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Return to Strassmann, Inc.
President of the Information Economics Press
in the 21st Century:
Speaking the Language of Business
by Paul Strassmann and Danek Bienkowski
of IT and Business :
What is "Alignment"?
"Aligning information systems to corporate goals" has emerged as the number one concern over the last five years in surveys of information systems executives.
What does it mean that information technologies are "aligned" with the business plans? How does one make "alignment" verifiable? How does one judge the credibility of project proposals that compete for scarce funds?
To line up information technology (IT) and business process improvement proposals with business plans requires the adoption of the language, style and metrics used in financial reports. While project managers may praise customer satisfaction, quality and workflow simplification, CEOs and shareholders evaluate projects primarily on the basis of contributions to net cash flow. Therefore, "alignment" is the capacity to demonstrate a relationship with the accepted measures of financial performance.
Why "Alignment" is Important
These corporations used similar computing systems, similar software and employed similarly trained personnel. The absence of any relationship between information technology spending and financial results suggests that IT cannot, in isolation, determine profitability.
Executive management must therefore devote considerable attention to how well their firms invest in IT projects. The sums of money involved are very large indeed. In fact, information technologies have become the preferred business tooling investment for U.S. corporations. Business tooling is defined by economists as "producer durable equipment" and is one of the most telling indicators about business priorities. Morgan Stanley indicates that in 1994 spending on IT was close to 50% of all investment, exceeding all other types by a large margin (Morgan Stanley U.S. Investment Research Newsletter, July 15, 1994, p.13.).
Is the Problem?
Unfortunately, the linking of IT projects with a firm's plans and budgets is an extremely rare occurrence. Projects are documented in exhaustive reports and promoted by means of elaborate presentations. Yet, after the system is implemented, hardly anyone can conclusively prove from routine corporate statements whether any of the promised gains ever happened. To prevent this from happening, project management processes must be reformed to satisfy what executive management wishes to have, which is demonstrable gains in financial results.
How to Realize "Alignment" of IT and Business
There are two fundamental solutions a firm can take to assure itself of a successful "alignment" which will survive changes in an organization, accommodate re-directions in business goals and adapt to changes in personnel.
The disconnect lies between what was assumed at the conception of a project and what is discovered during execution. Project plans should be defined in general terms, because not everything can be known in advance. The tracking of actual project events should always be detailed, because reality is tough and uncompromising. Planning by telescope while implementing under microscope will end the disparity between initial plans and delivered results.
original project plans must be continually updated, and, as conditions
change, the initial assumptions and dependencies must be re-examined and
re-adjusted to reflect what has been learned. I call this continual updating
of plans an evergreen alignment, since keeping IT related to business goals
is not a one-time happening, but a continued struggle. "Alignment" is then
seen as a forever updated Executive Information System that offers the
assurance that the linkage of IT project plans to standard corporate metrics
of performance is always present.
In spite of the disparity between profits and investments in information technology (IT) described by Paul Strassmann, few would argue that we should simply drop this investment altogether. What enterprise could survive, let alone prosper, in the 21st century without it?
However, Strassmann has zeroed in on some fundamental problems. While IT executives control massive corporate resources, studies have shown that the average tenure of the CIO is 25 to 28 months (Computerworld, June 10, 1996). With so much at stake, the opportunity and the risk are greater.
The opportunity is to increase revenues, cut costs and be viewed as a resource to produce major competitive advantages. The risk is that the investment is misdirected and, as Strassmann shows, adds little value to the business. For the IT executive, personally and professionally, the risks and rewards are similarly clear. You have two years to produce significant business results. The opportunity is to break the "glass ceiling" and to move into the top echelons of the corporation.
This has already begun. John Reed, CEO of Citicorp, instituted the bank's first information system. Through technology, Reed created a new revenue stream - worldwide consumer banking - which generates the lion's share of the bank's profits.
Look at Morgan Stanley today. Its CIO, Kevin Parker, was one of the Bank's top traders. Because of his reputation and accomplishments as a trader, he carried enormous credibility within the business. He persuaded top management to make a commitment to technology that produced major business results. (Wall Street & Technology, August, 1996) Technology at Morgan Stanley is considered to be the best on Wall Street and instrumental in the Bank's trading climb over the past year.
These executives were business people first and technologists second. They knew how to speak the language of business and technology to deliver business results.
Speaking the Language of Business
What is the Language of Business?
Let us first agree on what we mean by business. In the early days, top IT executives were primarily technically oriented, concerned with computer capacity planning, and used such terms as "million instructions per second," and "megabytes of memory." That is what they tracked and focused on, something few executives outside of IT understood or cared about.
More recently, there has been a recognition that information technology itself is a business and has to run like one. So we have had tighter budgeting, emphasis on quality, and the introduction of performance measures, such as variances to plan - IT putting its own house in order.
The next step, which is beginning to happen, is the recognition that information technology is fundamental to the success of a corporation - IT turning outwards to the business world of customers, vendors, shareholders, alliances and partnerships.
What is now demanded is a cultural shift from where most information organizations are today. They must become bilingual - able to speak the language of both business and technology - in order to survive and prosper. In a recent article in Beyond Computing (July/August 1996), Eileen Mahoney, CIO of Petrie Retail, a chain of 1,200 retail stores with annual revenues of $1.5 billion, said "We need to talk business-oriented English to corporate executives...and technology to our own folks to keep their respect."
How do we become bilingual? We must:
However, we have not been good at providing quantified information (other than "Last year we spent x million dollars"). It is difficult, but it can be done. We can track our variance against plan, number of major deliverables achieved, customer satisfaction levels and return on investment. We can also define who is responsible for achieving agreed results and we can do it without making a significant investment. We can, but usually don't, and that's the problem.
Fusion with the Business
Taking this argument a step further, internal improvement in technology can produce even greater business results, because of the multiplier effect of a better IT infrastructure. As the chart below shows, the more effective IT is, the more effective business units are in producing significant business results.
Where Do We Begin?
We can begin by building on the infrastructure that already exists. Here are three steps that will go a long way towards achieving success - first, create IT books; then, measure results; and last, but not least, deliver on commitments.
Dashboard - a set of yardsticks containing key indicators of performance. They should include financials, quality, productivity, time-to-market, customer satisfaction and other key measures.
Processes - In addition to the dashboard, the books contain more detailed
information, typically time-scaled, showing the main financial and operational
information. The processes are organized according to an IT chart of accounts
- a standard reporting structure for all activities. The processes typically
The books have to be updated periodically, so a process for this needs to be defined. Some of the information may be produced by automated systems, others may need to be created manually. Also, the books will be produced at multiple levels, with each executive level obtaining as much information as they need.
on Commitments Made