managing it for business value

8/8/2019 Managing IT for Business Value

1/13

Managing InformationTechnology for Business

ValuePractical Strategies for IT and BusinessManagers

Martin Curley

INTEL

PRESS


2/13

154 Chapter 6: Managing the IT Capability

The IT Value Chain

IT assets lead to business value through their impact on an IT valuechain, which consists of the sequence of processes that create value:dreaming up a solution, building that solution, and then delivering thesolution as a service that meets the business need or capitalizes on thebusiness opportunity.

The key inputs to the value chain are business opportunities andbusiness needs that can be matched with potential IT solutions. Theoutput of the value chain is a stream of solutions that solve business needs

or capitalize on emerging opportunities. Another output of the valuechain is future business opportunities that arise out of prior investmentsmanaged through the value chain.

In 1987, Cyrus Gibson, in his book, The Information Imperative,described the four basic value-chain activities of the IT organization asfollows:

Planning of applications and of technical infrastructure

Development of applications

Operations or use of developed applications

Technical service and support of applications

Notice Gibsons focus on the technical aspects of the IT value chain andhis focus on applications. A significant change in mindset has occurredover the past decade. The term application has been replaced by thetermsolution. This is a good development because delivering a solutionemphasizes that a business problem is being solved rather than just thatanother application of information technology is being deployed.

At the same time, enterprises are increasingly coming to view their ITorganizations asservice organizations rather thanproductorganizations.

These pages were excerpted from Chapter 6 ofManaging Information Technology for

Business Value, by Martin Curley. Visit Intel Press to learn more about this book.
http://www.intel.com/intelpress/sum_bv.htm?iid=ipr+bvit1exp&http://www.intel.com/intelpress/sum_bv.htm?iid=ipr+bvit1exp&


3/13

Competing on IT Capability 155

An IT service provides a solution to a business need and typically hasintangible benefits associated with it. In the old days, the IT organizationwould have delivered a server and a database as a product. Today, the ITorganization delivers a customer care solution, an inventory managementsolution, and so on.

More recent research by Agarwal and Sambamurthy (2003) suggeststhat the IT value chain comprises both primary and secondary value-adding activities.

As shown in Figure 6.3, the primary value creating activities areITinnovation,solutions delivery, andservices provisioning. IT innovationis the conceiving and prototyping of innovative new solutions that couldprovide competitive advantage; solutions development is the process of

building and deploying solutions; and services provisioning refers to theflexible ongoing operation and support of these solutions.

Depending on the profile and maturity of the firm, the resourceallocation profile across the steps in the primary value chain will differ.Many IT organizations place a significant majority of their resources onservices provisioning. For these organizations, an objective forimprovement may be to move resources back in the value chain bydriving cost out of services provisioning and investing the savings inimproved innovation and solutions development.

Resource allocation varies by global region as well. In November of2003, I hosted a group of CIOs from Russia at Intel Irelands IT InnovationCentre. In most western companies, the majority of IT resources are

deployed in the services provisioning stage in the value chain. Incontrast, in emerging markets there are fewer legacy systems to maintain.These IT organizations can afford to dedicate proportionally more

IT

Innovation

Customer Management/Communication

Solutions

Delivery

Services

Provisioning

TechnicalStrategic Planning

Financial Management/IT Business Value

Program/ProjectManagement

Inellectual CapitalManagement

Source: Adapted from Sambamurthy and Agarwal

Figure 6.3 IT Value Chain


4/13


resources to IT innovation and solutions development. Also, since ITpeople resources in these countries are less expensive than resources inmore developed economies, IT leaders have more people assets to putmore horsepowerbehind IT innovation and solutions development.

Agarwal and Sambamurthy also describe secondary IT value chainactivities that include processes such as strategic planning, financialmanagement. These secondary activities provide a necessary foundationfor the primary value chain. Quality leadership and management areother activities required in the IT organization.

Primary Activities in the IT Value Chain

I want to take a closer look at IT innovation, solution delivery, and

services provisioning, which are the activities that define the primarystages in IT value chain.

IT Innovation. IT innovation is the process of creatively developingintelligent combinations of new and existing technology and knowledgeto deliver new business solutions that can add new value or perform anexisting function better, faster, or cheaper. While you might think thatinnovation is mostly about invention, the invention of entirely new tech-nologies is generally only a small part of innovation. Innovation is allabout knowing how to put technology to use to create or capitalize onnew business opportunities, strengthen business competencies andcustomer relationships, and improve business processes. Along the way,

IT innovators must ensure that innovation is in alignment with the stra-tegic business thrusts of the firm.

Using a combination of satellite-based wireless WAN, peer-to-peer filetransfer, and wireless LAN technologies to field eLearning at a remote siteis an example of IT innovation. This combination of technologies candeliver near-broadband experience for learners while using narrow bandconnections. Once a single copy of an eLearning file is downloaded tothe remote site, it can be replicated using peer-to-peer techniques. Witha wireless LAN, learners are free to study lessons in their offices, inmeeting rooms, or in the cafeteria.

While IT innovation in firms has generally taken place in ad-hocfashion, firms are now trying to implement more systematic robust

methods. Many firms cannot yet accurately identify the innovation activ-ities underway in their firms. In the future, developing systems tosupport innovation and making the innovation visible will be increasinglyimportant. At Intel IT, we are prototyping an IT innovation methodologyaimed at capturing creative ideas, business problems, and enterprise


5/13


needs. We expect this methodology to help systematically manageinnovation.Our methodology highlights the importance of rapid solutions proto-

typing. Moving quickly from thought leadership to working prototypesanalogous to the automotive industrys use of concept carsallows us torun the pilot studies that evaluate the potential value and practicality ofnew ideas and innovations. If an idea or prototype demonstrates suffi-cient potential value, we can then shift to solutions delivery, which is thenext stage in the IT value chain.

Solutions Delivery. Based on the output from innovation, solutionsdelivery focuses on delivering the solutions either through internaldevelopment, external contracting, or through solutions integrationusing packaged software. The goal of the solution delivery stage is toensure timely and cost-effective deployment of IT solutions to supportbusiness needs.

Depending on the profile of the company, IT organizations predomi-nately either develop software solutions from scratch or integratesolutions purchased as building blocks. In the last decade, the pendulumhas swung very much from buildto buy. IT and business managers havecome to believe that buying and integrating packaged software is morecost effective and carries less risk than developing custom software.However, I believe that we will see some rebounding in the years tocome, with more organizations increasing their capability to develop

custom solutions. Packaged software does not always fit an organizationsneed, integrating packaged solutions is increasingly complex, and morepowerful development tools are available for custom solutions.

The Software Capability Maturity Model (S/W CMM) developed atCarnegie Mellon Universitys Software Engineering Institute (SEI) is themost widely recognized tool for improving competence in solutiondelivery.

The capability maturity frameworks (CMFs) that I put forward arebased on the same principles that underpin the CMMs developed atCarnegie Mellon. For more information on CMM, look at the SEI Web site:www.sei.cmu.edu.

Services Provisioning. Services provisioning is about delivering theprimary services and products to support the firm. Activities include theallocation of IT services and resources, such as a share of the data center,the help desk, remote desktop management, and IT solutions. Theprimary objective of services provisioning is to deliver the services andsolutions the firm needs in the most cost-effective manner. Rather than


6/13


allocating fixed resources to users of IT within and outside the corpora-tion, one objective of services provisioning is to be able to reallocateresources efficiently as workloads shift.

Service provisioning was once primarily an internal function and morerecently has had an increasing external focus. The IT organization atCisco Systems provides a case in point. While IT at Cisco supports 40,000employees, it also provisions IT services to over a half million extranetusers, the suppliers and customers of Cisco. It is a quantum shift for anIT organization to host more outsiders than insiders. Doing so puts newpressure on the services provisioning function and a stronger emphasison security. The IT organization, once relegated to back-office activities,finds itself customer facing and supplier facing.

Many firms spend over 80 percent of their IT budget in the area ofservices provisioning. Surprisingly, there are few frameworks andapproaches to support the formal development of services provisioningmethods. Digging deeply into services provisioning is beyond the scopeof this book, but I encourage readers to watch this area closely.

Here are activities that I feel are particularly important:

The IT Infrastructure Library (ITIL), formulated by the U.K govern-ments Central Computing and Telecommunications Agency(CCTA), now overseen by its Office of Government Commerce(OGC) is a popular framework that specifies what tasks should beaccomplished when building a foundation for provisioning. The

ITIL defines a set of best practices in 24 IT disciplines. The IT Service CMM is a practical framework for improving service

provisioning competence. The IT Service CMM is being developedat the Software Engineering Research Centre (SERC), which isbased in The Netherlands. For more information, check the SERCWeb site://www.serc.nl.

Measuring and Improving IT Value Chain Performance

The performance of an IT value chain is ultimately measured by the busi-ness value it delivers. We have discussed many of these performancemeasures in Chapters 3 through 5. In terms of improving performance in

a value chain, it is important to look at a number of different perfor-mance indicators:

Operational excellencethe measured ability to deliver andsupport solutions efficiently and reliably


7/13


Creativitythe number of innovative solutions conceived,developed, and delivered

Productivityimprovements in the amount of work outputenabled by IT solutions

Speed of deliverythe time elapsed between conceptualizing asolution and deploying a working solution that returns value to thecustomer

Agilitythe speed with which IT resources can be realigned withwith changing business priorities

Qualitythe usability, accuracy, and reliability of new solutionsaiming to address business needs

Modularitythe degree to which an IT organization successfullyminimizes the potentially complex relationships among solutions

Firms have high expectations for IT capability on each of these dimen-sions. Taken together, these performance indicators represent a broad-ranging agenda for the IT organization. Although delivering high quality,creative, productive, and efficient solutions with speed, and agility is atall order, doing so means delivering business value and competitiveadvantage to the firm.

IT Program Governance. Managing the flow of products andservices is often called IT program governance, which is a subset of port-

folio management. IT staff responsible for program governance evaluatethese services at checkpoints or stage-gates to re-assess expected futurevalue based on risk, benefits, cost, and other factors. Managers respon-sible for program governance must decide whether to accelerate, staythe course, or halt IT initiatives depending on shifting business prioritiesor new estimates of contributions to business value. The ability of an ITorganization to pick the right solutions and move them through the ITvalue chain quickly and in a cost-effective manner is a key determinantas to whether IT can provide sustainable competitive advantage to afirm. In some cases, the right decision may enable the firm to stay in busi-ness.

In my opinion, program governance is the single most important

practice in the IT value chain because it provides oversight for all ITdecisions in the IT value chain from initial concept to system testing,deployment to production, up to and including a solutions end-of-life.Program governance describes the key processes and tools used fordeveloping and deploying new or incremental solutions in response to


8/13


business problems or opportunities. Program governance often mapsdirectly onto the software development or solution development lifecycle in a company. Typical stages in this life cycle include:

1. Conceiving the solution

2. Evaluating the investments costs and benefits

3. Initiating the project

4. Analyzing the requirements

5. Designing, building, and testing

Measuring Solutions Delivery Performance at ING Bank

ING Bank uses an integrated approach to measuring the perfor-mance of their value chain that reflects not only the solutionsdelivery process, but also the benefits that are delivered as the solu-tions and services are provisioned and operated. The integratedmeasure shown in Figure 6.4 reflects the real risks and trade-offsassociated with solutions delivery and the IT value chain.

Business priorities and conditions determine which performancemeasures are most important. Time-to-market concerns may driveon-time delivery as the most important measure, with a willingnessto exceed budget in order to drive on-time benefits delivery wherethese benefits are likely to be significant.

On-time

On-budget

100% Functionality

100% Benefits

All criteria

90%80%70%60%50%40%30%20%10%0%

% of Achievement

Source: ING Bank

Figure 6.4 Risks and trade-offs for Solution Delivery


9/13


6. Piloting and validating7. Implementing and deploying

8. Operating and supporting

9. Retiring the solution at the end of its life

As we have discussed earlier, ongoing measurement and accountabilitythroughout the life cycle is crucial for benefit realization, keeping inmind that different phases in a program life cycle incur different costs. Ifa project is abandoned early in the life cycle, the sunken costs are gener-ally small. However, abandoning a project just before deployment or,worse still, after deployment can be very costly. Efficient IT organiza-tions should follow the example of product development in pharmaceu-tical companies by maintaining a pipeline of projects that have thepotential to deliver future value.

Program Governance at Intel. Intel IT has adopted the programgovernance approach that our own product divisions use to developIntels microprocessors and communications products. Adopting aprogram governance methodology for IT solutions has been a majorbreakthrough for us. According to Keith Reese, VP of our supplynetwork group, First, program governance provides a framework thatallows us to consistently manage a program from inception to comple-tion using a system that has been proven by others. Second, programgovernance gives us a common language so that people can talk aboutwhere a program is and know what that means.

Intels program governance revolves around a product developmentlife cycle called Intel PLC. The three major components to the Intel PLCare phases, decisions, and program information. The phases for creating

Exploration Planning Development Deployment

Value

Decision

Commit

Decision

Go/No-go

Decision

Closure

Decision

Figure 6.2 Intels Product Life Cycle (PLC)


10/13


a product or service, shown in Figure 6.2, are exploration, planning,development, and deployment. At Intel we use a stage-gate approach (described in Chapter 1 on

page 19) that requires a decision at every transition between phases. Theapproach gives us the ability to accelerate, decelerate, or even haltprograms depending upon their progress and depending upon theirongoing business alignment and importance. We believe in trackingbenefits after IT solutions are deployed and we hold program managersaccountable for post-deployment benefits. And, finally, we believe thatprogram governance includes responsibility for retiring solutions fromthe firms IT ecosystem at the right time.

An important component of program governance is developing

standard templates and methods for each of the stage-gate reviewprocesses. Standard templates enable employees to focus on the contentof their programs without having to worry about how to develop andpresent their evaluations. Similarly, standard templates simplify compar-isons among IT programs and also help provide benchmark informationat each stage gate.

IT Assets and the IT Value Chain: A Virtuous Relationship

IT assets and the IT value chain should be mutually reinforcing. As ITassets accrue, they need to be regularly reallocated to meet the changingneeds of the business. At the same time, IT managers should strive totighten the links in an IT value chain that delivers solutions more quicklyand efficiently. In the process of delivering new business solutions, ITstaff will gain new skills and the IT infrastructure will assimilate newhardware and software. The integration of the asset management and value chain optimization provides a useful conceptual model for theproactive management of IT.

I believe that the IT organizations theory of business should embracethe value chain and asset management. Here are six basic strategies thatI recommend to systematically maximize business value delivered to thefirm. I shall provide some examples of principles in action, and link thisdiscussion on IT assets and IT value chain to topics covered elsewhere.

Develop and manage IT assets based on projected demand and

growth.Any business needs to scale its assets based on project demandsand growth. For example, manufacturing firms build factories to aspecific size based on projected growth. Similarly, the IT assets of afirm should be scaled to meet forecasts of future demand. For the


11/13


IT infrastructure, this means either having needed capacity in placeor developing the ability to provision capacity in response to newdemands.

At Intel we use a scale-up/scale-out approach when designing ITinfrastructure. In response to increased demand, we can eitherscale up by adding more processors to make a single server morepowerful or we can scale out by adding more servers.

In a similar manner, we manage our people asset as a flexibleresource by using a mix of internal and external IT professionals toobtain the skill sets that we need. As skill sets at Intel change, weinvest in developing new competencies for our people withvigorous training programs. In this way we upgrade the value ofour IT people asset.

Focus on the highest leverage services and on strategic initiatives.

We make a point of identifying capabilities that are crucially impor-tant to Intel and improving the links in the IT value chain thatdelivers these capabilities. Input to the value chain is always a busi-ness opportunity or a business need. For some needs and opportu-nities, we need new and innovative approaches and for others, weneed to tune the deployment and operation of the systemscurrently in place.

Investment governance, outlined in Chapter 4, is a key process

area for ensuring that the IT value chain is focused on the rightissues. The business capability roadmap (BCR) discussed inChapter 4 is an example of locking of the IT value chain on a partic-ular vector and sequencing a number of solutions along the vectorbased on priority and need for the business.

Improve speed and effectiveness of value chain transformation andexecution.

The speed and effectiveness of the IT value chain needs to becontinuously improved. I think the key issue is usually quality ITprogram governance. The value chain requires leadership and over-sight. Governance assures that IT is focused on satisfying businessneeds and opportunities by efficiently and effectively deliveringthe right solutions in the time frame required by the enterprise.Methodologies such as rapid application prototypingorXtreme

Programmingare examples of approaches that can be used tospeed up the beat rate of the IT value chain,that is,how quicklythe IT organization responds to new needs or opportunities.


12/13


Someone in the IT organization should be directly accountable forthe IT value chain. That individuals challenge is to ensure that eachstage in the value chain is performed effectively and that the linksbetween stages are as tightly integrated as possible. I believe thatthe IT value chain itself is a candidate for a business process re-engineering exercise. Regular reviews to seek out improvementsare often handsomely rewarded.

Improve conversion efficiency by raising asset utilization andimproving alignment between IT and business objectives.

Redeployable IT assets, underpinned by open and scalable IT archi-tectures, enable an efficient IT value chain. When the enterpriseinvests in new IT assets, the IT organizations goal is to create avirtuous circle where new assets are integrated with existing assetsto provide useful new IT services at a small incremental cost. Thegoal is high utilization and I believe that infrastructure and peopleassets are often underutilized. Here are two examples:

Highly skilled IT professionals are often bogged down insupporting IT customers in tasks such as resetting passwords.Such tasks as this are better performed by an automated system.The enterprise is incurring an opportunity cost because thatsame professional could be focused on delivering a higher-valueIT solution to the firm.

Many firms add computing assets, particularly servers andstorage, on an application-by-application basis and lack an archi-tecture that supports shared resources. As a result, server andstorage assets are effectively stranded, and thus under-utilized.New technologies such as peer-to-peer computing and gridcomputing are aimed at enabling better IT asset utilization.

Sharpen customer focus by investing in improved customeraccount management.

The IT organization must understand the firms information needsand opportunities in order to deploy IT capability accurately andeffectively. Customer account management, discussed in Chapter8, is a key part of running IT like a business. The ability to under-

stand the needs of the firm and identify how information tech-nology solutions can be used to meet or exceed business needs isessential in optimizing the use of the IT capability. Excellentcustomer account management will ensure strong business and ITalignment.


13/13

Managing IT Assets For Value and Agility 165

Migrate IT resources upstream in the IT value chain (i.e., to theinnovation and solution development states).

I believe that the IT organization should have a profile of budgetedexpenses that is balanced across the IT value chain. Withoutaggressive management, resources tend to migrate downstream inthe value chain. Over time, ongoing operations can consumenearly all resources. Lost is the opportunity to provide new andinnovative IT solutions that might truly provide competitive advan-tage.

When resources can be directed upstream to IT innovation, thereis a greater likelihood that more business value will be generated. Iencourage IT managers to automate service provisioning as muchas possible. Move the people asset freed by automation upstreamin the value chain so that they can seek out better IT solutions.

I am not suggesting that services provisioning is not important.Keeping IT services running smoothly is a crucial first step inimproving the IT capability. Only after successfully automatingdaily functions as much as possible will it be possible to shiftresources to earlier stages in the IT value chain.

In the remainder of this chapter, I discuss strategies to develop andmanage the IT assets. Other chapters cover the other strategies listedabove in more detail.

managing it for business value

Documents