Making the Case for IT Investments by Focusing on the Business Strategy

 

http://www.gartner.com/technology/reprints.do?id=1-1S83GQ5&ct=140325&st=sb

IT has become so pervasive that significant business change is nearly impossible without it. This research provides a pedagogical example to demonstrate how CIOs can reduce conflict over investments in IT, in support of change, by framing those investments in terms of business strategy.

Overview

Key Findings

• As modern economies become increasingly digital, significant business change is impossible without IT.
• Business strategy dictates the priority of investments involving IT.
• CIOs have a responsibility to increase their support for defining and executing business strategy.

Recommendations

• Watch for opportunities to define and implement improved processes for strategy definition and execution.
• Define the business change in measurable terms.
• CIOs can use operational metrics — also known as a "value model" — to help the executive team bridge strategy development and strategy execution.

Analysis

It was Tuesday morning, and Fly-Better Airlines CIO Tim Perkins had just arrived at his office and started to work through the morning's email. At the top of the stack was an unexpected invitation from Mark Morelli, the new CEO. Mark wanted to meet with Tim on Friday morning to hear Tim's ideas on how IT could help make Fly-Better Airlines competitive again, especially in terms of support for the company's new strategy of winning by creating a "great customer experience."

Tim was both excited and apprehensive. The previous CEO had only called Tim periodically to complain about how much IT was spending or about the level of service IT provided, and Tim had never been able to convince him that cutting IT's budget to the bone translated directly to low levels of IT support for the rest of the business. For that matter, the previous CEO didn't really care if the rest of the company didn't get a lot of support from IT. As he put it, more than once in Tim's presence, IT didn't do much for airplane maintenance.

So Tim was excited about Mark reaching out to him for ideas on the future direction of the business. Although, Tim was concerned that, after years of underfunding IT, the existing IT infrastructure, application portfolio, and skills base were obsolete and incapable of supporting new business initiatives. He was pretty sure that, in order to support the CEO's new strategy, the company would need to invest in all those things, and IT spending would probably double or even triple in the next few years. Following the previous CEO's lead, the executive team had always viewed IT as a cost center, and done everything possible to minimize IT spending. Changing that attitude and the habits that went with it was not going to be easy, even if the new strategy demanded it and the new CEO supported it.

Tim had just two days to prepare for this very important discussion. He was well aware that every part of the company would need to change significantly in order to create the company's new direction and value proposition. It was entirely possible that many members of the current executive team would leave — their experience and expertise were all about bare-bones operations and services, and competing on price alone, not creating a great customer experience. Anyone remaining, or replacing the departed leaders, would be making big changes in their operations, and Tim could easily see conflict ahead as the various business units competed for investments.

The way things worked in the past, each business executive put his or her own plans together to meet the strategic goals of the business, which were inevitably about cutting costs relentlessly. There was very little cross-functional collaboration, and even less concern for the impact on customers, who were essentially considered captives, given the relatively underserved routes that Fly-Better Airlines owned. Within this approach to strategy and planning, IT was considered a "black box": a money pit with no connection to the company's "real" operations.

If this approach continued, the executive team would see IT as a competitor for resources, not as an intrinsic part of its own plans for change. That would be bad — not just for IT, but for the airline. Competition had entered the company's previously protected routes, and customers were clearly fleeing Fly-Better Airlines in droves. Revenue was dropping, along with market share, and the company's low-priced strategy wasn't enough to stem the tide. The frequent travelers whose purchases were essential to the company were no longer willing to accept the inconvenience of dealing with the company as an acceptable trade-off for low fares. Tim was sure that Mark's strategy was the right one for the company, and he didn't want it to fail because IT couldn't handle it.

Tim was tempted to take advantage of Mark's obvious interest in change, and of the potentially imminent departure of multiple execs, to push for a vastly expanded IT budget — one that would make up for decades of underinvestment, replacing old equipment and software in a massive modernization project. However, he knew that Mark would ask what exactly all the new technology was for and how it related to the company's new strategy. He could hear the conversation in his head:

• Tim: "We need a lot of new infrastructure. Our current infrastructure is old, and it fails frequently. We need a lot of new apps, like CRM. We need to build up the IT team …"
• Mark: "What do I get for all that? How much will it increase revenue?"
• Tim: "Well, I can't say how much it will increase revenue, but the IT will be a lot more reliable and powerful. We'll be able to do a lot more than we can now. We'll have better security, and we'll have new tools for productivity and collaboration …"
• Mark: "I don't just need IT to do more. I need to sell more tickets. Come back when you figure it out."

Tim realizes that he's putting the cart before the horse. Yes, new technology will be needed, and plenty of it, if this company will make a dramatic shift in its strategy. However, starting the discussion from the point of view of an aged IT infrastructure and applications wasn't a winning approach. He'd merely be seen as an opportunist, aiming to feather IT's nest at the expense of the rest of the company. Further, he knew that many of the changes needed to maximize the customer experience, such as round-the-clock service via multiple electronic and human channels, would be impossible to implement without the active support of business unit leaders.

Tim knew that Mark had developed a high-level vision of what a great customer experience was and how that experience would translate to financial outcomes for Fly-Better Airlines. Tim assumed the reasons Mark asked to meet with him were:

• The CEO knew that achieving the new strategy would not be possible without IT.
• The CEO needed someone to help him bring about the changes that would be needed to execute the strategy.

Tim realized that the second issue was the one to focus on in this meeting. There was no point discussing an issue that was already settled in Mark's mind. Mark knew IT was important, or he wouldn't have asked Tim for his opinion. It occurred to Tim that this meeting might be a kind of test. What Mark wanted was the right IT, not just more IT, and he needed to know that Tim was aiming for the same thing.

What was "the right IT?" Tim didn't know the answer to that question right now, and he certainly wasn't going to know it in two days. What he thought he knew was how to go about getting the answer: to be successful, the company needed to focus on the meaning and implementation of a "great customer experience." Tim needed to engage his peers to define a superior customer experience and the operations that would provide it. He needed them to own and commit to implementing and managing the operational changes. Once that was settled, it would be obvious that new IT was needed, and also which operations and outcomes the new IT would need to support — in other words, what the priorities were for new investment.

Tim decided to propose a process by which the executive team would review Mark's vision for the business, and then define the operational attributes of a "great customer experience" in actionable, measurable terms. Once that was done, he expected a few important outcomes:

• The executive team would share a common view for the single, most important aspect of the new strategy.
• Defining the customer experience in measurable terms would make it easier to perform a gap analysis to determine the changes needed to provide that experience.
• By focusing on measurable business outcomes, IT would secure a role in the strategy development and execution phase for all subsequent work. Among other things, IT could provide the information necessary to baseline and monitor performance against the metrics selected to represent the company's success in providing a great customer experience.

In short, by facilitating the development of a common and measurable definition of the customer experience, Tim could take on an essential and nonthreatening role with the executive team. All he needed was Mark's support, and gaining that support would be his objective for the meeting on Friday.

Tim decided to propose the following approach to Mark:

1. Make the statement of strategic intent clear and explicit. In this part of the process, Mark and his direct reports would meet and draft a one- to two-paragraph summary that describes the new strategy for Fly-Better Airlines.
2. Define the attributes of a "great customer experience." The executive team meets to define each of the key attributes of the new business strategy in measurable (operational) terms — in particular, the customer experience. The tool Mark has in mind to facilitate this discussion is focused on customer touchpoints, as shown in Table 1, and provides a simple framework for discussing current and future operations and how the effects of changes can be monitored and measured.
3. Agree on the metrics that will be used to measure the success of the new strategy, before specific objectives are set. No more than 10 to 15 metrics should be needed. Tim will be careful here to assure that the metrics involved relate directly to new operational goals.
4. Baseline the key metrics to establish the current state. Tim knows that IT is the only function in the company that can collect and distribute this information. If necessary, he's prepared to hire industrial engineers to get the baselines he needs.
5. Set targets for each of the key metrics that represent the performance needed to successfully execute the new strategy. This establishes the future state for the company.
6. Perform a gap analysis between the current and future state to identify the business changes needed to move the company to the future state.
7. Identify change initiatives, build the business cases for each, and make the funding decisions. These decisions drive the budgeting process.
8. Create an enterprise value model — that is, a set of metrics representing valuable outcomes for the enterprise, stack-ranked in terms of importance — for use in monitoring strategy execution and guiding future decision making. IT will collect the data and make the value model available to all the members of the executive team (see Figure 1).

Table 1. Defining the Customer Experience in Actionable Terms

Current State

Future State

Business Metric*

Customer calls the airline

Airline is always with the customer via mobile apps

Market Coverage Index

Company operates during normal business hours

Operate 24/7

On-Time Delivery

Company uses traditional marketing channels

Use social media

Channel Profitability Index

Company has a large customer support staff

Better self-support via mobile and social media

Service Performance Index

* Business metrics are from "The Gartner Business Value Model: A Framework for Measuring Business Performance" the Business Value Model."

Source: Gartner (August 2013)

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Figure 1. The Gartner Business Value Model

Source: Gartner (August 2013)

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At this point, Tim is prepared for his meeting with Mark. He won't tell Mark that more IT is needed. He'll present Mark with an approach to defining not only potential investments involving IT, but also a way to know which investments matter most. Tim knows that this is likely to produce more demand for IT and, therefore, more budget for IT, but looking through the lens of changed enterprise performance will eventually make that argument for him. Although it's not Tim's intention, he will also be prepared to expose the value model he has developed as an early prototype if asked.

Tim will also make the point that he is in an ideal position to facilitate the process of discovery and planning defined above because:

• IT supports all business functions equally, throughout the company. Tim has no agenda that's slanted toward any business unit in particular.
• IT has access to the data necessary to measure business performance, and so is an essential player when it comes to setting and monitoring strategic goals.
• Implementing most of the initiatives resulting from the new strategy will require IT. Therefore, the sooner IT is involved in discussions, the better.

At the end of the meeting, Tim will ask Mark to approve Tim's approach. The only remaining question is when to start.