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FB5003–7Strategic IS Planning

“We don’t do IT projects at JetBlue. We do Business Projects” – CIO Joseph Eng.

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Story One

The CEO of an insurance company wonders why a key competitor seems so much more innovative and responsive to customer needs. “How do they manage to initiate, customize, and support such a variety of insurance products so quickly?” she asks. “We could not cope with the complex information processing that must be required! What are they doing differently with their people and technology? Our systems personnel are always bogged down with last year’s priorities…”

Chan, MISQE, 1, 2, 97-112.

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Analysis

The competitor:has developed core competence in the

application of IS to business needs.has developed the ability to respond to

business conditions effectively (business intelligence + KM)

has employees who can apply relevant knowledge efficiently & effectively.are focused on today’s tasks

has identified information as a critical resourceensures that the IS fits and supports the

businesshas, in consequence, a better Business-IS

alignment

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Story Two

A CIO wonders when he will be accepted at top management meetings. Although he has won a long, hard battle to be present at these meetings, to understand new business directions better, he senses that his presence is merely tolerated. His ideas have little clout. His colleagues acknowledge that IT is becoming increasingly important to business operations, but their thinking and behavior stifle innovation.

Chan, MISQE, 2, 1, 97-112.

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Analysis

The organisation itself barely recognises the importance of information

The CIO is marginalised perhaps useful as someone important

for operational support, but not strategic planning.

The organisation is probably failing to align its overall business direction with its IS policies, skills, capabilities

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Story Three

The CEO says to his board “we need a new kind of CIO; someone who understands our whole business, someone whose career is *not* over [laughter], someone who can help drive this company in these turbulent times. Do people like this exist?”.

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Analysis

What do you think?Do these people exist?What kind of background would a

person like this have?What changes have occurred in the firm

– changes that inspire a CEO to talk like this?

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Questions to Ask about Organisational IS

Does IS drive your organisation’s competitiveness?

What role does IS play in your corporate strategy?Mission critical, integrated?Peripheral, supporting?

Now? Five years later?

Are significant resources devoted to IS, or just a few $$ here and there?

Are IS people deeply engaged in many aspects of your business?

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IS and Strategic Positioning

Consider the following companies. Is IS strategic, mission critical,

supporting?China Light & Power, HK ElectricCathay Pacific, MTR, OOCLHSBC, HK Post OfficeCityU, Sun Hung Kai Properties, PWCLow-tech SMEs

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What about Risks?

Risks are involved in different aspects of an IS/IT portfolio.

The level of the risk depends on the importance of the IS/IT to the organisation

Risks apply to software & applications, hardware, networks, procedures, … and … people & culture.

Each competence needs to be risk-assessed.

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The Consequences of Poor Business-IS Alignment?

Competencies are not developed, promoted or managed.

Risks are poorly assessed (if at all). Business executives cannot clearly articulate

their IS needs and don’t really understand what IS is for.

IS people have limited business vision or knowledge.

IS investments are expensive and yield low returns.

“We have 25 different (unintegrated) CRM systems!”

First rate ideas from first rate people are not developed appropriately (or at all).

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Then What is (IS) Alignment?

“the degree to which the IT mission, objectives and plans support and are supported by the business mission, objectives and plans”

[Reich & Benbasat, MISQ, 24, 1, p.82]

“fit” & “integration” among business strategy, IT strategy, business infrastructure, and IT infrastructure.

[Henderson & Venkatraman, IBMSJ, 32, 1, 4-16]

Effective IS management requires a both a balance and effective alignment across four domains.

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Henderson & Venkatraman’s Strategic Alignment Model

Strategy Alignment Process(Linkage & Automation)

IS/ITInfrastructure

and Processes

IS/IT Strategy

IS/ITTransformation

OrganisationalInfrastructure

and Processes

Business Productsand Services

IS/IT Productsand Services In

tern

al

BusinessTransformation

Ext

erna

l

Business Strategy

Business Domain IT Domain

Adapted from Henderson & Venkatraman, 1992

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Problems and Possibilities

How can we align IS and the Business? How can we balance the different

activities? How can we remain agile to emerging

opportunities?

By not looking solely at profit, but also other legitimate stakeholders

By looking at the business, and its operating context as a whole

By changing internal processes

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Beyond Alignment is Agility & Innovation

Strategic IT investments that will change the enterpriseWeb 2.0 and Interactive platforms

A climate of continuous change is more powerful than globalisationProject requirements will change (long) before

the project is complete. Agile Enterprise Management is needed to

thrive in an environment of continuous change

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What is Enterprise Agility?

The ability to respond, innovatively to market challenges and opportunities fast enough so as to enhance or maintain enterprise value.Is it better to focus on efficiency or

value-added?Rapid decision making is key to

agilityAgile management is a critical part of

an agile enterprise.

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Agile Management Structures

Have highly distributed power coupled with the authority (and willingness) to make decisionsInformation must be readily availableClear rules and lines of responsibilityInstant access to EKRs and

communities of expertsWhen change is the competitive

driver, nothing is sacred

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In an agile enterprise…

Leadership must be collaborative Strategic planning and action are no

longer solely the prerogative of the CxOsBusiness unit managers and business

developers must be involved too Reliance on Web 2.0 social networking

applications will become commonplace The right IT must be in place (not just EIS)

for BUMs and BDs, where IT complexity is managed and Web 2.0 is leveraged at the enterprise level.

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IT Payoff?

Historically, CIOs have struggled to make the case for IT ROI.Where did all that $ in IT go? Where is

the payoff?Agility could be a large part of the

ROITime to market is increasingly IT

dependent in an agile world. Web 2.0 should add value

Innovation at Haier

Haier prides itself on innovationEach employee, individually, is

encouraged to be innovative, to be responsible for a personal contribution to the firm’s success

This requires a very special organisational cultureThat rewards individual initiative

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Alignment and Accountability

Several years ago, CIOs were expected NOT to understand the business

Today, if you don’t understand the business, you can’t be a CIO.

If a new system/product that the CIO delivers does not achieve the expected business value, it is the CIO’s fault (no one else’s).

IT-Business Alignment also means IT-Business Accountability

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The Balanced Scorecard

One way to achieve alignment, accountability, agility and innovation is to use the Balanced Scorecard (BSC)

The BSC was designed, in recognition of the limitations of financial accounting measures:They provide a narrow and

incomplete picture of business performance

They hinder the creation of future business value

They are lagging not leading measures

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Financial PerspectiveAre we meeting the

expectations of shareholders?

Customer PerspectiveAre we delighting (or at least satisfying) our customers?

Internal Process Perspective

Are we doing the right things? Are we doing things right?

Learning and Growth Perspective

Are we prepared for the future?

Adapted from Kaplan & Norton (1992)

Perspectives & Relationships in the Balanced Scorecard

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Translating the Vision into Desired Outcomes

VISIONIntended Direction/Destination

Balanced ScorecardWhat do we want to achieve?

STRATEGYHow will we achieve “success”?

Strategic InitiativesWhat do we need to do?

Personal InitiativesWhat do I need to do?

DESIRED OUTCOMES

Satisfied Shareholders

Delighted Customers

Effective & Efficient

Processes

Motivated & Prepared Workforce

Martinsons, 2005

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From Desired Outcomes to Initiatives

Motivated &

Prepared Workforce

Motivation

Preparation

What initiatives will • improve employee motivation?• better prepare employees to be innovative?

but also what initiatives will• create more efficient / effective processes?• delight customers?

Martinsons, 2005

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MTR Corporate Strategy Map

Revenue OperatingCost

ShareholderValue

Satisfaction Index

Market Share Patronage

Safety Index Service Pledge

Talent LeadershipManpower & Succession

StrategicAlignment

Partnering & Teamwork

Employee Satisfaction

CultureOrganisational

Capability

Customer

Processes

Financial

Learning & Growth

© MTR, 2005

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Southwest Airlines

Southwest uses a different balanced scorecard layout to achieve the same kind of planning objective.

Note the detailed objectives, measures, targets, and initiatives.

This is a general BSC – not IS specific – but note that IS will play a critical support role, e.g. in data collection/analysis.

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Airline Scorecard Parameters

Objectives

• Fast ground turnaround

Objectives:What the strategy is trying to achieve

Targets

• 30 Minutes• 90%

Targets:The level of performance

or rate of improve-

ment needed

• Cycle time optimization

Initiatives:Key action programs

required to achieve targets

InitiativesMeasures

• On Ground Time• On-Time

Departure

Measures:How

success or failure is

monitored

Strategic Theme: Operating Efficiency

Profits and RONAFinancial

Learning

Ground crew alignment

Lowest prices

Fewer planes

Customer

Internal

Fast ground turnaround

Strategy Map

On-time Service

Attract & Retain More Customers

Grow Revenues

Wagner, 2003

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• % Ground crew trained

• % Ground crew stockholders

The Scorecard is a Programme for Action

Objectives Measures

• # Customers• FAA On Time

Arrival Rating• Market Survey

• On Ground Time• On-Time

Departure

Strategic Theme:Operating Efficiency

Initiatives

• Cycle time optimization

• Ground crew training

• ESOP

• Customer loyalty program

• Quality management

Targets

• 30% CAGR

• 20% CAGR

• 5% CAGR

• 12% growth• Ranked #1• Ranked #1

• 30 Minutes• 90%

• yr. 1 70%

• yr. 3 90%

• yr. 5 100%

• Profitability

• Grow Revenues

• Fewer planes

• More Customers • Flight is on-time• Lowest prices

• Fast ground turnaround

• Ground crew alignment

Strategic Theme: Operations Excellence

Profits and RONAFinancial

Learning

Ground crew alignment

Fewer planes

Customer

Internal

Fast ground turnaround

Strategy Map

Attract & Retain More Customers

Grow Revenues

Lowest prices

On-time Service

Wagner, 2003

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IS dept is an internal service supplier

IS projects are carried out for end-users and the organisation

Four Perspectives for ISbusiness valueinternal processes user orientationfuture readiness

What About a Balanced IS Scorecard?

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Business Value Perspective

Are we satisfying management?Are we adding value?

User Perspective

Are we delighting (or at least satisfying) our users?

Internal Process Perspective

Are we doing the right things? Are we doing things right?

Future Readiness Perspective

Are we ready for the emerging technologies & practices?

The Balanced IS Scorecard

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Extension to the BSC innovation and learning (future readiness) the specifics of monitoring and control (key

measures) Measuring and evaluating business

value short-term cost-benefit evaluation

cost control, selling to third parties long-term perspective (based on information

economics)business value of IT project, strategic options and

risksbusiness value of IT department/functional area

Measuring and Evaluating IS (1)

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Measuring and evaluating user orientationmetrics for being the preferred

supplier of applications and operations

metrics for building and maintaining relationships with users

metrics for satisfying end-user needs

Measuring and Evaluating IS (2)

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Measuring and evaluating internal processesThe planning and prioritization of IS projectsThe development of new IT applicationsThe operation and maintenance of current IT

applications Measuring and evaluating future

readinessImproving the skill set of IS specialistsUpdating the applications portfolioPutting effort into researching emerging

technologies

Measuring and Evaluating IS (3)

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Develop awareness of the BSC/IS concept

Collect and analyse dataDefine company-specific objectives &

goalsDevelop preliminary BSC/ISSolicit stakeholder comments and

feedbackReach a consensus on BSC/ISCommunicate both BSC/IS and its

underlying rationale to all stakeholders

Gain employee buy-in and innovation

Building a Balanced IS Scorecard (1)

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Three principles for BSCCause-and-effectPerformance driversLinkage to financial measures

Three criteria for BSC/IS metricsquantifiableeasy to understandcost-effective to measure

One over-riding concernEnsure that the BSC/IS is aligned with the

corporate BSC

Building a Balanced IS Scorecard (2)

Scorecard Details

For each of the four perspectives in a scorecard there are four items to identify:The objective is what you want to achieveThe initiative is the action to take to achieve

the objectiveThe measure is the thing that you are

measuring so as to assess if you have achieved the objective – it must be quantitative or quantifiable

The target is the precise amount of the measure at a certain point in time.

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 Perspectives

Objectives

Initiatives

Measures

Targets

Business Value

Increase profit

$ 10% CAGR

User Delighted users

Involve users in sys-tems design

procedures

User satisf-action index

95% satisfied by 2015; 99%

by 2018

Internal Process

? ? ? ?

Future Readiness

Skilled IT staff

Focused training budget

Prof & Acad Quals

100% with MSc by

2015; 75% with PhD by

2018

BSC for the IS Support Unit of a Global Shipping Firm

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Questions for Slide 38

1. Suggest suitable internal process objectives, measures, targets and initiatives.

 2. Explain why the user perspective initiative may not result in the the intended objectives being achieved.

3. How does the label “user perspective” constrain the work that the IS support unit does?

4. Why is it so critical that the IS support unit establish relationships between initiatives and objectives in its BSC?

5. How should this BSC/IS be aligned with the corporate BSC?

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Errors to Avoidfailure to include specific long-term

objectivesfailure to relate key measures to

performance drivers by means of cause-and-effect relationships

failure to communicate the contents of, and rationale for the BSC/IS

failure to integrate the BSC/IS with a corporate BSCAll employees should be encouraged to use

the BSC to gain a holistic understanding of the organisation

Lessons 1

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Lessons 2

Critical Success FactorsIdentify key cause-effect relationships,

performance drivers and measuresThis is very hard for non-financial/quantifiable

measuresMake measures simple and measurable

Very hard to collect reliable data, but IS can helpMaintain intra-organisational

communicationLink BSC/IS to performance appraisal

criteria for individual IS specialistsEnsure staff awareness of the BSC and its

value.

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Are the perspectives and measures necessary and sufficient?

How do cultural and institutional factors affect the BSC/IS?

Can we create BSCs at the level of the individual employee?

What are the experiences of your companies?

What Else?

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And Now…

Time for you to create a BSC for the IS function of a company with which you are familiar

Use the blank sheet available from the course web page – and when you are done, email it to me.

Feel free to adapt the blank sheet to your own needs, design, etc.

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References

Reich, B. & Benbasat, I. (2000) Factors that influence the social dimention of alignment between business and information technology objectives, MIS Quarterly, 24, 1, 81-113.

Henderson, J.C. & Venkatraman, N. (1993) Strategic Alignment: Leveraging Information Technology for Transforming Organizations, IBM Systems Journal, 32, 1, 4-16.

Chan, Y.E. (2002) Why Haven’t We Mastered Alignment? The Importance of the Information Organizational Structure, MIS Quarterly Executive, 2, 1, 97-112.

Martinsons, M.G., Davison, R.M. and Tse, D. (1999) A Foundation for the Strategic Management of Information Systems, Decision Support Systems, 25, 71-88.

Kaplan, R. and Norton, D. (1992) The balanced scorecard ‑ measures that drive performance, Harvard Business Review, 70, 1, 71‑79.

Kaplan, R. and Norton, D. (1993) Putting the Balanced Scorecard to Work, Harvard Business Review, 71, 5, 134‑142.

Kaplan, R. and Norton, D. (1996) Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review, 74, 1, 75‑85.

Kaplan, R. and Norton, D. (1996) The Balanced Scorecard: Translating Strategy into Action, Boston: Harvard Business School Press.

McFarlan, F.W., McKenney, J.L., Pyburn, P. (1983) Information Archipelago: Plotting a Course, Harvard Business Review, 61, 1, 145-156.

Davis, G.B. and Davis, M. (1984) Management Information Systems, McGraw Hill.