IT must rethink how to deliver on its promise to enable the business. IT-centric efforts are falling short and IT experts seem to be stumped what to do about it. This is why a few years ago in search of a solution I turned my attention from mainstream ‘IT thought leadership’ and toward ‘business management best practices’. I literally avoided IT conferences and unplugged from IT industry framework communities because I figure asking IT experts how to shape IT to better support the business is sort of a ‘blind leading the blind’ situation. Instead, I turned my attention toward business schools, business forums, customer-advocacy communities, and business strategists to carefully listen. I’ve finished my first leg of adopting some interesting business practices in a career-long journey aimed to course-correct IT and bring it to its full potential. I’d like to share with you one of the ideas aimed at structuring IT organizations based on business strategy.
Strategically Federating IT
The notion that IT be distributed isn’t new, in fact, it’s probably the current-state situation in most large enterprises today. The notion of Federated IT isn’t new either. When it was introduced in the early 2000’s it was narrowly scoped to define IT with collaborative functions to work with other IT organizations. This is a great start by describing the basic IT functions to collaborate between Federated IT organizations but it left out an important guideline where to place IT organizations and how businesses were to integrate with them based on the company’s business strategy. The resulting situation is what we see today; in one extreme we have central IT organizations that want to control and manage all IT assets and on the other extreme we have numerous IT organizations spinning up all over the place.
Sidebar: “Strategic Functions Within A Federated IT Organization”, Forrester, Cecer, 2004
“The federated IT structure was designed to reduce the costs of IT, while remaining responsive to business needs. To do this, several strategic functions that are common to a centralized IT shop must be implemented differently within federated IT organizations. Planning and architecture, for example, at times must use a facilitative approach and encourage the business units and lines of business to recommend and agree to standards. At other times, they will need to force decisions without reaching consensus. Other groups such as vendor management and the project office must take a harder line. The project office must track the progress of all enterprise projects and those past a certain size. Similarly the vendor management function must at a minimum be aware of all significant contracts and, in many cases, manage those vendors that the enterprise feels are strategic.
Federated IT functions:
Many IT organizations are confused to what their purpose is and find it difficult to provide a simple plan for where it is today and where it should go tomorrow in language that both the business understands and the IT organizations can deliver to. I’m currently thinking of an approach to avoid that situation which leverages the Federated IT concept and adds a deliberate set of new characteristics tethering the Federated IT concept to business strategy. Strategically Federated IT organizations abide by a federated model to share a common mission, professional management goals, strategy management and program portfolio management processes, technology management, information management/stewardship, and architecture models. Over time we’ll refine these but to start the ball rolling, the rest of this blog post begins to describe some of the big rocks for consideration; IT’s Purpose, Deliver to Business Strategy, Strategy Management and Program Portfolio Planning, Cascading Balanced Scorecards, and Shared IT.
Here are two fundamentals of Federated IT organizations to help describe their mission:
- Remember IT’s Mission/Purpose. IT’s purpose in the company is to do three things; a) automate business processes, b) manage information used in the automated business processes, and c) professionally manage IT resources. There are schools of thought that suggest IT should do more than this such as offer business innovation and achieve high rankings in industry benchmarks. I disagree. Those are not the primary mission of IT. They are nice-to-haves and if they become as important to the IT organization as the first three points, they often distract IT organizations from delivering on its primary purpose of existence.
- Deliver to Business Strategy. Deliberately manage IT to contribute to business strategy while being responsible for its mission (see point above). There are likely many businesses within an enterprise, so for each Business there should be an adjoining Federated IT organization to support the business via technology investments. From a purist perspective, program portfolios should intentionally combine business program and IT program investments as much as possible to hold IT investments accountable to business objectives. Where combining programs is too difficult, at least ensure that the IT program’s success metrics are those directly associated to business objective targets they intend to support.
Sidebar: “Run IT in the business”
I hear that IT needs to run as a business a lot so I thought I’d take a moment to comment on it here. We need to encourage IT to move away from the concept of ‘Run IT as a business’. Instead, we need to encourage ‘Run IT in the business’. IT is not a business. In fact, thinking that IT is a business actually hurts IT’s ability to better integrate with the business. Bob Lewis wrote an article published in InfoWorld titled “Run IT as a business – why that’s a train wreck waiting to happen” that does a fantastic job explaining the disruptive concept. I agree with Mr. Lews and think it’s caused a lot of distraction to IT organizations focusing on their primary mission. The appropriate approach is to remember IT’s Purpose of ‘professionally managing IT resources’ noted above and build competencies for professionally managing IT resources such as; reducing exposure to corporate risk, optimize financial investment portfolios, secure corporate and customer information, manage IT people careers, and deliver systems on-time/on-budget/on-expectation. Every organization must strive for professional excellence. IT Organizations are no different. That doesn’t mean IT should run ‘as a business’, just run it professionally.
The article also supports IT-and-biz-integration ideas which I consider Federated IT to be one. Here’s a quote from the article worth calling out “The alternatives begin with a radically different model of the relationship between IT and the rest of the business — that IT must be integrated into the heart of the enterprise, and everyone in IT must collaborate as a peer with those in the business who need what they do.”
To help make Federated IT operate more efficiently, we need a few constructs:
- Cascading Balanced Scorecards. For those unfamiliar with Balanced Scorecards (BSC) and how cascading is used to connect organizations together to streamline strategy execution, read The Execution Premium by Kaplan and Norton. You can get the basics from Kaplan and Norton but to apply it to align IT to the rest of the company, you’ll need to step onto the bleeding edge of industry knowledge on the topic of how to align operations to business strategy. I think one way to do this is to break away from traditional Big IT thinking and incorporate IT in the lines of business. A natural result is the existence of Federated CIOs to manage each Federated IT organization within each LoB organization.
- Below are two very simple diagrams to roughly explain how I use cascading BSCs in the enterprise.
- The diagram attempts to illustrate two views of cascaded BSCs:
- Strategy to Organizational Alignment. This is relatively straight-forward use of the BSC, however, I like to call it out to emphasize that primary purpose of that view which is to show a more ‘operational alignment’ rather than a ‘customer value proposition’ alignment. That is, when we cascade BSC up and down an organization’s structure, we are typically looking at operational or internal-focused metrics such as Contribution Margin, Time To Market, Cost, Defects, etc. This is where the point in IT’s Mission of professionally managing IT resources is directly supported.
- Strategy to Value Stream Alignment. This is a more important view for the purposes of this blog post because it illustrates how processes align to business strategy. This is critical to understanding how Federated IT works. IT underpins the processes in the value stream managed by a Line of Business. If IT optimizes for delivery to each Value Stream, then IT is directly contributing to business strategy via the processes required to achieve business strategy managed by the Line of Business.
Although the resulting IT organizations would be completely focused on contributing to business strategy, we need teams distributed to each LoB equipped with a common set of program investment decision-rights and processes as a means of federating IT responsibilities to program investments across the enterprise to avoid huge problems such as information management nightmares and out-of-control technology redundancies across the enterprise. I extend Kaplan and Norton’s concept of Office of Strategy Management to do this, however, I’ve observed others shape their Program Management Offices to do the same thing. Whatever concept works for you, go for it, just make sure you include these fundamental strategy and program planning processes together because one without the other is a waste of time:
- Strategy Management. The process for managing business strategy from strategy ideation to strategy rationalization/cascading including stuff like; define business mission and vision, define business objectives, identify business model gaps, define program investments, manage strategy gaps, overlaps, dependencies, conflicts, and model strategies across the enterprise.
- Program Portfolio Management. The process of managing Programs as an investment portfolio including stuff like; prioritize business objectives, model and manage program dependencies, identify reuse opportunities, prioritize programs, and identify program consolidation opportunities.
There is certainly opportunity for a Shared IT organization to centrally manage IT assets that are reused across the enterprise. To do this, Shared IT must carefully plan and govern the shareable IT assets that are not already managed by Federated IT organizations. Managing Shared IT to support several Lines of Business is no simple feat. Successful implementations require more than building processes and underlying software and hardware to be reused. The far greater challenge is for Shared IT to include stewardship processes to manage the shared IT assets so that changes don’t disrupt all the LoBs using them, and the shared asset can deliver quickly to the needs of the businesses. The result might look something like this diagram below:
The principles and concepts above define foundational elements for supporting Federated IT in the enterprise. They support Federated IT organizations to manage their segment of IT assets which support business processes streamlined to optimize Value Streams for all Lines of Business. The enterprise-wide result is IT and the business partnering together to execute business strategy through shared program investments targeting shared business objectives.
Not only is IT sick, but much of the business is too
Some Lines of Business have challenges too and need help communicating and executing their business strategy, discovering new innovations that bring competitive advantage, and enabling scalability. The concepts of Strategy Management and Program Portfolio Management that are born from business thought leadership are a natural concept to uplift maturity and help the business manage themselves. For Lines of Business unfamiliar with strategy management and program portfolio planning best practice processes, IT folks can bring these concepts to the business to help them solve business challenges in addition to bringing forth a critical mechanism to integrate IT into the business.
I used many terms in this article that may be unfamiliar to many IT folk so here are terms and definitions:
- Business: An organization responsible for building and selling a customer value proposition. I know ‘Business’ sounds a lot like a Product Offering. The difference is that a Product Offering is a specific expression based on a product specification where a Business is the logical expression of a Product Offering from the perspective of the organization responsible for delivering the Product Offering to customers.
- Line of Business: An organization responsible for one or more customer value propositions. Lines of Business are primarily measured by Customer Value, as in Osterwalder’s Business Model Canvas or Value Stream concepts and is measured on Customer Value.
- Business Strategy: An outside-in method to manage business investments to achieve business objectives. Example Business Strategy methods include; Porter’s 5-Forces, Collins’ Hedgehog, SWOT Analysis, and PEST. Note that Business Strategy is federated via an Office of Strategy Management or PMO function across Businesses in the enterprise.
- Cascading Balanced Scorecards: A method to align organizations to Business Strategies. By definition, Business Strategy is distributed and held together by Strategic Themes and Business Objectives documented in Cascading Balanced Scorecards.
- Strategic Theme: A set of Business Objectives grouped by a common stakeholder objective
- Support Organizations: Organizations responsible for supporting Lines of Businesses. Supporting Organizations should measure themselves on Business Value.
- Business Strategy Execution: The efficient planning and delivery from Lines of Business and Support Organizations deliberately collaborating to achieve Business Strategies.