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.

Aligning the Enterprise Architecture (EA) with the business strategy is a critical goal of every EA initiative. Many Enterprise Architecture teams can’t demonstrate the business relevance of their EA programs. As a result, they are either irrelevant to the business success or they fail to deliver a business value. To ensure that the business value is delivered and demonstrated in the organization, Gartner has proposed a selection of best practices for enterprise architects. In the following post I want to present them to you. I hope this will help you to align your Enterprise Architecture with your business strategy.

1: Engage internal and external stakeholders

A truly aligned architecture effort requires significant input from pretty much everybody in the enterprise and its ecosystem. Getting the buy-in from internal stakeholders (e.g. line management, business operations, IT operations, support functions) and external stakeholders (e.g. service providers, outsourcers) is a critical success factor for every EA initiative. This buy-in requires engagement, so reaching out to each of these constituencies is necessary.

Engaging with a wide range of stakeholders can provide insights into the strategic drivers of the enterprise – a better-informed EA team and a “360-degree” view of the business strategy are the results.

2: Never go in with a blank sheet of paper

As every stakeholder group has a different view of the required detail level, open-ended questions are not the best idea when engaging any of the stakeholders. Because most of them are not familiar with EA deliverables, open-ended questions can make them defensive. To engage the stakeholders at the appropriate level of detail and to structure the discussion, it’s more productive to present a straw model as a basis for refinement and further development.

3: Validate, socialize, then validate again

So, what are the steps that need to be taken to align the Enterprise Architecture with the business strategy?

• Examine the business strategy and environmental trends: understand the direction of and drivers for the architecture
• Articulate the requirements, principles and models that describe the future state and the evolution of the enterprise toward that future state.
• Document the current state to identify gaps with the future state.
• Define the steps that need to be taken to achieve the future state vision.
• Guide the implementation of that road map by exercising appropriate governance over the strategic initiatives of the enterprise that are charged with improving the business’s ability to operate.

This process is highly iterative and requires collaboration with the stakeholders at every step along the way. To successfully execute this process the EA team needs strong interpersonal and communication skills.

4: Go to the business strategy, if the business strategy is not coming to you

A lot of companies don’t have an explicit business strategy. However, this doesn’t mean there is no business strategy! In many cases the enterprise is a collection of business units with different business models and therefore different strategies. A big effort is required to articulate the business strategy of an enterprise with highly autonomous units, because the specific strategies of the different units must be considered and consolidated. When formulating an integrated business strategy, common strategic objectives must be established and differences in priorities or conflicting objectives must be noted as well.

5: A less formal approach for the Common Requirements Vision (CRV) process

If your EA team encounters difficulties to persuade the company that a structured CRV process is needed, apply a less formal approach. Adopt the CRV constructs, but presents them in a less formal manner. Simply ask some questions:

• How must the business change?
• What new types of information will be required?
• What new technology capabilities must be provided?
• What programs will support our strategic objectives?

The CRV components are still the same, but the less formal structure increases the chances of acceptance. The following figure provides an example of how an informal CRV might look.

Figure found at gartner.com

6: Use the EA to inform other strategic and governance initiatives in the enterprise

Most enterprises are running different strategic initiatives at the same time. These initiatives were typically started in different parts of the organization with different objectives and different decision rights. The Enterprise Architecture should provide specific guidance to all the strategic and governance initiatives of the enterprise. Take the requirements identified in the figure above:

In this example, the strategies include attracting high-net-worth customers with excellent online capabilities and deepening the relationship with those customers to achieve greater customer profitability. These strategies will drive substantial changes in the bank’s business, including the creation of a personal banker function and the associated account management processes. There will be a need for profitability information by customer and channel, which will be provided by a customer analytics initiative supported by data warehousing and business analytics technologies.

These requirements give specific guidance to the business process competency center, which will need to design the new processes and drive the organizational changes as well as to the business intelligence competency center, which will need to focus on providing customer profitability data to business management. Such information also provides guidance to the EA team, which needs to incorporate data warehousing and business analytics technology into the bank’s enterprise architecture. There will likely be a number of projects in the bank’s portfolio that support the customer analytics program. It is the job of the program and portfolio management functions to ensure that these projects deliver the business value that is envisioned.

The Enterprise Architecture guidance principle supports the evolution of the enterprise to the desired future state.

For an actual study, McKinsey asked nearly 1,700 executives from around the world, across a range of industries and functional areas how they are benefiting from Web 2.0 technologies and how their organization is using these technologies. The executives were asked about the value they have realized from their Web 2.0 deployments in three main areas: Employees, customers as well as partners, suppliers and external experts.

Today I want to summarize the key findings of this survey for you.

The Benefits of Web 2.0 Technologies

According to the survey, the three major benefits of Web 2.0 technologies are better knowledge access, reduced costs and increased stakeholder satisfaction. Let’s have a short look at the TOP 5 benefits for the single stakeholder groups:

TOP 5 Benefits for Employees:

1. Increasing Speed of access to knowledge
2. Reducing communication costs
3. Increasing Speed of access to internal experts
4. Decreasing travel costs
5. Increasing employee satisfaction

TOP 5 Benefits for Customers:

1. Increasing effectiveness of marketing
2. Increasing customer satisfaction
3. Reducing marketing costs
4. Reducing support costs
5. Reducing travel costs

TOP 5 Benefits for Partners/Suppliers/Experts:

1. Increasing Speed of access to knowledge
2. Reducing communication costs
3. Increasing Speed of access to external experts
4. Reducing travel costs
5. Increasing satisfaction of suppliers, partners and external experts

The Usage of Web 2.0 Technologies

The survey shows that the most popular Web 2.0 technologies among enterprises are blogs, wikis, social networks and (video-)podcasts: Not very surprisingly the same tools that are popular among consumers. Here are the TOP 5 Web 2.0 technologies for the single stakeholder groups.

TOP 5 Technologies for Employees:

1. Video sharing
2. Blogs
3. Social Networking
4. RSS
5. Wikis

TOP 5 Technologies for Customers:

1. Blogs
2. Social Networking
3. Video Sharing
4. RSS
5. Wikis

TOP 5 Technologies for Partners/Suppliers/Experts:

1. Blogs
2. Video Sharing
3. Social Networking
4. RSS
5. Wikis

Who is gaining the Web 2.0 benefits?

• High-Tech companies benefit most from Web 2.0 technologies, followed by business-, legal- and professional services.
• Manufacturing and Financial industries gain 25% to 50% less benefits from Web 2.0 technologies than the High-Tech and Service Industries (depending on the stakeholder group).
• Companies with a revenue > $1 billion benefit more than smaller companies.
• Most benefits result from the internal usage of Web 2.0 technologies. Fewest benefits result from the interaction with suppliers/partners and experts.
• By function: information technology, business development and sales report more benefits than finance or purchasing.
• IT managers mostly focus on internal improvements. Business development and sales functions want to deliver better insights into markets or to interact with customers.
• The benefits in India and North America are higher than the benefits in Europe.

What are the critical success factors of Web 2.0 adoption?

The survey results confirm that the tool integration into the daily workflow is the most important success factor. To encourage the continuous use, traditional approaches such as financial or performance measurements are inappropriate. In the Web community, status and reputation is often the No. 1 driver for making meaningful contributions. These findings confirm the Web 2.0 success factors I’ve posted earlier in this blog.

For more information, please find the entire survey on mckinseyquarterly.com. I also want to recommend an interactive presentation, which visualizes the key findings of the survey in a very pleasant way.

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.

It seems there is a good chance that NUMMI the famous joint venture between GM and Toyota is going out of business. For the lean insiders among you this news has to be at least a little suprising.

Why? And why is this news for a blog like this? To get the full picture of this news we have to look at the history of NUMMI.

When it opened for production in 1984, NUMMI was the first joint venture automotive plant in the United States. For Toyota it was a chance to expand its manufacturing to North America. GM on the other side saw this joint venture as an opportunity to learn about the ideas of lean manufacturing from the inventer of lean itself.

Since its beginning the plant, its management values, methods and techniques  served as the shining example and proof that lean and the resulting benefits could be implemented anywhere. Classic lean books like The Toyota Way praise NUMMI for following all 14 principles of lean. The most important and basic being:

Principle 1: Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.

The book cites a few situations in which Toyota indeed decided against closing the plant. For example instead of following the trend of the times and moving all of production to places like mexico management only moved a part of the work and found other things for the plant to do. The rationale of all this being that the workers themselves at the end »couldn’t be blamed for having done anything wrong«. The ultimate goal of humanity before profit seemed reachable.

Times seem to be really different this time. To all »believers« in lean values it will be very interesting to watch Toyotas next actions.

Will it stay loyal to its own principles? Or is a paradigm shift near, crushing down the »old «values? Will management give in to the crisis and the omnipresent subliminal call for »drastic actions«?

We’ll stay tuned.

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.