Integrating the IT Portfolio To Deliver Business Results

By Mark Livingston,

Dan Starta

and Christian Hagen

In a complex corporation with dynamic changes, competing projects and shifting priorities, how can a company build an IT organization that fosters innovation and creates long-term value for the business? With so many roads to choose from, which IT initiatives create value and growth for an organization - and how does a company organize to capture this benefit?

At A.T. Kearney, our client experience and research have given us distinct insights into how successful organizations leverage technology to drive business results. We found that leaders consistently master two key initiatives. First, successful companies are able to move beyond IT alignment toward integration of business and technology. Second, these companies effectively manage IT as a portfolio of capabilities - from operational costs to innovative opportunities.

Beyond Alignment: Integration

Alignment between IT strategy and corporate strategy is critical - but it is not the straightest road to business value. Companies can extract even more from their IT investments if they move one step further, viewing IT planning and execution as an integrated business process built on a solid partnership between business and technology executives. But today's organizations are rarely structured to realize the benefits that such a model can deliver. An A.T. Kearney study revealed that while companies believe IT adds value to the business, their planning and governance models do not allow the organization to capture full benefit from their IT investments.

Consider how companies typically plan IT strategies and projects. According to the study, 91 percent of business executives say IT enables business strategies, and almost all state that IT creates value relative to their competition. Yet only one-third say their IT planning is fully integrated with their business strategy. And although business value wields increasing influence in IT project sponsorship, IT executives often lack access to the boardroom. The study reveals that only 35 percent of the companies surveyed involve IT in the overall capital planning process.

Companies can overcome the issues that inhibit the integration of business and technology strategies by explicitly addressing their structural organizations and leadership positions. A.T. Kearney's client experience consistently reveals that organizations can improve their structures by integrating information technology with the rest of the business.

For example, organizational models should place the chief information officer at the corporate strategy and planning tables alongside the business unit heads. The CIO should report directly to the CEO and actively participate in the corporate planning and strategy process. When technology leaders are evaluated on how they bring forward IT enabled business results, they have more incentive to achieve sustainable business value - rather than simply implementing projects on time and within budget. And just as technology executives should be held accountable for business results, business managers should be responsible for results realized from IT.

Along with structural changes, business and IT executives must also support and lead the charge toward integration. Today's CIO must be able to articulate to top management, business unit leaders and line employees how new technologies will help the company achieve its objectives. This leader's understanding must extend well beyond the specifics of a technology to how that technology can better position the company for competitive advantage. As projects focus more closely on achieving measurable business value, and as the partnership between IT and business solidifies, this skill will become crucial. And over time, developing this and other business skills will make the CIO a vital contributor at the corporate strategy and planning table.

Lands' End CIO Frank Giannantonio, who was recruited by the company's chief operating officer to lead the IT organization and sit on the executive team, summarizes the requirements of a successful CIO: "You have to do many things. You have to be a strategist, a business partner, an architect and an executive. You have to be all four. And I think the CIO has to sit at the table with the senior executives. That's extremely important."

Building a Balanced Portfolio: The Holistic Approach

Companies and executives should look more holistically at IT and treat it as a portfolio rather than an independent series of projects. An IT portfolio should focus on three distinct areas where IT adds to shareholder value - operational excellence, business enablement and innovation (see Figure 1). By segmenting technology-related initiatives in this way, management can vary its approach to sponsorship and measurement and define its value expectations depending on the type of project.

The first group of projects in the portfolio, those designed to achieve IT operational excellence, take information systems to higher levels of effectiveness and cost efficiency. Companies achieve operational excellence when they provide core technology support and meet service levels cost-effectively.

The second category in the portfolio represents projects in which IT is a business enabler and transformation tool for core business processes within the organization. While the objective of IT operational excellence is to create world-class support for the enterprise, the goal of IT-enabling processes is to take value chains and business operations to world-class levels. The measure of success is not cost reduction but improvements in business returns or growth.

The final group in the portfolio consists of projects aimed at achieving breakthrough innovation to realize a competitive edge in the marketplace. These initiatives move beyond improving processes to helping transform competitive strategies and market dynamics, repositioning a company against its competitors or allowing it to enter markets where it did not previously compete.

When it comes to leading-edge technologies, it is vital to involve business leaders in the definition of needs, evaluation, implementation and rollout. The study confirms these principles; almost 60 percent of the study's leading-edge or early adopters state that business needs determine sponsorship of IT investment. In addition, respondents who perceive the value of IT as high say that 58 percent of their IT budget is sponsored by the business units. Balance is critical, though; in companies with low perceived value of IT, 88 percent of IT projects are sponsored by individual business units.

One example of this balance between business unit and corporate sponsorship of IT investments is survey participant Great Southern Bank. For this commercial bank, infrastructure investments are made at the corporate IT level and shared among all the business units. At the same time, individual business units sponsor investments in specific applications, such as a CRM system that tracks transactions for its 65,000 customers, and the bank's insurance claims processing application. This allows Great Southern Bank to put its corporate IT investments to good work across its business units and simultaneously enable its business units to use technology tailored to its specific needs.

To find the ideal balance, executives need to understand and formally document the business capabilities enabled by IT. What is the goal of the investment? What is the cost reduction? What is the operational improvement? Did it create an innovative solution to attract customers? Answering these questions will help business and IT leaders better understand whether their IT investments are in sync with their business goals. The answer can also help executives determine whether or not a capability should be sponsored centrally. This information will help the organization develop an investment planning roadmap that will help reduce operational costs, enable business processes and drive innovative solutions.

Copyright © 2004 IDG Communications, Inc.

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