It is good to be honest too when you want to administer a pill to somebody, at least you show that you may take it for you as well.

And, it is good to be frugal when you ask your staff to lower their personal costs, otherwise your not credible.

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Then it is time to have ideas.

IT Budgets are splitted into investment and operations headings.

Investments

In such times, the only investment headings that can be cancelled or postponed, are 4 and 5. The urge of extending capabilities fall short as companies has to deal with overcapacity. For companies with a mature information system which has pervaded most business activities, these headings use to weight 20% of investment budget.

The other things is that all other investments would have an effect only in year + 2, and are not likely to save any operation costs next year.

You may also delay investment 6 a little bit, but only after a careful review since you may undergo platform obsolescence risks and incur increase of maintenance costs.

Operations

Lowering operations costs cannot result from operation cancellations since it may impact negatively the level of service and, therefore, BU operation productivity.

For IT operations there is 2 ways of saving :

• improving level of service quality which improve indirectly BU operations productivity
• obtaining productivity gains either from process optimisation or platform streamlining

Each way usually requires investment and weight investment budget

IT Costs
In a few words, we are discovering that IT costs are rather inelastic : they are not following companies capacity ups and downs, but a lot of immaterial things like company capabilities.

A strong portfolio management allows to preserve investments which are the only way of change for IT.

Indeed, CIO could not rely only on cost killers who try to catch expenses not directly related to production : travel, communication, reception, office charges, cars, and so on… Since everybody is aware that it is vital for the company, changes would be accepted, but they represent a tiny part of budget. And it would be OK, so far all companies are doing the same otherwise you may rise a risk on your staff.

Frequently, the view of costs in IT is staff expenses which represent with subcontractors around 50% of budget. But shedding inaccurately people may put activities quality of service at risk and lead to Business operations inefficiencies. To succeed a high level of process maturity is required.

Another idea is outsourcing which transforms internal operation costs in external operation costs. You only export your management problems. To succeed, it requires your subcontractor is better than you in IT management.

Conclusion
Because IT Costs are inelastic, they require investment for changing.

Strong portfolio management and process maturity are beside  charismatic CIO who has a vision and explain it, critical success factors for containing costs.

Crisis are favourable period for changing, because you don’t need to justify it, but it requires real capabilities which make the real difference between companies, especially looking for flexibility.

Finally Crisis emphasize well managed companies which  change faster and efficiently and which may belong in 2010 to the winners group. Ill managed companies will destroy value trying to contain costs and will undergo a hard starting in 2010. They will be likely in the loosers group.

Yet, the most recent productivity readings show the gap between manufacturing and nonfinancial corporations closing substantially in the current business cycle, one characterized by strong productivity growth. Productivity in nonfinancial services rose at an annualized 4.8 percent in the 10 quarters after the 2001 recession hit bottom that fall, not far below manufacturing’s 5.6 percent. In business cycles dating back to 1970, the factory sector’s advantage was usually wider, with the largest gap occurring in the previous upturn of the early 1990s. Manufacturing gained 3.7 percent in the first 10 quarters of that recovery, more than doubling the 1.5 percent pace for nonfinancial corporations.

In its report “US productivity after the dot com bust”, McKinsey found that in the US, between 1995 and 1999, 99% of net productivity acceleration and 75% of all positive contributions was accounted by 6 sectors : Wholesale trade, retail trade, security and commodity brokerage, semiconductors, computer manufacturing, telecommunications. Then only few sectors pulled the trend, 3 among them in service industry.

Improving productivity gains in service industry for maintaining a sufficient economic growth is the challenge of the “post industrial societies” especially in Europe which have shown less growth than US. This is possible thanks to ICT industry which has provided innovations, the latest facilitate the processing, storing and sending of information. The technologies allow companies to better manage information, a staple of the service sector.

By their nature, ICT offer network economies—that is, they make services more efficient by connecting people, improving communications and providing information that facilitates day-to-day management. Networks give big companies an edge because the technologies are expensive and only pay off with size. A Federal Reserve study found that nonfinancial multinational corporations in the service sector saw annual productivity gains of 4.5 percent from 1995 to 2000, up from 0.6 percent the previous five years. U.S. companies have only begun to exploit productivity-enhancing technologies, suggesting
the surge in services productivity will continue.

ICT brought innovations on face to face customers, transaction automation and management, decision making, data management and mining, it is a key enabler of productivity growth with other factors like process change, new products, other capital, regulatory changes, surge in service industry productivity.

The innovation process rely mainly on outside contributors : 2006 IBM CEO annual study shows that for CEO top sources of business innovation are Business
partners and customers while internal R&D role is declining.

Even if computer industry has produced a lot of various industry solutions which explain surge in US service industry productivity, customers should play a role in getting these solutions for setting efficient internal systems connected to their organisation and their own internal processes.

The capability of identifying and specifying repetitive processes rely on companies tacit workers. It is a prerequisite of successful integrated business system implementation such an ERP, because it often requires a process reengineering.

Yet, european companies are using the same solutions as US with less productivity gains. The reason may be  network effect which is less strong in Europe. Since most of companies are SME with usually less investment power than big ones, they could not avoid to change slowly or through a radical creative destruction process. But not only !

In France, between 1984 and 2004, the number of manufacturing non qualified workers fell 20%  while the number of service industry workers increase was 55%.

If Europe really want to fuel economic growth, it must reach a strong pace of service industry productivity growth which weight 70% of its economy. It is possible since it requires to be good only in a few subsectors. in some of them, like retail, wholesale trade and security brokerage, a lot has been done in the US. In other sectors like transportation, logistic operations, a lot remains to do, but base technologies are already there.

Bureaucratic activities, like banking, insurance sectors, administration, are still expected innovations to get out of Baumol desease. Though, some service activities like cleaning, nursing and so on, will stay in for a while. Today in Europe, if innovations come slowly comparing to US, it is not du to lack of technology, but to lack of competition. This environment does not urge companies to change for staying in market.

CTO may be :

• a thinker who has the role of driving technology innovations
• an infrastructure manager which is an IT operational position
• a technology visionary who integrates and runs new technologies
• an external facing technologist who projects and assess technology impact on corporation and customer

When IT infrastructure is seen as standardized services platform provider for various applications, hard and soft beeing loosely coupled, it is possible to give the soft, the data and information to an IT manager, like CIO, and the hard to another, like CTO. In some industries, which are relying strongly on technology with an hard  competition which requires change, like Telco, hard is strategically important, then company may choose to get a technology visionary CTO. In this case, CTO reports directly to CEO or COO.

Being in a more stable environement, such industries often need an infrastructure manager CTO who reports to CIO.

Industries where hard and soft are tightly coupled cannot afford 2 IT managers since a decision made by one of them would affect strongly the other. It is better for them to get a thinker CTO option who usually reports to CIO.

For industries with large business to customers activities, it is interesting to have a person with the extent of assessing the impact of technology on customers. In this case, CTO reports to CEO or COO.

Staffing a CTO position may give to CEO an additional control on strategic technologies. For a CIO, it provides a way to improve innovation management or infrastructure management.

With a loosely coupled IT infrastructure, CTO is the best person to manage technology strategy development. Thinker CTO should be a contributor, external facing technologist CTO develop part of technology strategy relevant to face to face business.

Technology strategy development process starts with :

• technology principles which guide strategy devlopement and require to be endorsed by top managers.
• technical model which provides categories for breaking down technical components and services
• views which cater for pertinent information technical stakeholders = business, data, application, technical, security, recovery plan, purchasing…

Then it is time to review the baseline, to collect requirements before designing target architecture.

Once done, next step is to contemplating solutions and technology scenarios able to fullfill requirements for each architecture components. Each scenario is assessed according views and requirements.

After choice, last step is to plan upgrades, technology acquisition and insertion.

In such businesses like services operator, transactions operator, communications operator, applications hosting  where IT is critical, staffing a CTO is always a good way to improve IT asset governance. By this way, CTO or CIO have more chance to be member of the board, breaking with old models where CIO used to report to a board member. This model improves IT transformation driving and finally company efficiency and agility.

Indeed, when counted in a stabilization process, applications may undergo several changes which do not change their initial function points count. Also when enterprises acquire or reengineer some of their information system parts, they use to implement COTS which are difficult to assess in function points. It results that measuring information system size is allways difficult and, even done, it will be a poor predictor for change which is rather related to business optimisation pace.

Then, the productivity question darken because it means that Function Point/number of people may not be a reliable indicator. Let’s talk a little bit about productivity.

Even if a lot of IT Divisions work is mapped with processes, they are rather objectives with milestones than true totally defined steps and rules. It is up to knowledge worker to meet milestones according to an approach he has selected on his owns. However, some IT Divisions have well enough defined some of their processes to be done by regular worker, like help desk, or demand management. It means that they reach enough maturity to be able to control all specific cases.

knowledge worker work

According to strategic interest, IT Divisions may decide to make some process explicit for being automated and performed by regular workers. Nevertheless, some of them, like architecture management, are hard to be totally define. Core IT Divisions processes rely on knowledge workers.

Famous Peter Drucker say is “To make knowledge work more productive will be the great management task of this century, just as to make manual work productive was the great management task of the last century.” (Age of Discontinuity, 1978)

Knowledge worker have to decide according to deadline, requirements, constraints, and other tasks to be undertaken by other knowledge workers, of the task duration, task cost and task quality. Even a complex task may be done very quickly when required information is found, or required decision is taken. Time and efforts are often spent in information search, Analysis, Decision making, Planning, all tasks having an uncertain productivity.

Knowledge workers have another specificity : the gap between top performers and average performer is very large. Spencer found that in Construction engineering top performers are 360% more productive than average ones. But in IT, top performers are sixteen fold more productive than average ones. It means that CIO have more incentive than other managers to transform their average performers in top ones.

But to be efficient, knowledge workers have to be not only experts of their domain, but able to collaborate with others inside the organisation for managing gloabl processes. Collaboration is a critical factor of success for an organisation of knowledge workers. They should have an excellent social ability, but they need tools to empower it : it is Web 2.0.

Managers may be uneasy with this since there is no drivers with direct link to process results which could be played with, allowing to control the process. Here drivers are indirect and control of processes is included in knowledge worker work. Instead of controlling processes themselves, Managers have to control knowledge workers for that they need to pay attention to following drivers :

CIO should accept the challenge of managing knowledge worker in an appropriate way. Even if he has to invest each year to make process explicit for being performed by regular workers, new processes and new tasks due to new technologies coming, appear and need to be handled by knowledge workers.

In short, IT division productivity measure could only be global. It is difficult to find evidence on how each IT division part contributes.

To be able to boost productivity, CIO should help knowledge workers to improve their expertise. An effective competence management seems to be a good way with a goal of increasing top performers. A good news is that top performers may be hired from suppliers which allow to boost temporarily IT Division productivity and improve internal workers competences.

Spencer, L.M. “Competency Psychology.” St. Augustine, Florida: Spencer Research & Technology, 1997Inputs
Process

For IT managers, it is time to consolidation for being able to support unavoidable budget cuts.

What means consolidation ?

1/ Operations optimisation
- Improvement of IT operations itself may help to gain productivity.
Usually it is done with setting lower resource which force remaining people to find a better way of working.
This solution uses to add stress to organisation which may result in downgrading service level for a while, time new organisation find a new way of working.
It is better accepted when productivity and quality improvements are usually done, for example by the way of
a kind of kaizen process. People always fears that it may lead to lowering resource. In an investment context, freed resources may slip on projects, in other times lowering subcontractors allow adjustment.
This show the interested to have subcontractors, and to manage them not in the same way  than internal people.

- Improvement of service level
Since it may results in business operation improvements with more productivity and less costs, it is time to propose this kind of projects. You export a little bit your lowering resource trend.

- Improvement of business operations
For this project, you need business unit support. But, it means work for IT in the purpose of less work in Business. It should be worth, I mean a little bit more work for you and significantly less work for Business.

2/ Simplify
- Simplify systems
Symplifying systems helps to optimise production and administration, but it also provides better security since, by the way, IT division improves his control on these systems. Drawbacks lie in project costs, but security is a good driver for CEO.

- Simplify organisation
Symplifying organisations improve reactivity and decision making process. It is a key success factor for service level improvement, good project management, … It may lower meeting number and freed managers for better management. Drawbacks are when some people feels to have lost responsibility.

3/ Review business case of projects
In such context you should be confident in projects ROI which support projects budget and delivery timetable, otherwise you will undergo budget cuts and delivery slipping.
Anyway, the investment amount being shrunk, not strategic projects are likely to be postponed, the remained ones will have the strongest ROI. For strategic projects, review may decide, according to ROI confidence, new deliery time to smooth investment.

In such harsh time, Keeping team confidence and motivation at high level, is top priority for the CIO.

1) IT/business alignment

2) Building business skills in IT

3) IT strategic planning

4) Attracting new IT professionals

5) Making better use of information

6) Manage change

7) Reduce the cost of doing business

Improve IT quality

9) Retaining IT professionals

10) Security and privacy

Among the high ranked points, 2-4-9 regards human resources management. Indeed, if you have not the right men able to implementing your strategy you ‘ll probably loose most of your bets. Successful companies like Google, Microsoft, Apple,…  have build their success on human asset.

Even if it seems to be common wisdom, a lot has to be done to improve things. I already wrote a post on people criticality : Dreamed life of CIO.

IT Divisions have a lot of different commitments which require many different competences : application production, development, business analyse, project management … If he wants to win the race, CIO needs to identify all activities areas and, for each one, what competences are critical and what may be the nurturing process.

You may soon discover that some activities require different culture of work. For instance, Helpdesk need people who is able to perform quickly defined procedures in empathy with customer or final user. Not everybody is able to perform this with matching all quality requirements. Developments require to transform specification in computing code which does not need empathy. Business analyst should set up and perform their process in  empathy with business managers, for being able to post a rigth message. Since your organisation has a confortable size, quickly the question of location arises :

• Moving helpdesk and related activities in locations close to people living locations
• Locating Business analysts near business management
• You have still to decide regarding developpers : high value developpers should stay near users and sponsors, other developpers may work in near shores.
• Production could be set in another location.

The point of view of considering that a company gathered in a single location is the best configuration may be questionned by being a check to people hiring or retaining. Experience show that some work culture may be incomaptible and lead to conflicts : system developement and consuting, trading and operations, creative people and accounting. In this case splitting organisation location may be a double opportunity : help to manage work culture management and sustaining professionals attraction.

In the reverse, when an organisation has a set of work cultures being compatible and it ougth to split, it may endanger cohesion and have bad impact on performance.

Then critical organisational link is middle management. CIOs have to nurture a strong middle management culture which is the glue of organisation. Motivated middle managers is a key success factor for changing. By the way, not only you have got a good organisational architecture which facilitate collaborations, but also you improve your organisation agility. And for the stakholder, it is taking care of company human capital

Formerly, 15 years ago, Enterprise Change was contemplated by planning and launching big projects which frequently crashed. Then, best practises of IT led to break down big projects into pieces managed locally. It results an higher rate of success, but with some pieces left behind. By this time, Enterprise was rather a collection of stovepipes with more or less communication in between.

Some of us attempted to glue stovepipes with EAI and business process automation. They get a pretty complicated system which never had the expected flexibility required to follow users business changes.

Today, the reference is rather Boundaryless Information Flow™ : information is within the reach of every person who need to access it. Applications are broken down into services which each gives access to a piece of information.

TOGAF - architecture developement method

Enterprise changes were, by earlier times, big chunks of process changes with projects involving large teams of developers for each. Today, the same changes involve a huge number of bits of software with a few developers each. Even if the overall people number is more or less the same, the minding is much more different.

That’s why today Strategic alignment concept best fit is managing enterprise wide changes. On the contrary, without wide changes, old controls based on classic project lifecycle – specifications, development and acceptance tests – are most of the time enough. We may remember that Henderson and Venkatraman publication title, in 1993, was “Strategic Alignment: Leveraging Information Technology for Transforming Organizations”.

Once you have decided to change, you should settle a method to manage transformations. You may choose for example Architecture Development Method from TOGAF. Once you have fulfilled the vision which set the final target of change, you start to model architecture. Each modelled structure is tied up to others by more or less complex links. Each links is a point of alignment : strategic alignment between goals and business or IT Strategy, IT alignment between process organisation and structure of Business and IT.

Alignment is a powerful concept for global enterprise transformation management because it is enough flexible to support projects reengineering instead of program management approach which may be disrupted. To be successful in using alignment, manager need to select the right set of alignment points which are critical for all dimensions of the change program : functions, costs, gains, security, reliability,…

alignment points

For each alignment point, method for detecting or for identifying risks of misalignment should exist. As well, manager needs to know how to assess misalignment impacts on program objectives and what to do as corrective actions.

Alignment is very interesting because it acts on project production and no directly on project lifecycle. An approach based on it allows to control globally whole program consistency. It is also a set of indicators more understadable by business less keen to monitor project process. Used in addition to a comprehensive Enterprise architecture framework, like TOGAF, Alignement is a key success factor for Enterprise transformation

Often in the past, the widespread thought was that’s enough to find the right technology and company people will immediately get it and change its way of working.

Today, companies are less keen to adopt technologies without a strong rationale, even if some of them meet some expectations of end users.

In the same time, after a study which clearly demonstrate the value of a technology, some companies undergo a slow adoption and some time not exactly with the use which have been planned. This is also true regarding technologies offerings to customer. For example, WAP adoption never reach expectations despite huge investments. Enterprise 2.0 too brings simple and powerful technologies for business collaboration but encouters slow adoption.

Since the use of technology matters much more than their intrinsic capabilities, adoption and change are key factors of success. Clearly CIO role is critical as he use to have the technological leadership and everybody expects he drives adoption.

For being able to succeed, CIO need to pay attention not only to company capabilities and performance, but to culture as well. Culture may be either one the main helpers or a big hurdle. For example, in some places where people are expected to be expert in their fields, getting a new technology is viewed as an advantage. In other places, where managers should masters theory, design concepts and drives realisation, new technology is more an hurdle for developers who loose productivity and for managers who loose competences. Nobody see it as a personal opportunity.

Culture use to change across different countries, american workers value becoming experts in their job, at the opposite french workers value management competences. CIO needs to understand how culture plays in technological adoption and what to undertake to curbing hurdles. Social activities in the company may be an interesting support to fuel change. For example, creating clubs of early adopters which are viewed by top management, may be a help but they are hard to maintain because, in an optimal communication, message should bring real value to addressee, at least which worth the time of reading.
All the art of CIO is to find the good communication levers which improve technology perception and prepare people minds to such a change. This is his only and main strategic stake.

Then, in this post, I propose to address the points of IT vision utility and how to build it with respect to IT Strategy.

Unfortunately, in the business world, few situations support to undertake no move, because usually stakeholders are facing externalities which raise questions on the way the company business is done. Beside, business undergo internal pressure when, for example, company reach poor execution performance in some areas.
The same happen for IT, if you choose to not move when all your environment is changing, you are quickly out of the business, or if you perform poorly you out your buiness at risks.

For example, take such a strategic goal for Business : “making 30% of company business with the new business model XXX”.

The strategic plan may include :
1. select target customers for this business model
2. conceive and release attractive conversion offerings regarding competitors and current customer position
3. prepare delivery in accordance to the expected quality level

All these items are questioning IT coming from an external source :
1. should the customer segment management be internal or outsourced ? in each case how to acquire and integrate ?
2. how to release offerings : channels, pricing, contract
3. should the production and delivery be outsourced or in sourced ? in each case how how to acquire and integrate ?

Then you have to analyse the internal status : level of coverage, quality of service, functional richness, business risks, technology risks linked with business
Once done, you may settle the goals to fill the gap and also identify in what extent poor performance is a weakness for reaching external goals.

For each goal, you define many scenarios of action plan : a preferred one and several alternates.

This is the approach for BU stakeholders. Once the same work has been done for other stakeholders, you have a web of goals and actions plans to do which is not still an IT Strategy.

Last step is prioritisation which allows the company management to select what he intend in accordance with a given level of resources.

The choosing of goals takes all actions plans linked from the company strategic web. This is the IT Strategy. But it is still not a vision of IT within the company. The company vision is more or less a business statement with some indications on how to do business.
The IT vision gives ultimately the long term IT value orientations : IT is critical or not for some aspects of company business, IT is a managed services provider, critical services should not be outsourced, either IT provides tools for business which choose what to do, or Business processes rely on IT,…

IT vision contains the fundamental goals which remain true along the different IT Strategies. It contributes to maintain coherence in actions along company lifetime.

It may happen that consecutively to a Strategic round IT has to upgrade IT vision,but this should remain an exceptional decision.

A strong IT vision is a critical success factor for IT strategy keeping out of a swing movement which may endanger IT capabilities.