What do all these business and technological changes mean for the IT organization? The oft-cited metaphor of "changing an airplane engine in mid-flight" comes readily to mind. The business changes alone are daunting. However, major changes in systems development, in hardware and software, and in the rapidly changing, vastly increasing options for both computing and communications make the technology issues particularly challenging. These challenges are often coupled, however, with inadequate technical and business training in IT units and are compounded by IT spending patterns that disperse IT investment planning throughout firms. In sum, the load on IT organizations is heavier than ever before, and the management of IT is more complex.
Given this environment, we see eight imperatives for the IT organizations of the late 1990s. To be truly successful, an IT organization must excel in each (see table 14.1).
The first imperative is to align IT strategy with the organization's business strategy. With more than 50 percent of capital equipment investment in the United States now being devoted to information technology, IT has clearly become a major resource for management in carrying out its strategic initiatives. To ensure that investments in IT are targeted at strategic priorities, IT management must be knowledgeable about senior management's strategic and tactical thinking. The CIO must become either a formal or informal member of the top management team, and other senior IT executives must become members of key task forces. IT people must be present when business strategies are debated.
Alignment, however, is two-way. As firms consider their future in an information era of superhighways, multimedia, and information richness, IT executives should contribute more positively to management thinking by identifying the business threats and opportunities that IT poses. It is evident that technology influences strategy as well as vice versa.
Many firms ensure strategic alignment with more than just a new appreciation for the CIO's role. They also emphasize senior line management's ability to understand opportunities available through IT. Formal and informal senior management education about IT is under way in many firms that are conducting technology and strategy workshops. Leading-edge organizations have revived IT steering committees that are very different from those of the 1970s and 1980s, when each member argued vociferously for funding for his or her particular function or suborganization. Today's committees are formally charged with two primary objectives: (1) to ensure that appropriate education is provided for, and absorbed by, all members to enable them to make effective business decisions about information technology; and (2) to require members to take an organizationwide perspective in decisions on IT resources. These new committees reflect the need to support the processes noted in figure 14.1 and the increased importance of allocating scarce IT resources effectively.
The key people using information technology in any organization are its functional, product, and geographical line managers. They provide the strategic and tactical direction and the commitment to implementation that converts visions of new systems into improved organizational processes. Thus IT personnel at all levels must develop strong, ongoing partnerships with line managers. Only through these relationships can the necessary communication occur to ensure that both business and technology capabilities are integrated into effective solutions for each level of the business. In an effective relationship, IT professionals and line managers work together to understand business opportunities, determine needed functionality, choose among technology options, and decide when urgent business needs demand sacrificing technical excellence for immediate, albeit incomplete, solutions. Beath, Goodhue, and Ross note that effective IT-business relationships are one of the three major resources (along with IT human resources and the technology infrastructure) that IT executives must manage well in order to deliver value to a firm. These relationships demand that both IT and line managers accept accountability for systems projects, which is achievable only when both parties share their unique expertise.
IT organizations have made major efforts to move toward more effective relationships. In many companies, IT education now includes interpersonal skillbuilding, such as active listening, negotiation skills, or team-building. Many IT executives are assigning high-level "account managers", chosen for their knowledge of the business and technical capability, to focus specifically on IT-business communication and understanding. In addition, IT staff are strengthening contacts with the power users in each organization, not only to manage what they do, but also to learn from them.
In an article on CIO effectiveness, Earl and Feeny identified the IT-business relationship as critical to an IT organization's ability to add value to the business. They observed that building the IT-business relationship overlaps with six other factors to enable a CIO to provide business value. We have adapted Earl and Feeny's framework by concentrating on the relationship variable and three others: focusing on business imperatives, concentrating development efforts on strategically important initiatives, and establishing a credible IS performance track record. We have added another variable, increased business knowledge (see figure 14.2), which often underpins the efforts by some companies, such as British Petroleum, to turn systems professionals into business consultants.
Figure 14.2: Key Attributes of Effective CIOs. Source:Adapted from M. J. Earl and D. J. Feeny, "Is your CIO Adding Value?", Sloan Management Review, volume 35, Spring 1994, pp. 11–20
These five strategies combine in a feedback loop that leads to ongoing IT success. IT managers utilize in-depth business knowledge to build strong executive relationships, which allow them to focus on business imperatives and then concentrate IT development efforts on those imperatives. Successful systems built for priorities then enhance IT's track record, which, in turn, improves business relationships at all levels. Successful systems and improved relationships in turn add to greater business knowledge, and the cycle continues to build. Earl and Feeny's targeting of relationships as a critical imperative for IT management is certainly appropriate.
Although the primary function of the IT department has been the development and operation of systems, today's approach to system development is radically different from the past. The task has changed from developing mainframe-based transactionprocessing systems that support a single function to delivering desktop systems that address the integrated data needs of knowledge workers supporting redesigned processes. The environment has also changed, as internal clients have lost patience with long development times, inflexible interfaces, and cost overruns.
IT executives are responding to these challenges with a variety of strategies. Some have introduced time-box approaches, which require the delivery of usable system components at regular intervals. Time boxes force developers and their business partners to focus on functionality, thus avoiding overengineered solutions and unnecessary delays. Another way to avoid delays and target critical functionality, as noted above, is to recognize that high-level line managers must be the ultimate project leaders, thus ensuring that the business people who will use the system take responsibility for its implementation.
But faster cycle times and the need for data integration and sophisticated interfaces have led to more revolutionary changes as well, particularly in the extent to which firms rely on outside sources. For example, more IT units enlist the help of contractors, especially in areas where their tools and technologies are needed. Two prime examples are client/server systems and Internet applications. Some subcontract all specialist application development to niche third parties. Others use externally developed templates, i.e., CASE-based tools that they customize to meet their specific needs.
Firms are increasingly recognizing that they do not have the time, money, expertise, or inclination to develop large integrated systems in-house and are relying on integrated packages. As noted earlier, they are purchasing software from firms like SSA, SAP, Baan, and others to address their needs for integrated systems. Package implementation is decidedly different from in-house development. IT staff people must understand the system, adapt it to the platforms it can utilize, and troubleshoot code or table-driven procedures that were written outside the firm. More importantly, because packages inevitably require changes in business processes, IT must work even more closely with functional managers who are responsible for making the systems work in practice. Integrated systems projects require near equal staffing of technical and functional personnel.
Thus systems delivery often involves procurement and requires the experience and skills of an informed buyer. Purchased software provides a solution for organizational processes that offer no particular competitive advantage (or, where competitive advantage accrues, it does from use, not ownership). However, firms are still identifying applications that offer unique competitive features, in particular those that improve customer connections, and thus they are still developing software internally.
In sum, systems delivery now includes not only systems development but also procurement and integration. The total systems delivery load in most firms has increased greatly and shows no signs of slowing down, mostly because of the business and technology changes we have identified.
IT is currently charged with creating an "IT infrastructure" of telecommunications, computers, software, and data that is integrated and interconnected so that all types of information can be expeditiously—and effortlessly, from the users' viewpoint— routed through the network and redesigned processes. Because it involves fewer manual or complex computer-based interventions, a "seamless" infrastructure is cheaper to operate than independent, divisional infrastructures. In addition, an effective infrastructure is a prerequisite for doing business globally, where the sharing of information and knowledge throughout the organization is increasingly vital.
IT units must address four challenges in developing and supporting their firms' IT infrastructure. First, they must develop an architecture that defines the planned "shape" of the infrastructure. While hardware and software capabilities are obviously part of that architecture, the treatment of data (what is to be standardized, where it is to be located, and so on) and the treatment of applications—in particular, decisions on the embedding of applications into the infrastructure itself (e.g., office suites, e-mail)—are more important. Interestingly, some European companies in our study included the information processing skills required of users in their conceptualization of infrastructure.
Second, IT units must establish technology standards for implementing the architecture. This requires constant screening and testing to determine which technologies meet organizational needs for integration and support. The rapid pace of change in information technologies means that IT units must develop the ability to establish, support, re-evaluate, and, as appropriate, change technology standards. What is extremely clear is a movement toward increased emphasis on standards for improved cost and effectiveness. The time, energy, and expertise needed for making appropriate selections is slowly driving every major company to have a headquarters group, often in conjunction with a committee of IT personnel from local organizations, select a small set of corporate standards.
Third, IT executives must understand and communicate the value of the infrastructure. In most decentralized, federal organizations, local management is taxed for infrastructure support, so it becomes important that the value of the infrastructure is as apparent as the cost. The value of any infrastructure, however, depends on management's strategic vision for its use. Consequently, the infrastructure design and the money invested in it, and the infrastructure services that IT provides, have become senior management business decisions.
Finally, IT units must operate an increasingly complex infrastructure. The user with a problem cares not at all about whether the error is located in telecommunications, mainframes, servers, routers, a database, or the application itself. He or she needs help. While there are currently no capabilities to look seamlessly through all aspects of the network, the responsibility for building and operating a full network will increasingly become the role of a new "super operations manager"—a chief network officer (CNO). Reporting to the CIO, this person will have end-to-end responsibility for one of the organization's critical assets. In effect, the CNO will be the IT chief operating officer, while the CIO handles the externally related activities such as vision, relationship, education, and consulting.
For almost two decades, the basic approach to systems development did not change. COBOL was the major language, and the mainframe was the major platform on which systems were developed. Today, by far the largest number of systems is being built for client/server use. Developers in this environment must regularly learn new programming languages, operating systems, and communications protocols. Support personnel are similarly challenged. And network operators find systems and network management to be particularly challenging as they migrate from hierarchical network environments to peer-to-peer networks. These changes have resulted in large gaps in the IT staff's technical skills.
Equally important, as IT becomes ubiquitous in all organizations and a critical element of new business strategies and tactics, most IT leaders have found that their staff people are woefully lacking in business knowledge and skills. If the necessary relationships are to be built (as noted in Imperative 2), IT reskilling must go beyond technology skills to business skills. None of these skills will be easy to develop among the current ranks. There are estimates that up to 50 percent of existing IT personnel will not be able to make the technical transition, much less be able to learn the appropriate business skills.
There is, as yet, no consensus on how to make the skill transition. Some companies, such as Morgan Stanley in New York City, are funding an extensive education program to reskill existing staff. Some are working with "new" client/server software companies, such as Cambridge Technology Partners, to both build systems and educate their people. Others are merely hiring people with the appropriate new skills and assigning existing staff primarily to the care and feeding of older systems. Whatever the approach, reskilling is under way in all IT organizations, at a very significant cost.
Outsourcing some IT responsibilities to computing services firms can compensate for skill shortages in IT units and relieve management of the need to oversee tasks that are not competitive strengths or core competencies. As a result of their economies of scale, many vendors in principle can provide more reliable, costeffective support than in-house units, while allowing top IT management to focus on strategic priorities. However, making outsourcing work is a different proposition from deciding to outsource. IT managers must be at least as skilled as the outsourcer in each area, be informed buyers and prime negotiators, and derive satisfaction from seeing a job done well—not just from doing it. They are a different breed of IT manager, with the critical ability to recognize whether a vendor relationship is purely transactional and contractual or more strategic and joint. Vendors and customers have suffered from confusion on this point.
In the 1990s, IT units, like all other functions in the firm, must strive to meet increasingly demanding performance goals and improve their economic and operational track record. In figure 14.2, we showed the importance of an IT track record in relationships with business management.
Affordability and cost efficiency have become vital issues as IT budgets continue to rise, especially when companies discover that more than 50 percent of expenditures is with the end user. Outsourcing and downsizing are two responses to this challenge. Companies are also installing new cost metrics to promote IT costconsciousness, such as IT cost per unit of product or service, activity-based costing of IT services, and distribution cost analysis of IT-intensive operations.
Operational performance improvement has followed manufacturing trends. Companies have transferred TQM and customer service programs into the IT unit. For example, Motorola has introduced six-sigma performance goals in an IT quality program. Information-intensive service businesses are using customer surveys, simulated customer queries, and customer complaint analysis.
Finally, in manufacturing terminology again, "time to market" has become a primary issue. Systems can no longer constrain business development. A wait of two or more years for application development is unacceptable when markets are changing so fast. As mentioned earlier, new systems development methods, greater use of packages, and time-box projects are some approaches to shorten development time. Other approaches include prototyping, "80/20" requirements definitions, targeted deployment of end-user software tools, and Internet technologies.
These dimensions of IT performance not only affect the credibility of the IT unit but also show that IT is no different from other organizational units. IT must also perform effectively to enable the total competitiveness of any business.
For the past three decades, IT organizations have struggled with the "centralizationdecentralization" issue. The exact locus of all or part of IT decision-making power is critical, and getting the right distribution of managerial responsibilities is, thus, the eighth imperative.
Our research suggests that, increasingly, these responsibilities are distributed to both local organizations and the central IT unit, as Handy described. Handy designated a "federal" organization that follows the political model of the division of power between a central authority and local governments (e.g., the federal government versus the states in the United States). His model allows for significant autonomy at the local level in business organizations but also the "scale" necessary for organizationwide planning, resource allocation, centralized purchasing, and other benefits.
Hodgkinson, in applying this theory to the IT organization, noted that both decentralized IT and centralized IT have real disadvantages (see figure 14.3). Both, however, provide many advantages (see the central ellipse in the figure). Decentralization of some decisions fosters user control over IT priorities and business unit ownership of their systems, for example. On the other hand, economies of scale and control of standards can be gained only from centralized activities. Hodgkinson illustrates a federal organization that delegates some responsibilities to the center and much to the local organizations. What ties all this together is a well-thought-out IT vision, effective leadership, and groupwide IT strategy and architecture. These, in turn, enable the benefits of both centralization and decentralization and allow strategic control and synergy throughout the organization. Moving from the status quo to an effective federal organization, however, is not easy, especially in formerly decentralized organizations. Once a federal structure is in place, though, it can be easily modified as the requirements of the host organization change and technological learning evolves. It is thus a relatively stable structure.
Figure 14.3: Federal IT. Source: S. L. Hodgkinson, "The Role of the Corporate IT Function in the Federal IT Organization", in M. J. Earl, ed., Information Management: The Organizational Dimension (Oxford: Oxford University Press, 1996)
Past research on federal IS structures assumed a multidivisional context. However, single-line businesses are now also discovering the advantages of federalism. The model here is devolution of systems analysis and consultancy activities to departments, functions, or processes, and a unifying central responsibility for strategy and operations. In other words, federal structures help achieve alignment with the business, together with economy of scale and architectural integrity.
Ross, Beath, and Goodhue 1996.
Earl and Feeny 1994.
Weill, Broadbent, and St. Clair 1994.
Earl, Edwards, and Feeny 1996.