In 2009 the IT budgets were cut as a reaction on the worldwide economic crisis. Not very surprisingly, »Reducing the IT costs« was ranked second on the CIO Top Priority List 2009 – after rank ten and twelve in 2008 and 2007 (Source: www.gartner.com).

In these days the budgets for 2010 are planned. After massive IT budget cuts and a (at best) constant IT service performance some CEO’s may come up with the idea to cut the budgets again. In this case, the IT department may have difficulties with being an innovation leader and with supporting changed business processes efficiently.

So, how to break the never-ending cycle of »Reduced IT Budget« and »Expected Service Improvements«? How to avoid the sqeezed »IT-Lemon«? The answer is: The IT value proposition must be visible in the organization.

To increase the IT value transparency, I want to present a four-stage approach:

1. Aggregate the critical success factors within a strategy map. Find out which strategic objectives you should focus on. Let me give an example. To increase stakeholder value, your organization wants to expand the revenue opportunities. What you may need is a new product! You need to add new functionality to your existing products or develop brand-new products. To enable the organization to reach this strategic objective, the information technology must support the innovation process.

2. Take stock of the existing asset portfolio. Analyze how the IT portfolio is assembled. What projects have you planned? What projects do you currently implement? What are you assets (e.g.: Systems, Infrastructure, …)?

3. Make a model-based value analysis. Use context specific approaches such as Value Chains, Performance Measurement Systems, the McFarlan Matrix or the Gartner Business Value model, to give just a few examples.

4. Identify alignment gaps. Are there any non-considered risk scenarios left? For example, does the organization culture clash with the governance? Do you want to offer a »pay-per-use« option to your customer but your IT does not support the SaaS concept?

Note: The presented approach is just a framework. To make the IT value proposition visible, this four-stage approach must be used individually. I tried to give some examples to make the approach more tangible. In the end you need to find and apply applicable tools to make the IT value visible in your unique organization.

Over 1,000 IT executives in 15 countries were interviewed for the Symantec 2009 Global Green IT Survey. Here are the key findings:

• 97% discussing or have finished implementing threir Green IT plan
• 80% of the IT departments pay for their own electricity power
• The main drivers for Green IT are cost savings and the organizations desire to become more “green”
• 75% will increase their Green IT budgets within the next year
• 66% of the organizations are willing to pay up to 10% extra for energy efficent equipment
• 90% believe that Green IT will play a signifcant role in the future

I found the result of this survey very logic. To bring it one simple point: As most IT departments need to pay for their energy consumption, there is a business case for “green” investments – that’s why Green IT is an inherent part in most organizations.

How “green” is your organization by now?

Today I want to sum up a McKinsey Quarterly article, which describes how to reduce IT costs and complexity in 3 steps.

The IT architecture of a company can be seen as formal description of its business operations, business applications, databases as well as the equipment that run the applications. As the IT architecture is growing organically over the years, it is hard to control. In almost every established enterprise you can find duplicated systems, inconsistent data and provisional (data and application) integration. IT initiatives are often driven by short-term needs, not by a long-term blueprint.

Time to clean up this mess! Especially now, in times of the economic crises, it’s a unique opportunity to reduce IT costs and boost business agility significantly. It’s time for a clearly defined IT blueprint with organization-wide guidelines for the most appropriate and efficient systems and processes.

Business leaders must evaluate the business requirements and processes that underlie the existing architecture and then explore more efficient alternatives. For minimal disruptions and maximal benefits, the article suggests a three-phase approach.

Phase 1: Immediate Cleanup

The first phase should have a length of three to nine month. The team’s task is to generate quick wins through cost reductions by rationalizing software licenses, canceling noncompliant projects and decommissioning little- or never-used applications.

The savings in the first phase are not that high, but they are important to keep the management on track for the next steps.

Phase 2: Reducing Complexity

The second phase should have a length of six to twelve month. In this time the team decides if existing IT applications and system are really needed in future. The following methods are used to reduce complexity:

• Enforce out-of-the-box solutions
• Reuse existing components
• Consolidate databases
• Standardize technologies
• Reduce interface complexity
• Consolidate systems that do similar things

When IT and business managers analyze different opportunities, they must keep an eye on the trade-offs between short-term benefits for business units and long term costs for the entire company.

Phase 3: Business Innovation

The third phase should have a length of at least one year. In this most ambitious phase companies must consider transforming or even completely reinventing themselves. IT can play a major role in implementing big changes in the way companies run their business by supporting strategic innovation. Therefore, the IT must assess alternate operating models and shape the future with new solutions, for example using the Internet for online collaboration among employees or product innovation with help of customers and suppliers. New tools and processes can help to find profitable niches in declining markets and increase productivity.

The answer to the current economic situation is not only IT costs reduction. The answer is also IT complexity reduction, which leads to improved agility, greater flexibility, faster times to market, more efficient and effective business processes as well as faster growth once the turnaround begins.

What makes a firms resources »strategically valuable«? Which qualities does a resource need to have in order to ensure a sustainable competitive advantage? A conceptual framework dealing with this question is the one presented by J. B. Barney in an article for the Journal of Management in the early 90’s [1] and which some of you may already heard of by the VRIO acronym.

Before we have a look at what makes resources valuable let’s first define what is meant by a resource. The article defines a resource as:

[...] [including] all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness.

Evaluating the internal resources of a firm incorporates a very different view on strategy than the thought schools solely focussing on the external environment. While the latter treats the competing firms as black boxes with very similar content the former opens this boxes for further inspection and acknowledges the possibility for inner differentiation. Strengths and weaknesses as active weapons instead of reactive positioning between threats and opportunities.

What makes this approach especially valuable is the broadening of the availiable strategic options. The provision of additional internal knobs open to adjustment for gaining competitive advantage. The following drawing illustrates the different perspectives.

One of the articles main points is that not every resource creates sustainable advantage. In the authors words a firm is

[...] said to have a sustained competitive advantage when ist is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy.

Barney draws the conclusion that every resource resulting in sustainable advantage has to possess four attributes to qualify:

Value

Resources are said to be valuable if the improve the efficiency and effectiveness of a firm.

Rareness

In addition sustainable resources have to be rare. If resources can be easily obtained by competitors all gained advantages will be of short duration. Eventually the others will catch up restoring competitional equilibrium.

Imperfect Imitability

This attribute prevents competing firms to imitate the resources under question. The article mentions three reasons preventing easy imitation:

1. History dependent: E. g. First mover advantages, brand names developed over a long timeframe, unique non recurring situations etc.
2. Causal ambiguity: If nobody really knows why a firm achieves superior results it’s special traits can’t be recreated. Interesting aspect of this is that even the firm itself mustn’t know how it does the trick because if some managers knew how they did the trick competitors could lure them away and pay them to copy the resources.
3. Social complexity: If superiority stems from special cultural aspects of a firm this quality is too complex to be recreated in a different company setting. Because social interactions in a firm can’t be directly managed this attribute is effectively preventing any duplication efforts.

Parting thoughts

One thing that came immediately into my mind when reading the article was the question if IT does qualify by these attributes. At first glance there is no chance: If something is easily replicatable it doesn’t qualify.  Carr wins, case closed. But on further inspection there is still hope for us IT folks: Is it really so easy to just do SOA or install an ESB to catch up with other firms which did so successfully? Let’s give this a th… NO IT ISN’T. But why is this so? In my opinion it’s the factor of social complexity coming into play. If you can’t bring people together to effectively use a technology (or to use it at all) it will fail. And so it does. Again and again and again. What follows is that IT can be a competitive advantage as well as a sustainable one but only if you master the soft sides of it, too.

The second thing  I had to think of was Lean Management. Once accepted as sort of Best Practice from the East, western management set out to copy the lean tools and procedures to gain back lost territory. Did it work? If they did so with the help of their eastern colleagues: sometimes. Just by observing and doing seemingly the exactly same things: almost never. Again social complexity is one of the factors at play here: Lean is more a holistic perspective on doing business than merely a set of tools which can be analyzed and used in isolation. This brings into play the second aspect: causal ambiguity. Because the frame of mind is totally different from the classical view on strategy we sometimes simply don’t have a clue why it works.

To me the whole framework is important because it counter-balances the very deliberate/deterministic positioning school of thought. Strategy is more than choosing a generic strategy based on analyis of external factors. It’s also about building inner strengths, core competencies if you will, to achieve sustainable results. With this perspective strategy gains back it’s creative sides which is all to easy lost in combat.

[1] Barney, J. B., Firm Resources and Sustained Competitive Advantage, Journal of Management Vol. 17 NQ 1, 1991

In our series on strategy today we’ll have a look at »Ten Big Ideas of Strategic Thinking«. The collection originates from an article of Robert J. Allio [1] and comprises some of the more influential ideas in strategy. The following will be a mashup of a summary for the single points and tidbits of my own opinions and views. It’s another contribution in gathering the numerous facets of view on the strategy beast.

1. Long Range Planning

Becoming fashionable not until the 1920s, Long Range Planning forces management to look beyond the immediate quarter or year. Although almost indispensable for gaining insights into the bigger context the own company exists in theres always the danger of »overplanning« resulting in big volumes of wasted paper.

2. Strategic Analysis

Allio further divides this important part in Strategic Thinking into four modules:

• Market segmentation: Provide different products or services for different customer (needs).
• Lifecycle: Align your strategy to the lifecycle stage of the industry. For industries in the embryonic or growth stage entrepreneurial strategies are needed while mature and aging industries demand for cost control and cash- flow focus.
• SWOT analysis: Combines internal analysis (strengths, weaknesses) with the observation of external forces (threats, opportunities). Most criticized point of the SWOT: The own strength and weaknesses can be difficult to assess objectively from an subjective standpoint. Furthermore they depend heavily on the actual context like market needs, trends, competitor stregths etc. which would mean that one would need to know the strategy before knowing the relevant strengths and weaknesses.
• Industry structure: Essentially summarized by Porters Five Forces (buyers, suppliers, entry barriers, substitutes and competition)

3. Quality

W. Edwards Deming is the name to mention here. While not enthusiasticly embraced in the US at first his ideas found a big audience in Japan and prepared the base for Lean Production. Demings teachings can be summarized into 14 points and form the roots for hypes that followed like Total Quality Management (TQM), Business Process Reengineering (BPR) and Six Sigma.

4. Portfolio Theory

Boston Consulting Groups Growth/Share Matrix entered the business world in the 1960s and was the first of the portfolio theories claiming that the classification of products, services and markets enables a firm to make guided decisions on resource allocation decisions. Later proponents were the 4×5 matrix of Arthur D. Little (industry maturity/competitive position) and McKinseys 3×3 (business strength/market attractiveness).

Although one of the most known tools together with the already mentioned SWOT the BCG Matriy has come under heavy fire recently. All in all it seems that the claims it makes can’t be confirmed by studies. Though being a very interesting topic  I will elaborate on the shortfalls of these models in another blog post and not go into detail this time.

5. Scenario Planing

Other than single-point forecasts, scenarios accept the reality that forecasting the future is impossible in the long term. Its proponents deal with this dilemma by planning not just for one outcome of reality but for a whole set of parallel business universes called scenarios. Scenario planning was made popular by Piere Wack and Arie de Geus who used this approach at Shell with acclaimed huge success. De Geus also wrote the article which started the broad interest in this special discipline (Planning as Learning, Harvard Business Review (1988)).

6. Resource Allocation Models

Credence of this strategic perspective falls into two camps: Protag0nists of the industrial organization (IO) camp claim that resources should be applied to the opportunities dictated by the industrial structure the company participates in. Again Michael Porter is the name to mention here who reduced the set of availiable strategies into three generic ones: niche, differentiation or cost leadership.

On the other side the the resource-based view is located. Prahalad and Hamel brought into play the core competencies of a company. They  view the generic model as much too limited and and demand that strategies should be based on core competencies alone.

7. Corporate Culture

The implementation of strategy means changing the way you do business. Since the culture of a company determines if this change comes easy or not it is an important factor to consider. Initiatives to align culture with new strategys are difficult endeavors and this brings Change Management into play. John Kotter is the name mostly associated with strategies to apply in the process of change. His studies focus on the reasons why these processes have failed in the past and lead to a change model with eigh phases.

8. Leadership

No doubt: Leadership is vital for making strategy happen. What remains doubtful is if it can be learned and thus be consciously applied in the strategy process.

9. Metrics that matter

For making strategy happen, managers must have means to monitor the implementation effort. Starting with the DuPont formula which decomposed the Return-on-Investement of initiatives in it’s parts later metrics concerning the soft factors followed culminating in form of the Balanced Scorecard.

10. Strategic Organization Design

As the saying goes: »Structure must follow strategy.« Starting at multidivisional designs the next steps in organization fashion were the conglomerate and actually the strategic business unit (SBU). In breaking the corporate barrier strategic alliances and virtual corporations constitute the actual focus of this perspective on strategy.

Parting words

This shall be it for today. In follow-up posts I’ll pick up some of the issues raised and offer some of my own views to the topics mentioned. As you already have seen in the earlier posts: Strategy is a beast with more than one face.

[1] Robert J. Allio, Strategic thinking: the ten big ideas, STRATEGY & LEADERSHIP VOL. 34 NO. 4, 2006, Emerald Group Publishing

Business and IT don’t understand what each other do. And they don’t care. In a recent paper McKinsey suggests to produce a written »annual report of IT« to deal with the problem.

Like others before me I don’t think another bunch of paper comes even close to the badly needed answer.

What about a quick litmus test for this one: Are you an IT guy? Have you ever  read the annual report of your company to understand what business is up to? Did you ever want to? If you said »No.« my bet is that you are on the safe 99.9% side of the majority. I’d suspect the same holding true for the business side: Who cares about 80 pages of non-understandable tech-speak? SOA anyone?

OK then: What is the answer? My conviction is that the misunderstandings and resentiments between both sides can only be overcome by direct personal and continuous communication. Whether one key building block in this effort comes in form of regular »board-style« meetings or by installing matrix functions reporting to both sides doesn’t really matter. I’ve seen both types working. But the premise of all working solutions has been the same: Business and IT have to become one in the minds of the people in the organization. No report will ever solve this one.

Once installed the next challenge becomes to find a common language to use during communication. How can we relate business and IT goals into a big picture that everyone in the organization can understand and commit to? More a transformation than a single answer.

No quick wins in sight, I’m sorry.

In one of the last weeks posts I expressed the wish to start a sort of article series on the different meanings of »strategy« in the business and IT world. The wish stems out of the experience that in most articles and views the whole discipline is solely centered around the planning and designing of deliberate strategy. A view which, in my opinion,  is much to limited to effectivley deal with todays requirements and environmental conditions. What we need is a »fresh look«, a spark to refresh our views on strategy and adapt it to current realities.

Todays post provides the first of those facets by an adaptation of Henry Mintzbergs classic article »5 P’s For Strategy«. In his article Mintzberg offers five perspectives on strategy:

• Plan
• Ploy
• Pattern
• Position
• Perspective

You can find a link to the original article at the end of this post. We’ll now have a quick glance on each one.

Plan:

This look on strategy is one of the most common and classic ones. Here strategy resembles some sort of consciously intended course of action. It materializes in a plan. A set of guidelines to deal with a situation.  It is the military picture of the strategist on the hill deploying his resources and commanding his troops.

Ploy:

As a special form of a plan the »ploy« is a maneuver to outwit an opponent or competitor. In the military this could be a false attack, in the business world a placed (and misleading) anouncement to deceive the direct competitors.

Pattern:

By applying this perspective the outcomes of the formerly planned enters the strategic world. A »pattern« is related to a stream of actions and their outcomes. It therefore describes a consistency in the behavior of an organization. For qualifying as a pattern it doesn’t matter if the realized behavior was intended (planned) or not. Outsiders observe a pattern in the behavior of an entity and infer a strategy. In hindsight most courses of action seem clear and obvious. The difficulty lies in knowing beforehand how things will develop. In reality most outcomes differ substantially from the ones formerly predicted or planned. As a result some people think the realization of deliberate strategy is almost impossible to achieve. This school of thought acknowledges this and enables firms compete in complex environments by recognizing patterns and learning from the past.

Position:

Here strategy means the positioning of your firm in its environment.  The name most people associate with this school of thought is the one of Michael Porter. His model of the five forces in industry environments help to analyze the situation at hand and gives guidelines to deal with specific situation in form of generic strategies. In this respect strategy becomes the mediating entity between organization and environment. The objective is to find a calm spot (a position) between the forces where sustainable advantage can be realized.

Perspective:

While the positioning school looks at the outside on the environent the firm competes in »perpective« looks at the inside of an organization. It tries to describe the »ingrained way« a firm perceives the world. In this respect strategy is to the organization what personality is to an individual. There are aggressive firms and calm ones. There are the creative and the conservative. The personality of a firm determines its actions and hence its strategy. So strategy becomes the actions resulting out of the collective mind of an organization.

So much for the first set of perspectives on what resembles the strategy grail. What becomes immediately clear is that there can be more to strategy than Analyze, Plan, Act. It emphasizes a truth too oft denied: That the most expensive strategic plans have almost nothing to do with what actually happens.

Time to have a new look on strategy.

Adapted from Henry Mintzbergs »5 P’s For Strategy«.

»Fancy what a game of chess would be if all the chessman had passions and intellects, more or less small and cunning; if you were not only uncertain about your adversary’s men, but a little uncertain also about your own; if your knight could shuffle himself on to a new square by the sly; if your bishop, in disgust at your castling, could wheedle your pawns out of their places; and if your pawns, hating you because they are pawns, could make away from their appointed posts that you might get checkmate on a sudden. You might be the longest-headed of deductive reasoners, and yet you might be beaten, if you depended arrogantly on your mathematical imagination, and regarded your passionate pieces with contempt.«

– George Eliot, Felix Holt, The Radical

Wow, that struck a chord! What an refreshing realistic view on strategy!  It demonstrates that the soft factors of strategy in business is more than just something to »consider«. Without embedding them into strategy and business transformation efforts right from the start at last strategy implementation is destined to fail.

What does this mean for strategy as a whole? You mustn’t ignore the inner and outer complexity of  and around an organisation which humans are an essential part of. Do it and fail. See planning and design as just one perspective from many on the strategy process. At the same time use complementing »lenses« like cognition, culture, powerplay and learning.

I’d like this post to become the starting point for an introduction and discussion of the most important views on strategy. Please feel encouraged to post your comments, thoughts and maybe wish-lists of what to cover!

Have enough of all this »Green IT« talk? Don’t be too fast on this one. There is finally an aspect of »green management« even I could immediately grasp: Green KPIs!

Wal-Mart is is considering to introduce a product labeling with a single number showing the environmental impact of the product from production to disposal.

According to this article what they are planning to do is:

[...] to create a universal rating system that scores products based on how environmentally and socially sustainable they are over the course of their lives. Consider it the green equivalent to nutrition labels.

What especially appeals to me is the simplicity and the enormous impact of the idea.  Customers can see at one glance how »dangerous« a product is for the environment. If it seems too much to bear for them they simply don’t buy the product anymore. Can you imagine the pressure this builds up on the companies? Should be much more immediate than another letter of intent by the country leaders…

What we as IT can take away from it? There are effective uses of KPIs. But mere data collection is not enough at all. It takes clever ideas, simple measures and real motivational impact to make them work.

Peter Hinssen explains the Cost-Value-Model using »AniMo’s«. Visualization at its finest…

If you missed the beginning, just click »Step 1« at the lower left

Direct link.

Source: http://www.it-fusion.com/