IT and Digital Failures – the Time for Study is Over – it’s Way Past Time for Action!

A recent article in diginomica, “Senate agrees to launch inquiry into Australia’s digital government failures” caught my eye. My immediate reaction was “Here we go again”, quickly followed by a somewhat more lyrical “When will they ever learn?”
The challenges of IT projects have been analyzed extensively over many decades. Most of us are familiar with The Standish Chaos Survey, the 2015 results of which reported successful projects constantly representing only ~30% of the 50,000 surveyed projects (where success is defined as on time, on budget and with a satisfactory result).

A 2012 Mckinsey article, based on research conducted on more than 5,400 IT projects by Mckinsey and the University of Oxford, found that half of large IT projects (costing >$ 15 million) massively blew their budgets. On average, large IT projects ran 45% over budget and 7% over time, while delivering 56% less value than predicted. The projects in total had a cost overrun of $66 billion, more than the GDP of Luxembourg. The impact of these failures is more than financial. In the case of healthcare, for example, the impact includes significant avoidable loss of life, pain and suffering.

More anecdotally, The International Project Leadership Academy Catalogue of Catastrophe records quite a few troubled projects from around the world, many, but not all of them IT projects. The list includes the UK’s NHS National Program for IT in Health, the original budget for which was $4.6 billion, which had risen to $24 billion when it was cancelled in 2010. At the time, and possibly still now, it was the world’s largest civil IT project.

Challenges to success – being on time, on budget, and achieving the expected value, are common across private and public sectors and across all jurisdictions. If one were to take all the studies, audit reports, and other post-mortem review of so-called “IT projects” or, more recently, “digital” initiatives, you could fill a medium-sized – possibly larger – library. The good news is that you would only have to read one or two of them to realize that they all came to basically the same conclusions, and made basically the same recommendations. It’s great business for consultants, as they can usually just dust off and tailor a previous report – a great but expensive example of re-use. Over the same time, research papers and articles beyond count have been written on this topic, and frameworks, methodologies, tools and techniques have been produced (almost) ad nauseam. Yet, despite this, very little has changed, other than that the impact of these failures, as technology becomes increasingly embedded in everything organizations do, is both more severe and more visible, not the least so in the public sector.

The underlying causes of both earlier “IT project” failures, and those of more recent “digital” initiatives are basically the same. They include:
1. A continued, often blind focus on the technology itself, rather than the change – increasingly significant and complex organizational change that technology both shapes and enables, and which is required if organizations are to come anywhere near realizing the potential value from their digital investments;
2. The unwillingness of business leaders to get engaged in, and take ownership of this change – preferring to abdicate their accountability to the IT function (I should add that I have also seen cases where IT leaders know this should be owned by the business leadership team, but do not believe that they have the competence to do so);
3. Failure to inclusively and continually involve the stakeholders affected by the change, without whose understanding and “buy in” failure is pretty much a foregone conclusion;
4. A lack of rigour at the front-end of an investment decision, including, what is almost universally a totally ineffective business case process, resulting in lack of clarity around the expected outcomes, the full scope of effort required, the assumptions being made, the risks involved, and how progress and success will be measured;
5. Not actively managing for value; and
6. Not managing the journey beyond the initial “project” completion.

A much over-used definition of insanity, commonly yet apparently inaccurately attributed to Albert Einstein, is “doing the same thing over and over again and expecting a different result.” This is certainly a good description of the where we are today. It should have been obvious to anyone reading any of the previously mentioned reports and studies that the issue of IT or digital failure needs to be re-framed from a technology delivery problem to a business problem of managing increasingly significant and complex organizational change. A business problem that has had a global cost estimated by Michael Krigsman, a respected industry analyst, to be in the order of $US3 trillion/year. And that cost doesn’t include opportunity cost – the non-realization of expected value.

So, why is it that business leaders – in both the private and public sector, have not stepped up to the plate? Despite the term “digital” now being much more commonly used – or abused –  in place of “IT”, digital is still largely equated with, and thought of as, a technology implementation issue. We certainly don’t need any more studies! As a client of mine once said, the less will we have to solve a problem, the more we study it. We need leaders to finally wake up and understand that this is not a technology implementation problem, but a problem around understanding, accepting accountability for, and managing the business change required to create and sustain business value from leveraging digital. We need these leaders to move beyond eternal studies to action. I discussed this in an earlier post, “Digital Leadership – Much More Than IT Leadership”. What follows builds on parts of that post.

In this new digital era, technology itself, how technology is delivered, how it is used, and by whom are changing at an ever-increasing rate. This is blurring the roles and responsibilities of IT and other business functions, and giving rise to a fundamental rethinking of how IT, and its delivery and use is governed and managed, and the capabilities that are required to ensure and assure that the use of technology contributes to creating and sustaining business value. The role of the CIO is being questioned ad nauseam, particularly as it relates to the CMO, and a new position, the CDO, is appearing. And, of course, let’s not forget the CTO. However, the answer is not as simple as renaming the CIO position, getting a new CIO, or appointing a few new CXOs (or now, due to alphabetic limitations, CXXOs).

I have, over many decades, used the simple formula below to describe reason for the current dismal state of affairs:

OO + NT = COO

The formula represents that simply applying new technology (NT) to an old organization (OO) results in a Complex Old Organization (COO). Gavin Slater, the new head of the Australian Government’s Digital Transformation Agency (DTA), used a variation of this formula in a recent address to the Australian Information Industry Association, in which he replaced COO with EOO – expensive old organization.

Digitization cuts across organizational silos, and across all levels of organizations. Realizing value from digital requires more than putting lipstick on the old industrial age pig, with its hierarchical, command and control approach to governance, leadership and management. It requires continually rethinking, reimagining and reinventing every aspect of our organizations. Digital transformation, or more accurately the on-going and ever-evolving digital journey towards a digital ecosystem will require digital literacy and collaboration across and beyond the C-suite to ensure that their organization has, as EY’s David Nichols said in a May 2014 CIO Insight interview, “an integrated and holistic plan to really leverage digital”. This includes questioning their very purpose, how they are organized, the very nature of the work they do, who does it, and how it’s done. It requires challenging established cultures and long-held beliefs. The digital economy both enables and requires a different view of leadership. As Sally Helgesen said in a May, 2014 article, “Leadership’ isn’t Just for Leaders anymore”, leadership no longer, or should no longer equate with positional power and has, or should become a behaviour that is broadly distributed, recognize and rewarded.

Organizations must tap into the collective knowledge of all their people…~70% of whom feel no engagement with their organizations today. As Julian Stodd said in a June, 2017 blog, “The Age of Engagement”:

“The mechanisms and mindset of engagement in many organisations lags far behind the lived reality of the Social Age: Organisations exist in a realm of expertise, domain specific input, hierarchical power, at a time when communities are rising, co-creation is maturing, and dynamism is key. The solution will not be adaptation within an existing mindset, but rather a paradigm shift to a new space: the Age of Engagement.”

Peter Staal extends this thinking in an August, 2017 article, “Organizations of the future operate as communities”, in which he says:

“Meeting the demands of the digital age will require a new way of working. Take for instance the decision-making process. Organizations no longer have the time traditionally taken up by this process through a decision tree. The future belongs to organizations which are made up of multiple autonomously operating communities forming part of the larger whole (so-called pods).”

This is not a new concept. It was original posited in the early 20th century by Oswald von Neil-Breuning with his law of subsidiarity – an organizing principle that matters ought to be handled by the smallest, lowest or least centralized competent authority. This means locating accountability and decision-making at the most appropriate level, while supporting decisions with broader and more knowledgeable input.

We could have adopted such a concept long before now, indeed, some organizations have done so. For organizations to survive and thrive in the digital economy, this is no longer an option! We certainly now have the technology available today to support such a concept. However, I’m not sure we will see this widely accepted  any time soon – likely not in my lifetime. As Steve Vamos said in a 2012 Australian Review article:

“The challenge ahead is to unwind more than a century of industrial-age mindsets at work which are controlling, mistake-averse and “know it all” and evolve them into mindsets that are enabling, learning and willing to try new things and fail.”

Laurence J. Peter, author of The Peter Principle, echoed those sentiments when he said, “Bureaucracy defends the status quo long past the time when the quo has lost its status.” The reasons for this are well laid out by Ted Bauer in an August, 2017 article, “Bureaucratic management ain’t going anywhere”, as summarized in the figure below.

As an eternal optimist, I hope that he’s wrong, but as a realist, having pushed similar ideas for many decades, I think it will take some time before we see the extinction of the organizational dinosaurs. This will certainly be the case if we stand on the sidelines and wait for it to happen. As a former colleague, Don Tapscott,  has said for decades “Leadership can come from anywhere”. We must all take a leadership role in making it happen.

Digital Leadership – Much More Than IT Leadership

There has been much discussion of late on who should be responsible for “digitization”. The role of the CIO is being continually questioned, particularly as it relates to the CMO, and. a new position, the CDO, is appearing. And, of course, let’s not forget the CTO. A recent post by Michael Krigsman describing Intel’s IT leadership and transformation pyramid got me thinking yet again about this. The pyramid, shown below, is a brilliantly simple depiction of how digital leadership must evolve (in my words) from an operational “factory” to a business partner to a transformational leader.

 

intel-it-transformation-pyramid

As Michael Krigsman says, “The pyramid reflects the complex reality of IT / business relationships and the need for IT to deliver at multiple levels simultaneously.” This reminded me of discussions I had in New York last month at the Innovation Value Institute (IVI) Spring Summit around their IT Capability Maturity Framework (IT-CMF). The discussion centred around the digital economy, and the fact that organizations are taking an increasingly business-centric view of IT, with the focus shifting from the delivery of the “T” to the use of the “I”. That technology itself, how technology is delivered, how it is used, and by whom are changing at an ever-increasing rate. And that this is blurring the roles and responsibilities of IT and the Business functions, and giving rise to a fundamental rethinking of how IT, and it’s delivery and use is governed and managed, and the capabilities that are required to ensure and assure that the use of technology contributes to creating and sustaining business value.

In an earlier post, The Digital Economy and the IT Value Standoff, I reiterated my long-leld view that the business change that IT both shapes and enables must be owned by business leaders, and they must accept accountability, and be held accountable for creating and sustaining business value from that change. This cannot be abdicated to the IT function. Yet today, in all too many cases, we have a stand-off where the business doesn’t want to take ownership, and the IT function doesn’t know how, or doesn’t want to give up control.

The key question that arose from the Summit discussion was “Why can’t we get our business leadership engaged in this discussion?” Certainly not a new question – how to do so was essentially the underlying theme of The Information Paradox when it was first published back in 1998. The answer to the question, going back to the leadership pyramid, is that the IT organization has to achieve operational excellence before it can start to change the conversation from bottom-up delivery of technology to top-down value from business change. This requires a maturity level of around 2.5, where 5 is the highest maturity – most organizations are still not yet at this level, most being somewhere between 1 and 2.

So, what does this mean for the CIO? Much has been written about CIOs themselves having to transform to fulfil the 3 leadership roles of the pyramid – running the factory, partnering with the business for value, and strategic transformational leadership. There is no doubt that all these roles are required – but is it reasonable, or necessary to expect that they will be found in one individual. Certainly, there are CIOs who have stepped up to the plate, but many more that haven’t, and possibly cannot.  Professor Joe Peppard at the  European School of Technology and Management in Berlin has put many hundreds of participants through an IT leadership program. He describes in a recent article how, using Myers Briggs typing, he has found that 70% of CIOs fall into one particular type: ISTJs (Introversion, Sensing, Thinking, Judging). Further, along the dimension of where they get their energy, 85% have a preference for introversion. In terms of moving up the pyramid, the very things that may contribute to success in their technology role, can be what leads to downfall in a business leadership position. Even where an individual does have the ability to handle all 3 levels, the day-to-day operational demands all too often leave little time for the other 2 levels. Demands that, while they will definitely change with the advent of the cloud and “everything as a service”, will not go away.

The real issue here is not so much, as Michael Krigsman says, “the need for IT to deliver at multiple levels simultaneously”, but understanding the range of digital leadership capabilities and responsibilities required in the digital economy, and where they should reside. The answer is not as simple as renaming the CIO position, getting a new CIO, or appointing a few new CXOs. It requires recognizing that digitization cuts across organizational silos, and across all levels of organizations.. It will take digital literacy and collaboration across the C-suite to ensure that their organization has, as EY’s David Nichols said in a recent CIO Insight interview, “an integrated and holistic plan to really leverage digital”. It will also require recognizing that the digital economy both enables and requires a different view of leadership. As Sally Helgesen said in a recent post, “‘Leadership’ isn’t Just for Leaders Anymore”, leadership no longer, or should no longer equate with positional power and has, or should become broadly distributed.

If organizations are to succeed in the digital economy, they cannot constrain themselves to the knowledge of a few individuals – to put it a more brutal way, they cannot be constrained by the habits or ego(s) of their leader(s)! Organisations must tap into the collective knowledge of all their people. We need effective governance that reaches out to and involves key stakeholders – retaining appropriate accountability, based on the law of subsidiarity – an organizing principle that matters ought to be handled by the smallest, lowest or least centralized competent authority. This means locating accountability and decision-making at the most appropriate level, while supporting decisions with broader and more knowledgeable input.

As a former colleague of mine, Don Tapscott,  has said for decades “Leadership can come from anywhere”. For organizations to survive and thrive in the digital economy, this is not an option!

Set up to Fail: Managing Digital Transformation as an IT Project

This post is an extended version of one developed jointly with Professor Joe Peppard of the European School of Management and Technology in Berlin which appeared previously as an HBR blog on May 15th, 2014.
failureSir Christopher Kelly, a former British senior civil servant, recently produced a damning report that reviewed the events which led to the £1.5 billion capital shortfall announced by the UK’s Co-operative Bank in June 2013. Running to 158 pages, it describes what happened, identifies the root causes and draws out lessons.

One section highlights the problems encountered as the bank attempted to replace its core banking systems, a programme that was cancelled in 2013 at a cost of almost £300 million. The report underlined a series of significant leadership and management failings that were to blame for the spiraling IT costs which contributed to the bank’s capital shortfall. This shortfall resulted in the Co-op Group ceding control of the bank to bondholders, including a number of U.S. hedge funds.

The investment objectives of the IT-transformation programme were laudable; leapfrogging the competition and gaining an advantage, through improved customer relationship management and quicker delivery of new products. Indeed, the age and complexity of the legacy systems meant that the bank’s technology platform was unstable, expensive to maintain, complex to change, and ill-equipped to support its current and future business requirements. There were particularly severe problems with the functionality of the online business-banking platform. These weaknesses resulted in high running costs, upgrading to comply with new regulatory requirements eating up considerable resource, and significant operational risk. It appeared to be an attractive investment.

However, Sir Christopher wrote: “The weight of evidence supports a conclusion that the programme was not set up to succeed. It was beset by destabilizing changes to leadership, a lack of appropriate capability, poor co-ordination, over complexity, underdeveloped plans in continual flux, and poor budgeting. It is not easy to believe that the programme was in a position to deliver successfully.” The bottom line – the benefits of the investment may have been attractive, but they were not achievable!

Not set up to succeed is a key phrase. More worryingly, the factors identified in the report as contributing to the failure are ones that we all too frequently encounter when we review challenged or failed projects. All of the reasons identified are well known and serve to highlight a low level of digital literacy across c-suites, and the failure of corporate governance and leadership to make informed IT investment decisions.

The report noted: “If the programme was ever to have had a chance of succeeding it would have had to have been robustly managed by people with the right capabilities and experience using the best possible project management discipline.” It went on to emphasize “It would also have had to be subject to searching challenge and scrutiny at Board, Executive and programme management levels. The Bank did not provide any of these things to the extent necessary to ensure success.”

Non-executive directors were also in Sir Christopher’s cross-hairs. He wrote: “It is unreasonable to expect non-executive Board members to audit information provided to them in detail. But it is their responsibility to question it [our emphasis]. It is difficult to avoid the conclusion that both Board and Executive failed to interrogate the programme sufficiently closely and paid inadequate attention to its obvious difficulties until it was too late.” Moreover, he found that former members of the Board’s Banking Transformation Programme Sub-Committee who, he noted, “should have been better placed than other directors to understand the programme, described being surprised that it failed.” His damning critique: “They should not have been.”

In our work, we find that not only are boards ill-equipped to deal with digitization but neither are many executive management teams. Most seem happy to abdicate anything to do with IT to their chief information officer (CIO). This is merely setting up the investment to fail.

Research that we have conducted reveals that leadership teams play a pivotal role in determining whether or not their organizations exploit the innovative opportunities provided by IT. Realizing value from IT or, more accurately, the change that IT both shapes and enables, requires the CEO’s attention and oversight. CEOs set the tone for IT, and their active participation determines whether their organization optimizes the return from spending on IT. Most leadership teams don’t seem to understand this, or quite know what they should do. The fiasco at the Co-op starkly illustrates this.

We have developed a simple yet powerful framework that leadership teams can use to navigate the digital landscape and avoid the kinds of problems that the Co-operative Bank suffered. It helps to ensure that they:

  • make informed decisions, balancing the attractiveness of an investment with their organization’s capability to achieve the desired business outcomes; and
  • continue to effectively monitor and assure the achievement of those outcomes.

The framework is based on four business-focused questions that are at the core of effective governance of IT that every member of a leadership team should have in his or her head. We call these questions, which were originally introduced in The Information Paradox,  the four “ares” .

Are #1 – Are we doing the right things?

This is the strategic question. The first accountability of the CEO is to clearly and regularly communicate what constitutes value for the enterprise and the strategic objectives to which all investments must contribute, against which their performance will be measured. The second, is ensuring, through the initial investment selection process and regular portfolio reviews, that resources are allocated to investments that are both aligned with, and have the greatest potential to contribute to the strategic objectives.

In the case of the bank, while the strategic rationale for the investment was not in question, as the report noted, the bank “was over-estimating its capability to deliver such a complex programme.” Evaluating such risks is a key consideration is assessing any IT investment, especially one that is part of a major transformation. Two key questions are: “Do we understand the extent of change required for this investment to succeed? And is this achievable?” An investment of such complexity and risk had not been successfully undertaken by any UK full-service bank, or, with limited exceptions, any major banks in Europe or North America.

Moreover, the initiative also seems to have been championed by the CIO and when he left the organization in 2008 nobody on the leadership team took up the mantle, and the drive to make the investment a success seemed to have been lost. Although we are going beyond the evidence in the report, we do not think that it is unreasonable to suggest that the investment was considered as a technology programme and not a business change initiative.

Are #2 – Are we doing them the right way?

This is the architecture question. Because this question is usually thought of as relating to technical architecture, it is generally considered by CEOs as a technical issue and the domain of the CIO. Nothing could be further from the truth. What we are advocating here is a broader view of architecture – enterprise architecture – which has both organizational and technology components. The CEO is accountable for ensuring that there is an appropriate enterprise architecture in place.

Key questions here are: “Is our investment in line with our enterprise architecture?” and “Are we leveraging synergies between our investments?” The Kelly report didn’t consider this question, so we cannot comment specifically as to whether adequate consideration was given to the extent of process standardization and the degree of integration across all businesses. However, the observations in the report suggest that, if such consideration had been given, it may have raised a number of flags. As a full service retail bank, that also serves small and medium-sized enterprises, the Co-op provides a variety of products and services (e.g. deposit taking, lending, credit cards and payments) to customers via internet, mobile and branch channels, getting the overall operating model design right is paramount.

Are #3 – Are we getting them done well?

This is the delivery question. Although this is the area where there is a significant body of knowledge, it is the one where the failure of governance continues to result in significant and very visible failures. We continually find that most major transformation initiatives end up being managed as IT projects with responsibility abdicated to the CIO. Key questions here are: “Do we have effective and disciplined delivery and change management processes?” and “Do we have competent and available technical and business resources to deliver the required capabilities, and the organizational changes required to leverage them?”

This is clearly where the investment floundered. As the report states, “the Bank neither had the requisite levels of discipline before the programme began, nor built it during the programme.” Communication and coordination between different parts of the business involved in the programme was weak. Dysfunctional and unconstructive working relationships across these areas did not help matters. There was also a lack of clarity as to responsibilities for deliverables, with interviewees for the report describing “managers managing managers, managing managers.” A Board Sub Committee was supposed to provide closer oversight of the transformation programme, but, as Sir Christopher reported, the figures were neither analyzed in sufficient detail nor with sufficient consistency to give it insight into key drivers of cost escalations. The message consistently given to the board was that it was making satisfactory progress. Programme managers succumbed to communicate matters in a favorable light whenever possible. This obviously has a deeper organizational cultural implication.

Are #4 – Are we getting the benefits?

This is the value question. Surprisingly, this is the question that receives the least attention in most enterprises: few measure or assess whether expected benefits have been delivered. As in the case of the strategic question, this question cannot be delegated to the CIO although, all too often, is. In ensuring that expected benefits are realized and sustained, the CEO is accountable for maximizing value from the portfolio of business change investments. Key questions here are: “Do we have a clear and shared understanding of the expected benefits from the investment?” and “Do we have clear and accepted accountability for realizing the benefits, supported by relevant metrics?” The Kelly Report notes that there was a failure to develop a detailed business case and a complete lack of consistency about the expected benefits across the programme.

 

Addressing the four “ares” is not just something to be done on a one-time basis to secure funding for any proposed investment. Nor can they be addressed in a sequential, or “waterfall,” way. They must all be considered, both individually and collectively, on an on-going basis to ensure that value is realized from investments in IT- enabled change. Boards should ask these questions, and expect that CEOs and/or other executives will be able to answer them – not just at the time of the initial investment decision, and on an on-going basis. CEOs may balk at this, but they need to recognize that in today’s digital economy IT is increasingly embedded in all aspects of their business, and creating and sustaining value from the change that IT both shapes and enables, falls within their realm of accountabilities. The consequences of failing to do so are starkly illustrated by the Co-operative Bank’s crisis.

You can find more about the four “ares” here.

Transforming governance and leadership for the digital economy

The digital economy

DE
The digital economy is not primarily about technology, nor is it just about the economy. Yes, it is being shaped and enabled by increasingly significant and rapid technological change. And, yes, it will have significant economic impact. But it is much more than that. It is part of a broader digital revolution. One in which, as in the case of the industrial revolution, we will see seismic shifts not just in technology, but in the nature of our lives, our work, our enterprises – large and small, public and private, and our societies. A shift that will not just change the nature of products and services, and how they are developed and delivered, but also how we govern and manage our lives, work, enterprises and societies.

Technology is becoming embedded in everything we as individuals, enterprises and societies do, and, indeed, we are increasingly becoming embedded in everything technology does. If we are to deliver on the promise of the digital revolution, we have to acknowledge that the way we have governed and managed IT in the past has proven woefully inadequate, and that continuing on this path will be a huge impediment to delivering on that promise. Governance of IT has been a subject of much discussion over the last two decades. Unfortunately, most of the discussion has focused on the technology, the cost of technology, failed IT projects, and generally questioning the value that technology and the IT function deliver to the enterprise. Despite all this discussion, not much has materially or broadly changed over the last 50 years, including:
• An all too often blind focus on the technology itself, rather than the change – increasingly significant and complex change – that technology both shapes and enables;
• The unwillingness of business leaders to get engaged in, and take ownership of this change – preferring to abdicate their accountability to the IT function;
• Failure to inclusively involve the stakeholders affected by the change, without whose knowledge, understanding and “buy in” failure is pretty much a foregone conclusion;
• A lack of rigour at the front-end of an investment decision, including, what is almost universally a totally ineffective business case process;
• Not actively managing for value; and
• Not managing the journey beyond the initial investment decision.

We still have what is predominately a “culture of delivery” – “build it and they will come”, rather than a “culture of value” – one that focuses on creating and sustaining value from an organization’s investments and assets.

We have been having the wrong conversation – we need to change that conversation!

Governance of “IT”

GovernanceTreating IT governance as something separate from overall enterprise governance, labeling and managing investments in IT-enabled business change as IT projects, and abdicating accountability to the CIO are the root cause of the failure of so many to generate the expected payoff. Business value does not come from technology alone – technology in and of itself is simply a cost. Business value comes from the business change that technology both shapes and enables. Change of which technology is only one part – and increasingly only a small part. Technology only contributes to business value when complementary changes are made to the business – including increasingly complex changes to the organizational culture, the business model, and the operating model, as well as to relationships with customers and suppliers, business processes and work practices, staff skills and competencies, reward systems, organizational structures, physical facilities etc. Ultimately, it is people’s intelligent and innovative use of the information captured, organized, distributed, visualized and communicated by technology that creates and sustains value. This is not a technology issue – it is a business issue.

Much of the discussion around the digital economy today is on improving the customer experience – as indeed it should be, although we have been saying the same for decades with, at best, mixed success. We will come nowhere close to achieving this unless we put equal focus on our people, and rethinking how we govern, manage and organize for the digital economy such that we maximize the return on our information and our people.

Surviving and thriving in the digital economy is not an IT governance issue, it is an enterprise governance issue. Successfully navigating the digital economy requires that we change how we govern, lead and manage our enterprises – including, but certainly not limited to IT.

What needs to change?

ChangeIn work I have been doing with Professor Joe Peppard at the European School of Management and Technology in Berlin, we have identified 8 things that business leaders, starting with the CEO, need to do. These are:
1. Don’t see IT as something separate from your core business – technology today is embedded in, and an integral part of most, if not all parts of your business processes.
2. Don’t focus on the technology alone – focus on the value that can be created and sustained through the business change that technology both shapes and enables.
3. Do recognize that you are ultimately accountable for the overall value created by all business change investments – and ensuring that accountability for the realisation of business benefits anticipated from each investment is appropriately delegated to, and accepted by, other executives and managers.
4. Do demand rigorous analysis of every proposed business change investment, whether or not IT is involved. Ensure that you and your team know and can clearly define expected outcomes, that there is a clear understanding of how value is going to be achieved, that all relevant stakeholders have bought in to the required changes, and that they are capable of making or absorbing them and delivering on the expected outcomes.
5. Do recognize that the business case is the most powerful tool that you have at your disposal to manage business change investments – insist on complete and comprehensive business cases, including desired outcomes, benefits, costs and risks, and clear explanation of how each benefit will be achieved with unambiguously assigned accountabilities, supported by relevant metrics.
6. Do recognize that benefits don’t just happen and rarely happen according to plan – outcomes and plans will change – don’t think business case approval is the end of the story. Mandate that the business case be used as the key operational tool to “manage the journey”, updated to reflect relevant changes, and regularly reviewed.
7. Do know if and when it’s time to stop throwing good money after bad, or when there are better uses for the money and “pull the plug.”
8. If your CIO doesn’t “get” the above points, and hasn’t already been talking to you about them, get one who does and will!

Enterprise governance must evolve beyond a model rooted in a culture of delivery (of technical capabilities) to one based on a culture of value – creating and sustaining value from investments and assets. In the context of IT, this means recognizing that we are no longer dealing with “IT projects”, but with increasingly complex programmes of organizational change.

Leadership

LeadershipThe most important aspect of governance is leadership. Effective governance in the digital economy requires that leaders truly lead – moving beyond tactical leadership to strategic and transformational leadership. Understanding and taking ownership of the organizational, cultural and behavioural change that will be required to succeed in the digital economy – change that starts with the leaders themselves. We also need to get away from the cult of the leader to a culture of pervasive leadership. As Joel Kurtzman says in his book, Common Purpose, leaders need to move beyond the traditional “command and control” model to establishing a ”common purpose” and creating a “feeling of ‘we’ among the members of their group, team or organization”. This will require leaders who can “park”, or at least manage their egos, break down silos, and really engage with and empower all employees – fostering leadership across and at all levels in the organization. It will also require a dynamic, sense and respond approach to enterprise governance – one that is focused on value, while balancing rigour with agility. Only then will the full potential value of IT-enabled change in the digital economy be realized. The technology exists to support this today – what is lacking is the leadership mindset, will and capability make the change.

There is certainly not for a lack of proven value management practices. Since The Information Paradox was published, there has been an ever-growing proliferation of books, frameworks, methods, techniques and tools around the topic. The issue is the lack of serious and sustained adoption of them. The real challenge is one of overcoming the “knowing – doing gap”, as described by Jeffrey Pfeffer and Robert Sutton in their book of the same name. We know what to do, and the knowledge is available on how to do it. Yet, so far, there has simply been little or no appetite for, or commitment to the behavioural change required to get it done, and stick with it. This has to change!

As I said in my previous post, this will not be easy to do – very little involving organization, people and power is. However, the cost in money wasted and, more importantly, benefits and value lost, eroded or destroyed is appalling. It’s way past time to move beyond word to action. For enterprises to survive, let alone thrive in the digital economy, and for the potential individual, community and societal benefits of the digital economy to be realized, the status quo is not an option! To quote General Erik Shinseki, a former Chief of Staff of the US Army, “If you don’t like change, you’re going to like irrelevance even less!“

Partnering for Value in the Digital Universe – a Call to Action

Technology per se is just a cost – it is how the business uses technology, and manages the change that technology both shapes and enables,  that determines whether the technology contributes to business value. Over the last few decades, the way that we use technology – and who uses it, has changed dramatically. Yet one thing that has not changed is the on-going questioning of the value received from our investments involving technology. As we move into an increasingly digital universe, there has never been a more critical time to address this question.

As I discussed in a previous post – the “IT value” standoff, as long as boards, business executives and line of business (LOB) managers continue to view this as a technology issue, and fail to accept appropriate responsibility and accountability, and the CIO and the IT function either see their responsibility and accountability ending with the delivery of the technology capability, or are unwilling to “let go”, often because they have no confidence in the LOB managers to get the job done, we will continue to fall far short of realizing the full potential of the digital universe.

What has been lost in all this is the understanding  of, and accountability for managing the increasing breadth and depth of business change that technology both shapes and enables, and which is required if value is to be created and sustained! We need to change the conversation – to change it from one largely about the cost of delivery of technology to one focused on creating and sustaining value from business change.

Business value will only be realized from our increasingly significant and complex investments in IT-enabled change when complementary changes are made in the business – including changes to the organizational culture, business and operating models, business processes and practices, people’s work, and the skills and competencies required to successfully get the work done, reward and incentive systems, organizational structures, physical facilities etc.

All this is blurring the roles and responsibilities of IT and the business functions, and  giving rise to a fundamental rethinking of how IT, and it’s delivery and use is governed and managed, and the capabilities that are required to ensure and assure that the use of technology contributes to creating and sustaining business value.

In the 1998 edition of The Information Paradox,  I introduced the “Four Ares” as the key questions that must be addressed by governance. Subsequently, in the 2008 update, I introduced the Strategic Governance Framework (SGF), relating it to the then emerging digital economy, and described the 10 key management domains that must be included in any governance framework. In the remainder of this post, I will reintroduce and briefly describe both the “Four Ares”, and the SGF (somewhat further evolved since  2008). I will then use a combination of both to illustrate the responsibilities of the board, executive management, LOB management and IT management related to value.

The four “ares”

Slide1

As we said in The Information Paradox, “ Tough questioning is critical to get rid of silver bullet thinking about IT and lose the industrial-age mind-set that is proving extremely costly to organizations.  Asking the four “ares,” in particular, helps to define the business and technical issues clearly, and thus to better define the distinctive roles of  business executives and IT experts in the investment decision process. Are 1, Are we doing the right things? and Are 4, Are we getting the benefits?  raise key business issues relating to both strategic direction and the organization’s ability to produce the targeted business benefits.  Are 2, Are we doing them the right way?  raises a mix of business and technology integration issues that must be answered to design successful [IT-enabled] change programs.  Are 3, Are we getting them done well?  directs attention to traditional IT project delivery issues, as well as to the ability of other business groups to deliver change projects.”

Strategic Governance Framework (SGF)

Slide2

The first, and overarching element of the framework is Value Governance  – governance being  traditionally defined as the system by which enterprises are directed and controlled and as a set of relationships between a company’s management, its board, its shareholders and its other stakeholders.  Value Governance establishes how direction and control is accomplished within and across the other 10 elements of the framework which I refer to here as “management domains”. This direction and control will have both compliance and performance aspects, both of which must be considered. From a performance standpoint (and to some extent compliance in the case of risk) I add the dimensions of cost, benefit and risk across the Strategic Governance framework to show that these factors are not independent, and have to be taken into consideration when decisions are being taken in or across the management domains. The ten “management domains” are:

  • Strategy Management – Defining the business…mission, vision, values, principles, desired outcomes and strategic drivers to provide direction and focus for understanding, configuring and managing assets to deliver the greatest value.
  • Architecture Management – Understanding, communicating and managing the fundamental underlying design of the components of the business system, the relationships between them and the manner in which they support the enterprise’s objectives.
  • Portfolio Management –  Managing the evaluation, selection, monitoring and on-going adjustment of a grouping of investment programmes and resulting assets to achieve defined business results while meeting clear risk/reward standards.
  • Investment Management – Managing the full life cycle of an investment decision, using the business case throughout the life cycle to ensure a continued focus on value from the initial idea/concept (ideation) through to the retirement of the resulting new or improved assets.
  • Asset management – Managing the acquisition, use and disposal of assets to make the most of their service delivery potential and manage the related risks and costs over their entire life (source: Vicnet, State of Victoria, Australia).
  • Programme Management – Managing the delivery of change around business outcomes through a structured grouping of activities (projects) designed to produce clearly identified business results or other end benefits.
  • Project Management –  Managing a group of activities concerned with delivering a defined capability required to achieve business outcomes based upon an agreed schedule and budget.
  • Management of Change – A holistic and proactive approach to managing the transition from a current state to a desired state
  • Operations Management – Managing the production of goods and/or services efficiently  – in terms of converting inputs (in the forms of materials, labor, and energy) into outputs (in the form of goods and/or services) using as little resources as needed, and effectively – in terms of meeting customer requirements.
  • Performance Management – The definition, collection, analysis and distribution of information relevant to the management of investment programmes and assets so as to maximize their contribution to business outcomes.

While the framework may at first look intimidating, it should not be seen as such. Many, if not all functions within these domains are already being done to a greater or lesser extent in enterprises today, often in many different ways, with little communication or interraction between them. It is the management of the critical relationships between these “management domains” which, if managed well, can provide tremendous strategic advantage to enterprises, but which, if not managed well, can have serious, if not catastrophic consequences. If enterprises are to maximize the value from their investments in IT-enabled change, or any form of change, these relationships need to be understood, and managed within a dynamic, “sense and respond” governance framework.

The four “ares” and the SGF

Slide3

The figure above summarizes the primary areas of focus for each of the four “are” questions, indicating where accountabilities lie, and highlights the relevant SGF domains. The key elements of this include: 

  • Managing IT investments through a portfolio of business change programmes;
  • Developing comprehensive and consistent business cases describing: the expected outcomes; ownership of, and accountability for, the outcomes; the full scope of the change required to achieve the outcomes; the expected contribution of each change to the outcome(s); risks to the achievement of outcomes; and metrics.
  • Objective evaluation criteria enabling prioritization and selection of investments.
  • Inclusive and on-going engagement of all the stakeholders affected by the change.
  • On-going Management of the “journey”, including:
    • Using the updated business case as the key management tool; and
    • A strong gating process for progressive commitment of resources to ensure that, when thing are not going to plan, timely corrective action can be taken, including changing course, revisiting/changing the outcomes, or cancelling the program.
  • Capturing, reviewing and acting upon lessons learned so that mistakes are not repeated, and value continues to be maximised.

A call to action

I don’t want to imply that all this is easy. Working with CEOs and leadership teams I invariably get pushback when I present a way forward as it is seen as complex and time consuming. Well, getting IT right is difficult! But what is the alternative? Highly visible failed investments (that can increasingly put the very existence of the enterprise in jeopardy), with even more time and resources spent trying to find what went wrong (and often where to lay blame), and the loss of potential competitive opportunities? It is imperative that the accountabilities, roles and responsibilities of the board, executive management, LOB management, and IT management are clearly defined, understood and accepted. The impact of not doing so was relatively minor when we were merely automating well-defined tasks, became more serious, sometimes disastrous,  as we moved into integrating and using information across enterprises, and will be catastrophic as we move into the digital universe.  A universe where technology is embedded in everything we do – indeed, one in which we are becoming increasingly embedded in everything technology does, and in which everything and everyone will be connected anywhere, any time, and there will be data about everything and analytics for anyone.

The CFO of a Fortune 100 company that I worked with once confided: “I know the way we are doing things isn’t working, but I don’t know a better way.” Well, there is a better way! A better way that is not simply about thinking differently about IT, although that is a necessary pre-condition, but about doing things differently. A better way that is about boards, the C-suite, LOB and functional  management, including IT recognizing, understanding and accepting their accountability for creating and sustaining value from investments in IT-enabled change and driving that accountability down through their organisations. If enterprises are to survive, let alone thrive in the rapidly evolving digital economy, the status quo is not an option. The cost of resources wasted and, more importantly, benefits and value lost, eroded or destroyed is appalling – its way past time for all business leaders to move beyond words to action!

After all is said and done, there is more said than done!

As I have travelled around the world over the last thirty years or more, speaking to and talking with thousands of people on the topic of realizing benefits, and creating and sustaining business value from our increasingly significant and complex investments in IT-enabled change, I invariably get these three responses:

  1. You’ve given me a lot to think about;
  2. My boss should have been here; and
  3. Why aren’t we doing this?

In response to the third point, although it also encompasses the second, I decided a number of years ago to write a paper titled “Moving beyond Words to Action”, and submit it for inclusion as a chapter in a book around Enterprise Governance of IT which was being put together by a couple of colleagues of mine. In many ways, the paper was somewhat of a rant – a constructive rant, based on more years than I care to count of trying to get organizations to “get it” when it comes to the challenge of realizing the full potential of creating and sustaining value from the use of IT. I circulated the paper among a number of peers, all of whom provided constructive feedback and positive support, then submitted it to my colleagues. The good news was that they liked the paper, and thought it was much needed. The bad news was that, being academics, they were looking for more academic research for the book, and, as this was an opinion piece, they didn’t see it as a fit (although I was actually asked to write the Foreword for the book!). I was very busy at that time, so basically parked the paper and carried on with my “real” work.

However, I found myself continually going back to the paper, and, over the years since, have reworked and included much of its content in various smaller articles, and posts, and the paper in its entirety has also been used by at least one business school.

I am now, with another colleague, considering embarking on writing another book. Although the book will encompass more than that in the paper, much of the thinking behind the paper will be included. Coming off a week in New York, where I yet again heard the “Why aren’t we doing this?” question many times, I feel that this is a good time to just throw the paper out there in the hope that some readers will find it of value, and also that I will get some more feedback as we start moving ahead with the book.

The paper, the subtitle of which is the title of this post, can be found here Working Chapterv2.0 – it ends with a “call to action”, which I have included below:

Finally, if we are indeed to move beyond words, we must place an emphasis on action—on engagement and involvement at every level of the enterprise. One of the key findings presented in The-Knowing Gap is that knowledge is much more likely to be acquired from ‘learning by doing’ than from ‘learning by reading’ or ‘learning by listening’. This strongly suggests that an iterative step journey toward value management will yield, for each individual, a discrete set of opportunities for learning that, taken together across an organisation of people, form the stepping stones toward cultural transformation and the achievement of real and sustainable change. As Sun Tzu says in The Art of War, “Every journey starts with the first step.” I urge you to move beyond words and take that first step – I can’t promise that the journey will be easy, but without it, value from IT investments will remain elusive.

In reading it, do remember that it was written around seven years ago, long before the terms “digital economy”, “cloud”, “big data”, “BYOD”, etc. were in general use. Also, at the end, I discuss ISACA’s Val IT™ Framework, the development of which I led. While the framework has now been absorbed into ISACA’s new COBIT 5™, it is still available, and relevant – probably even more so – to addressing the challenge of realizing benefits from investments in IT-enabled change.

I hope that you get some value from reading the paper, and look forward to receiving your thoughts.

The Digital Economy and the IT Value Standoff

The emerging  digital economy, and the promise and challenges that it brings, including the need to shift focus beyond reducing cost to creating value, are adding fuel to the seemingly never-ending discussion about the role of the IT function, and the CIO.  There is questioning of the very need for and/or name of the position, and the function they lead. Discussions around the need for a CDO, the so-called battle between the CMO and the CIO for the “IT budget”, and other similar topics proliferate ad nauseam. Unfortunately, most, although not all of these discussions appear to be about the technology itself, along with associated budgets power and egos, within a traditional siloed organizational context. This akin to shuffling the deck chairs on the Titanic, or putting lipstick on a pig – it’s way past time for that!  As technology becomes embedded in and across everything we do, and we are increasingly becoming embedded in everything technology does, we have to acknowledge that the way we have managed technology in the past will be a huge impediment to delivering on the promise of the Digital Economy. Indeed, it has proven woefully inadequate to deliver on the promise of technology for decades.

Recent illustrations of this include failed, or significantly challenged healthcare projects in the U.S., Australia, and the U.K.as well as disastrous payroll implementations in Queensland, New Zealand and California (you would really think that we should be able to get payroll right). And this situation is certainly not unique to the public sector, although these tend to be more visible. In the private sector, a large number of organizations continue to experience similar problems, particularly around large, complicated ERP, CRM and Supply Chain systems.

All too often, these situations are described as “IT project” failures. In most cases, while there may have been some technology issues, this is rubbish. As I and others have said many times before, the ubiquitous use of the term “IT project” is a symptom of the root cause of the problem. Labelling and managing investments in IT-enabled business change, as IT projects, and abdicating accountability to the CIO is a root cause of the failure of so many to generate the expected payoff. Business value does not come from technology alone – in fact, technology in and of itself is simply a cost. Business value comes from the business change that technology increasingly shapes and enables. Change of which technology is only one part – and increasingly often only a small part. Technology only contributes to business value when complementary changes are made to the business – including increasingly complex changes to the organizational culture, the business model, and the the operating model, as well as to  relationships with customers and suppliers, business processes and work practices, staff skills and competencies, reward systems, organizational structures, physical facilities etc.

From my many previous rants about our failure to unlock the real value of IT-enabled change, regular visitors to this blog will know that I am particularly hard on non-IT business leaders, starting with Boards and CEOs, for not stepping up to the plate. When it comes to IT, the rest of the business, from the executive leadership down, has expected the IT function to deliver what they ask for, assuming little or no responsibility themselves, until it came time to assign blame when the technology didn’t do what they had hoped for. The business change that IT both shapes and enables must be owned by business leaders, and they must accept accountability, and be held accountable for creating and sustaining business value from that change. This cannot be abdicated to the IT function.

However, having spent quite a lot of time over the last few months speaking with CIOs and other IT managers, it has been brought home to me that some, possibly many of them are just as much at fault. There appear to be a number of different scenarios, including CIOs who:

  1. “Get it” and are already seen as a valued member of the executive team, providing leadership in the emerging digital economy;
  2. “Get it”, but have been unable, and, in some cases,  given up trying to get the rest of the executive team to step up to the plate;
  3.  Sort of “get it”, but don’t know how to have the conversation with the executive team;
  4. May “get it”, but are quite happy to remain  passive “order-takers”; or
  5. Don’t “get it”, still believing that IT is the answer to the world’s problems, and don’t want to “give up control”.

The result, in all too many cases, is a stand-off where the business doesn’t want to take ownership, and the IT function doesn’t know how, or doesn’t want to give up control. As Jonathan Feldman said in a recent InformationWeek post, “..enterprise IT, like government IT, believes in the big lie of total control. The thought process goes: If something lives in our datacenter and it’s supplied by our current suppliers, all will be well…my observation is that the datacenter unions at enterprises want “the cloud” to look exactly like what they have today, factored for infrastructure staff’s convenience, not the rest of the supply chain’s.” Until this standoff is resolved, the “train wrecks” will continue, and we will continue to fail to come anywhere near realizing the full economic, social and individual value that can be delivered from IT-enabled change.

At the root of all this is what I described in an earlier post as The real alignment challenge – a serious mis-alignment between enterprises whose leaders have an ecosystem mindset, and adopt mechanistic solutions to change what are becoming increasingly complex organisms. But it’s also more than this – in a recent strategy+business recent post, Susan Cramm talked about “the inability of large organizations to reshape their values, distribution of power, skills, processes, and jobs”. The sad fact is that, as organizations get bigger, an increasing amount of attention is spent looking inward, playing the “organizational game”, with inadequate attention paid to the organizations raison d’être, their customers, or their employees. As Tom Waterman said, “eventually, time, size and success results in something that doesn’t quite work.” Increasingly today, it results in something that is, or will soon be quite broken.

Most of the focus of the conversation about the digital economy today is on improving the customer experience, as indeed it should be – although we have been saying the same for decades with, at best, mixed success. We will come nowhere close to  achieving that success unless we put equal focus on our people, and rethinking how we govern, manage and organize for the digital economy such that we maximize the return on our information and our people.

This will require that leaders truly lead – moving beyond tactical leadership, aka managing, to strategic and transformational leadership. That we move from a cult of individual leadership – “the leader”, to a culture of pervasive leadership – enabling and truly empowering leadership throughout the organization- putting meaning to that much-abused term “empowerment”. That we break the competitive, hierarchical, siloed view and move to a more collaborative, organic  enterprise-wide view. The technology exists to support this today – what is lacking is the leadership mindset, will and capability make the change. As Ron Ashkenas said in a 2013 HBR blog – “The content of change management is reasonably correct, but the managerial capacity to implement it has been woefully underdeveloped”.

I am not saying that this will be easy easy to do – it isn’t, very little involving organization, people and power is. And somehow, throwing in technology seems to elevate complexity to a new dimension. And we certainly don’t make it any easier with the ever-growing proliferation of books, frameworks, methods, techniques and tools around the topic. Many of which have evolved out of the IT world, and are, as a result, while intellectually correct, often over-engineered and bewilderingly complex to executives and business managers who need to “get this”.

So, let’s get back to the basics – governance is about what decisions need to be made, who gets to make them, how they are made and the supporting management processes, structures, information and tools to ensure that it is effectively implemented, complied with, and is achieving the desired levels of performance. It’s not about process for process sake, analysis paralysis, endless meetings, or stifling bureaucracy – it’s about making better decisions by finding the right balance between intellectual rigour and individual judgement. In a previous post, Back to the Basics – the Four “Ares” I introduced the four questions that should be the foundation for that decision-making:

  1. Are we doing the right things?
  2. Are we doing them the right way?
  3. Are we getting them done well?
  4. Are we getting the benefits?

A common reaction to the four “ares” is that they are common sense. Indeed they are, but, unfortunately, they are far from common practice! if business leadership to move beyond words in addressing the challenge of creating and sustaining value from investments in enterprise computing, social media, mobility, big data and analytics, the cloud etc. emphasis must be placed on action—on engagement and involvement at every level of the enterprise,  with clearly defined structure, roles and accountabilities for all stakeholders related to creating and sustaining value. The four “ares” are a good place to start!

 

Effective Governance – Aligning Culture, Strategy and IT to Create Value

Over the last two decades, I have worked with many organizations, led the development of a number of frameworks, methodologies and techniques, written a book and numerous articles, and give more presentations than I care to count on the topic of delivering on the promised value of IT. While I would like to think that I have made a difference, and know that in more than a few cases I have, there is still have a long way to go. Frameworks and methodologies are necessary, but not sufficient to address the challenge of realizing the full value potential of IT-enabled change. Last year, I authored a thought leadership report with the Benefits Management SIG of APM UK entitled Delivering benefits from investments in change: Winning hearts and mindsThe main message of this report is that we need to move beyond the current culture of delivery – build it and they will come, to one of value, and that this will require a new, and more effective approach to governance that promotes and supports such a culture.

A number of articles I have read over the last few days have caused me to further reflect on the relationship between value, culture, strategy and IT, and the role of governance in bringing this all together.

The first of these is a Fast Company article, Culture Eats Strategy For Lunch, in which Shawn Parr contends that culture is “often discounted as a touchy-feely component of business that belongs to HR”, whereas in fact “It’s not intangible or fluffy, it’s not a vibe or the office décor. It’s one of the most important drivers that has to be set or adjusted to push long-term, sustainable success.” Paraphrasing Shawn, it is culture that can install and nurture a feeling of “common purpose”, as described by Joel Kurtzman in his book of the same name, by providing focus, motivation, connection, cohesion and spirit. I came across a somewhat different , but reinforcing view of “common purpose” in a Cutter Consortium blog by Carl PritchardCommander’s Intent and Corporate Guidance. The concept of “commander’s intent” originated in the German military almost 200 years ago, in reaction to disastrous defeats. Defeats resulting from “malicious obedience” by the troops in the field to the tight control exercised from the top (sound familiar?). It’s premise is the, rather than apply such tight command and control, leaders should provide a clear sense of the outcomes they seek and the parameters they will accept – a “common purpose”, then give subordinate leaders freedom and flexibility in planning and execution. It’s a trusting relationship between manager and subordinate and, again, one that has clear application to the broader business environment.

The next article from strategy+business, Seven Value Creation Lessons from Private Equity, reinforces the importance of a culture of value, stating that “Companies are in business to create value for their stakeholders…” and that “A select number of them get it right…”. I would broaden these statements to include all enterprises, be they in the private or public sectors, for profit or not-for-profit (by choice, that is!). Unfortunately, most enterprises don’t do a good job of this. The article suggests that all enterprises could improve their performance by “following seven imperatives from private equity to build a value culture regimen”.  These are:

  1. Focus relentlessly on value.
  2. Remember that cash is king.
  3. Operate as though time is money.
  4. Apply a long-term lens.
  5. Assemble the right team.
  6. Link pay and performance.
  7. Select stretch goals.

While, as the article states, “Private equity firms enjoy a number of natural advantages when it comes to building efficient, high-growth businesses…, the article goes on to say “the best practices of top-tier PE firms still provide powerful and broadly applicable lessons” – my experience would certainly support that view.

Unfortunately, the problem for many enterprises starts with the first imperative above. A fundamental problem here is that in many enterprises there is limited understanding of what constitutes “value” for the enterprise, or how value is created. As Daryl Plummer said, in a recent Financial Times article Don’t go chasing ghosts in the cloud, discussing how to measure the value of the “cloud”, ROI all too often becomes the surrogate for value. Again, while his comments are specific to the “cloud”, they have broader application. ROI is usually totally focused on direct financial impact, while value in fact comes in many different forms. As the French actor and playwright, Molière, said ” Things only have the value that we give them”. We need to take a broader view of value – one where we recognize that value:

  • expresses the concept of worth;
  • is context specific, dynamic and complex;
  • can’t always be measured in financial terms;
  • to one person may not be valuable to another;
  • today may not be valuable tomorrow.

A clear and shared understanding of value is, or should be the foundation for a sense of “common purpose”  – providing the guiding light for why we do things, and how we do them.

My thinking about the next topic, strategy, was triggered by an Executive Street article by Joe Evans, Integrating Business Unit Strategies into a Synchronized Corporate Strategic Plan. Strategies, whose primary objective should be to to create and sustain value, are often poorly defined and even more poorly communicated. One study, described in a 2008 Harvard Business Review articleCan You Say What Your Strategy Is? by David J. Collis and Michael G. Rukstad, found that most executives cannot articulate the basic elements of strategy of their business – objective, scope and advantage – in a simple statement of 35 words or less – and that if they can’t, neither can anyone else. Joe contends that as businesses grow increasingly complex, with multiple, often globally dispersed, divisions and units supporting diverse lines of business, strategic planning models must adapt and change beyond a “command and control, one size fits all” approach if optimal results are to be realized. Linking back to “common purpose”, and “Commander’s intent”, the corporate strategy for a large and diversified business should serve as the umbrella strategy that provides overall structure, goals and measurement – the outcomes they seek and the parameters they will accept. Business units then have the freedom and flexibility to develop and execute their strategic plans under that umbrella, such that their results are consistent with, and contribute to overall corporate strategic goals. This approach leaves the accountability for leveraging intimate knowledge of customers, competitors, employees and culture to the business layer closest to the action – to the “troops in the field”,  allowing the flexibility to plan autonomously while remaining aligned with the overall corporate strategy and goals. One word of caution here – the more complex the business, and the more multidimensional the strategies, the more they may become interdependent –  to avoid falling victim to the “law of unintended consequences”, there must be effective communication and coordination between the business units to ensure that such interdependencies are recognized, and managed.

So, you might well be asking at this stage, where does IT fit in all of this? While I would argue that IT, in and of itself, delivers no value, how we use IT – the change that IT both shapes and enables can create create significant value. With the pervasiveness of IT today, embedded in more and more of what individuals, societies and enterprises do, it is a key element of most business strategies, and investments. Yet, the track record of actually realizing value from those investments is far from stellar, and the IT function, specifically the CIO, is often in the position of having to justify or defend IT’s contribution. While there is certainly still room for improvement in the IT function, they can only be held acceptable for the delivery of IT. The business, the users of the technology, must be ultimately accountable for defining the requirements for, meaningful use of, and value creation from the services that the IT function provides. If they are to deliver on this accountability, business leaders must adopt an effective, value-driven approach to governance that promotes and fosters a culture of value – one which incorporates:

  • A shared understanding what constitutes value for the enterprise, how value is created and sustained, and how different capabilities contribute, or can contribute to creating and sustaining value;
  • Clearly defined roles, responsibilities and accountabilities of the board, executive management, business unit and delivery function management in the realisation of benefits and business value from investments in IT-enabled change;
  • Effective governance processes and practices around value management, including business case development and use, investment evaluation and selection, programme and project execution, asset management, with active benefits and change management; and
  • Relevant metrics integrated into the business which monitor the effectiveness of the approach and encourage continual improvement of the relevant processes and practices.

There are many resources that can help business leadership in adopting such an approach. One such resource, the development of which I led, is the Val IT Framework from ISACA, which is available for free download.

 

A Value-Driven Framework for Change

In an earlier post, The Future of IT, I mentioned the Strategic Governance Framework, introduced in the Afterword of the revised edition of The Information Paradox, and that over the next few months, I would be introducing this framework (which I now refer to as the Strategic Enterprise Governance Framework). Well, it has taken much longer than I had intended, but in this post, one that I must admit is somewhat drier than my usual posts, I introduce the Framework, and briefly describe each of the ten major elements that it comprises. In subsequent posts, I will describe the individual elements, and the relationships between them in greater detail.

Although more than a decade has passed since the The Information Paradox was first published,  the nature of enterprise value—and how to achieve it—continues to be a subject of much discussion. It is clear that the failure to realize business value from investments in IT-enabled change described in the book is a symptom of a wider malaise—one that presents managers with significant new challenges. The fact is, the track record for implementing any major change successfully continues to be  terrible. Although arguably more visible with IT, the same applies to any large-scale investment or change.

One of the root causes for this poor track record is the woeful inadequacy of current governance approaches to manage what is, in most cases, “an uncertain journey to an uncertain destination.” All too often, current practice results in a lack of understanding of the desired outcomes, and the full scope of effort required to realize the outcomes, not knowing what to measure, not surfacing and tracking assumptions, and not sensing and responding to changing circumstances in a timely or well-considered manner.

In the Afterword,  I described how our thinking and practices had evolved beyond the Benefits Realization Approach introduced in the first edition, to a broader strategic governance framework – a framework for overall enterprise governance. Since that time, I have further extended the framework, as illustrated below, from the original seven elements to ten.

The first, and overarching element of the framework is Strategic Governance  – governance being  traditionally defined as the system by which enterprises are directed and controlled and as a set of relationships between a company’s management, its board, its shareholders and its other stakeholders which.  Strategic Governance establishes how direction and control is accomplished within and across the other 9 elements of the framework which I refer to here as “management domains”. This direction and control will have both compliance and performance aspects, both of which must be considered. From a performance standpoint (and to some extent compliance in the case of risk) I add the dimensions of cost, benefit and risk across the Strategic Governance framework to show that these factors have to be taken into consideration when decisions are being taken in or across the management domains.

The nine “management domains” are:

  • Strategy Management – Defining the business…mission, vision, values, principles, desired outcomes and strategic drivers to provide direction and focus for understanding, configuring and managing assets to deliver the greatest value.
  • Asset management – Managing the acquisition, use and disposal of assets to make the most of their service delivery potential and manage the related risks and costs over their entire life (source: Vicnet, State of Victoria, Australia).
  • Architecture Management – Understanding, communicating and managing the fundamental underlying design of the components of the business system, the relationships between them and the manner in which they support the enterprise’s objectives.
  • Programme Management – Managing the delivery of change around business outcomes through a structured grouping of activities (projects) designed to produce clearly identified business results or other end benefits.
  • Portfolio Management –  Managing the evaluation, selection, monitoring and on-going adjustment of a grouping of investment programmes and resulting assets to achieve defined business results while meeting clear risk/reward standards.
  • Project Management –  Managing a group of activities concerned with delivering a defined capability required to achieve business outcomes based upon an agreed schedule and budget.
  • Operations Management – Managing the production of goods and/or services efficiently  – in terms of converting inputs (in the forms of materials, labor, and energy) into outputs (in the form of goods and/or services) using as little resources as needed, and effectively – in terms of meeting customer requirements.
  • Management of Change – A holistic and proactive approach to managing the transition from a current state to a desired state.
  • Performance Management – The definition, collection, analysis and distribution of information relevant to the management of investment programmes and assets so as to maximize their contribution to business outcomes.

While the framework may at first look intimidating, it should not be seen as such. Many, if not all functions within these domains are already being done to a greater or lesser extent in enterprises today, often in many different ways, with little communication between them. It is the management of the critical relationships between these “management domains” which, if managed well, can provide tremendous strategic advantage to enterprises, but which, if not managed well, can have serious, if not catastrophic consequences. If enterprises are to maximize the value from their investments in IT-enabled change, or any form of change, these relationships need to be understood, and managed within a dynamic, “sense and respond” governance framework.

In subsequent posts, I will describe each of these domains, and the critical relationships between them, in greater detail. In the meantime, I encourage you to think about the state of governance in your organization, or in organizations that you are working with, and consider:

  • Are all the management domains included?
  • How completely and effectively are they covered?
  • Are they dealt with holistically, or within silos?
  • How well are the relationships between the management domains, or between the silos covered?
  • How effective is the governance of these domains and relationships in sensing and responding to changes in today’s complex and rapidly changing environment?

Value from IT – There is a Better Way!

I have just returned from a hectic, but very successful couple of weeks in Australia. There I had the opportunity to meet with and talk to many people, including many CXOs, on the topic of “Delivering on the Promise of IT”. Overall, I was encouraged that there is more awareness of the need to do better when it comes to managing IT investments, but discouraged that there is still little awareness of how to do so, and even less appetite to take it on. As always, at the end of many sessions, a frequent reaction was “you have given us a lot to think about.” As I continue to say, we certainly need to think before we act, but thinking cannot be a substitute for action. A couple  of people echoed a comment that my friend Joe Peppard from the Cranfield  School of Management in the UK told me he had had from a senior executive of a European bank – “I didn’t know there was a better way.”

Well, there is a better way! As originally presented close to 15 years ago in The Information Paradox, proven Value Management practices exist, including, but certainly not limited to ISACA’s Val IT™ Framework, including:

  • Portfolio Management – enabling evaluation, prioritization, selection and on-going optimization of the value of IT-enabled investments and resulting assets;
  • Programme Management – enabling clear understanding and definition of the outcomes and scope of IT-enabled change programmes, and effective management of the programmes through to their desired outcomes;
  • Project Management – enabling reliable and cost-effective delivery of the capabilities necessary to achieve the outcomes, including business, process, people, technology, and organizational capabilities; and
  • Benefits Management – the active management of benefits throughout the full life-cycle of an investment decision.

This is illustrated in the figure below.

If enterprises are to successfully adopt and meaningfully use these practices, their leaders will have to change their behaviour. They will need to acknowledge that this is not an IT governance issue, it is an enterprise governance issue. Further, they will have to evolve from an enterprise governance model rooted in a culture of delivery (of technical capabilities) to one based on a culture of value – creating and sustaining value from investments and assets (for more on this, see a recent paper that I wrote with the Benefits Management SIG of the APM in the UK). In the IT context, this means recognizing that we are no longer dealing with “IT projects”, but with increasingly complex programmes of organizational change – change that is often both shaped and enabled by technology, but of which the technology is only a small part.

They should start by focusing on the business case. The business case sows the seeds of success or failure. Most today are woefully inadequate – based on “delusional optimism” and “strategic misrepresentation” (aka lying!), resulting in:

  • limited or no clarity around desired outcomes
  • limited or no understanding of the scope (“depth” and “breadth”) of change required to achieve the outcomes;
  • failure to balance “attractiveness” with “achievability” (including organizational change capacity, project and programme management capabilities); and
  • limited or no relevant metrics (both “lead” and “lag”).

In the context of IT, business cases must be owned by the business, and for any type of investment, used as a living, operational management tool to manage the full life cycle of an investment decision, and supported by the value management practices outlined above.

Again, in the context of IT, as Susan Cramm states in her book, 8 Things We Hate About IT, this will require  a significant  realignment of roles, responsibilities and accountabilities related to IT. There must be a partnership in which:

  • The IT function moves from providing infrastructure to being a broker of services (both internal and external – and increasingly external) while retaining responsibility and accountability related to fiduciary, economies of scale and enabling infrastructure;
  • Business units accept responsibility for defining the requirements for, meaningful use of, and value creation from these services; and
  • The IT function, as a trusted partner, helps the business:
    • Optimize value from existing services;
    • Understand the opportunities for creating and sustaining business value that are both shaped and  enabled by current, new or emerging technologies;
    • Understand the scope of business change required to realize value from those opportunities (including changes to the business model, business processes, people skills and competencies, reward systems, technology, organizational structure, physical facilities, etc.; and
    • Evaluate, prioritize, select and execute those opportunities with the highest potential value such that value is maximized.

The challenge here is not a lack of proven value management practices – it is the “knowing – doing gap”, as described by Jeffrey Pfeffer and Robert Sutton in their book of the same name. We know what to do, and (should know) how to do it. Yet, so far, here has simply been little or no appetite for, or commitment to the behavioural change required to get it done, and stick with it.

The cost in money wasted and, more importantly, benefits and value lost, eroded or destroyed is appalling. It’s way past time to move beyond word to action – the status quo is not an option!

There is a better way!