Gardner says there are a couple of areas that need to be addressed. One is the need to upgrade the strategic planning processes, to ensure that there is an integrated IT component. "And that goes all the way from: 'I'm going to set my IT strategy and my business strategy so that they're aligned' to 'I'm going to then address how I want to transition my portfolio and what I want to invest in.'"

You can then go to the board and show them your capital overhang, and make them aware of how much you are spending on IT.

"Most boards won't know that there are [say] 185 projects ongoing right now at a total capitalised value of $2.5 billion. So you point that out, and you make them aware that they don't have transparency into how much shareholder value that they're delivering out of that spend. And then you point out some of the riskiness of some of those projects when they go bad," says Gardner.

"There are a number of examples of IT projects that we know well in the financial industry that have gone bad and also result in bad publicity.

There are examples of ERP projects like the case of the SAP work with the National [Australia Bank]; there was a recent transaction processing debacle at the ANZ; and, there was the merchant acquiring system crash at the CBA during the Melbourne Cup. Those were things that get publicised in papers, and that's symptomatic of an institution probably not having the right kind of IT and business management structure in place."

Gardner points out that the more strategic IT becomes, the more prominent examples there will be of projects going wrong in the most public of all possible ways. Boards, particularly those in very risk adverse industries, are increasingly coming to understand they can no longer afford such disasters.

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5. Decide Which Projects to Invest In

"That gets to a very important and key component that often is not very well evolved in most organisations, which is: How do you determine which projects to invest in?" Gardner says. "How do you determine which businesses get what levels of capital spend?"

In most cases those decisions have been made on a demand basis: whoever puts up their hand and demands capital investment gets consideration. Now a lot of companies are moving towards a more supply-driven approach, where a strategic decision is first made about how much the company will spend on technology, before businesses put their case for a share of that investment, based on where they fit in the portfolio and the benefits they expect to get from that spend. In some cases, there are advantages in forcing businesses to "bid" against each other for that capital allocation.

That is an approach that Gardner says he has seen work very effectively in some organisations. "And in a lot of cases what we see here, particularly when you have a problem or when you have excesses, a lot of companies centrally will say: 'Okay, we are now going to drop 65 per cent of all projects and we're going to go to a much more supply-driven approach about how we allocate out capital for investment.'"

6. Nominate a Clear Business Champion

Numerous IT projects fail because they don't have a clear business champion and business owner, but Gardner says the real issue is accountability. Sometimes halfway through the project the original champion moves on, a replacement is appointed and then both get involved in pointing the finger of blame at the other when things go wrong.

"So the accountability process is a very important part of this, part of the performance management process around IT," he says. "You've got to make sure that you can identify where responsibility should lie, so that you can hold business, in addition to technology, accountable for projects; that's part of the governance.

"And you then need to link that to reward systems as well: 'Not only are we going to ensure that your business delivers, we're going to insure that your large projects deliver as well.'"

7. Assess the IT-Business Relationship Management Process

Another important aspect of transparency involves the IT-business relationship management process, and relates to the organisation itself and the type of group IT is within the company.

IT departments these days normally charge business units according to time spent by programmers or the workload of the data centre (see "Chargeback for Good or Evil", April CIO). Now BearingPoint is encouraging clients to transition from that stance to a position where IT becomes a product and services organisation.

"If you think about it, the IT organisation is basically delivering on capabilities and on projects and products and services," Gardner says. "So rather than charging out on time, what they do is they agree on a requirement: a capability or an IT asset that needs to be developed and built, and they charge the business then for the development of that IT asset. And so the business now contracts them essentially to develop a capability or an IT product or service for them, and then they pay them for that result rather than the input, so it's much more of an output-driven model."

Gardner says numbers of financial services companies in Australia are looking to achieve better transparency and accountability, by profiling where they are in terms of their spend and their IT-management capabilities, and in some cases his organisation is helping them to evolve to a new model.

"It's a whole area that has received a lot more visibility at the CFO-level and also at the board level," he says.

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SIDEBAR: Get a Grip:

Four Quick-Win Strategies to Improve Asset Management by Bob Mather

If you don't know what you have and how it's being used, you can't manage it.

That statement of the obvious underscores the importance of asset management. Well-defined practices and processes governing the acquisition, maintenance, and implementation of IT products and services form an essential foundation of an effective long-term business and IT performance improvement strategy. Put differently, IT organisations that ignore the fundamentals of asset management have little chance of addressing loftier goals such as maximising ROI of IT investment and ensuring IT-business alignment.

While clearly important, undertaking an asset management initiative can be like deciding to clean out an overly cluttered garage; namely, where to begin?

Based on analyses of large IT organisations, Compass has identified four "quick win" strategies comprised of specific steps, policies, and processes designed to produce immediate and measurable gains in asset management capabilities. In addition to delivering immediate and visible results, these strategies can establish a foundation for longer-term benefits such as better information for planning, and greater access to information for first- and second-level support personnel. These improvements, in turn, enhance productivity and efficiency of problem diagnosis, and enable effective chargeback programs.

Quick Win #1:

Conduct a sample inventory audit to assess the true accuracy and validity of asset management records.

While tracking the number of devices and their location is relatively common, many organisations do not track information on hardware make, model, year, software installed, or components attached. These details provide support personnel and planners knowledge about the environment that's needed to address basic asset management objectives.

The sample audit process is straightforward: a number of workstations, selected at random from throughout the organisation, are examined. Detailed data on type of device, hardware and software configuration, and location is collected and compared against information residing in the existing asset management database. Through this comparison, discrepancies are revealed, root cause analysis performed, and corrective actions taken. Rather than merely fixing errors, the analysis should identify the process breakdowns that allow inaccuracies to creep in over time. Ongoing evaluation and redesign of support processes relating to asset management ensures alignment between asset management systems and what's really in place. Without such processes, the accuracy of asset management systems can deteriorate quickly as assets change hands, are moved, software and hardware is added or upgraded, or assets are lost or stolen.

Immediate benefits of a sample audit include identifying redundancies in hardware devices and software licences - this can aid in efforts to reduce the number of suppliers, increase purchasing leverage with those suppliers, and lower costs over time. The initial sampling also quantifies the accuracy of existing asset measures (or lack thereof), and provides a baseline against which the success of other initiatives can be gauged. Finally, the sample audit can focus the business and suppliers on the various issues surrounding the accuracy of asset reporting.

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Quick Win #2:

Identify key performance indicators to highlight strengths and improvement opportunities and to measure performance and progress over time.

Defining a manageable number of key performance indicators can be a critical first step towards addressing the daunting challenge of measuring progress in asset management. Basic measures to track include percentage of devices lost or stolen, and effort spent per week in investigation of unknown devices.

In leased environments, meanwhile, a complete set of metrics focused specifically on lease management processes is essential. These metrics should be reported weekly or monthly, and communicated throughout the organisation and across vendors, with progress monitored over time.

For tracking and reporting measures of, for example, lease returns and damages, sample metrics may include:

• Percentage of devices returned early, on time, and late
• Percentage of devices for which damage charges are levied
• Monthly cost of damages per 1000 returned devices
• Monthly cost of early returns per 1000 returned devices
• Monthly cost of lease payments beyond end of lease per 1000 leased devices
• Percentage of end-of-lease devices for which lessor does not provide notice within agreed period

Tracking key performance indicators can provide insight into issues surrounding asset management and how leading practices can support business objectives.

Quick Win #3:

Refine the description of asset management services and introduce service level metrics to manage those services.

Few service providers - either internal or external - do an effective job at defining specific tasks related to asset management. In outsourced environments, this must be addressed within the master service agreement that outlines the services, roles, and responsibilities of the services provided. For in-house environments, the communication of services and setting of expectations is best handled through a customer-facing service catalogue. In either case, service level metrics and management targets can be used to proactively manage asset management services, by defining the roles and responsibilities of each party at the task level.

Key activities include engaging business users to determine the required service levels related to asset management. This information can then be shared with the outsourcing vendor or IT organisation to define the service, service levels, and detailed roles and responsibilities. Ideally, the service provider's responsibilities regarding asset management will be clearly spelled out, either in the master agreement or service catalogue.

In outsourced environments, a compelling incentive program can be an effective way to focus vendor efforts on meeting negotiated service levels governing asset management. Incentives and penalties should be focused on a small number of metrics aligned with top priorities.

Penalties should also become increasingly severe with continued underperformance.

Benefits of defining service levels include allowing an organisation to actively manage the provision of services, while providing an outsourcer with a clear target level of service against which it can measure its performance. Definitions of service provision also enable a client organisation to, if appropriate, compare the asset management services provided by current vendors against those offered by other providers.

Quick Win #4:

Communicate a renewed focus on asset management throughout the organisation and to vendors.

Make the benefits of effective asset management practices - and the consequences of poor practices - clear to both users and service providers. Executive commitment can generate a sense of urgency around asset management improvement and make it a visible priority.

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SIDEBAR: Towards a Long-Term Strategy

The "quick win" initiatives outlined above can help establish a long-term device and supporting asset management strategy aligned with the needs of business units across the entire organisation. Because many of the considerations involved are closely linked, the device strategy should be developed in tandem with the asset management strategy to ensure that objectives are properly addressed.

Such a strategy should consider the total cost of asset ownership (TCO) that includes acquisition, support effort, and tools, as well as indirect costs associated with end-user support effort. The strategy should focus on maximising the value of IT devices over the entire life-cycle. All elements of the strategy - including refresh cycles, thin-client deployment, standardisation, and asset ownership - should be evaluated by their impact on TCO and how well they support overall IT and corporate strategies. Business units, meanwhile, should be engaged in a "demand challenge" process that validates the business value of all devices currently in place.

Defining a device strategy in an asset management context helps to maximise the overall value of IT spending through consideration of all TCO elements. Other important benefits include maximising the value of assets over the entire life-cycle, defining objectives against which asset management success can be measured, and defining the information requirements of a central repository.

Bob Mathers is a Compass consultant based in Toronto, Ontario