Value Management is not just a challenge for IT

I had the opportunity to deliver the closing keynote to the APM Benefits Management SIG Annual Conference at the National Motorcycle Museum in Birmingham, UK on Tuesday – from my home office in Victoria on Vancouver Island in BC, Canada (the view from which you can see below).
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The purpose of this blog is not to dwell on the technology that allowed me to do so – which has both advantages (in terms of not having to travel) and disadvantages (in terms of audience engagement and feedback) but to share some thoughts that I got from listening to the presentation that preceded my keynote. The presentation was entitled “Benefits in the Built Environment” and given by Matthew Walker.

Matthew defined the “Built Environment” as being “output centric” and relating to infrastructure programmes in the communications, energy, transportation, waste and water sectors. Within the UK context – and indeed any nation – these are often taken for granted – only thought about when they break – but are of strategic importance in terms of providing an economic backbone, having national security and quality of life implications and impact, and requiring sustainability targets. Investment in these sectors in the UK 2005/6 to 2009/10 has been ~£30b/yr and is currently projected to be ~£50b/yr in 2010/11 and to continue at that level until 2030, with the current drivers for investment in these areas being the economic situation, population growth and carbon reduction. Rising to this challenge requires diversification of investment methods and the political will and capability to make long-term investments. To deliver value for money, this will require prioritization of desired outcomes, and understanding of interdependency’s through effective benefits management, or – in my preferred terminology – value management. Does this sound familiar? This is what we have been talking about in the context of IT – or IT-enabled change programmes – for well over a decade or more! It gets even more familiar.

The track record of benefits management for such infrastructure investments – if you go beyond schedule, cost, and delivery to specification is largely unknown, but the indicators are not good. A 2009 APM report, “Change for the better. A Study on Benefits Management across the UK”, found that >60% of organizations had no more than an informal or incidental approach to benefits management, and ~70% felt that value was added only some of the time, or never.

Matthew’s recommendations included:

  • defining success in terms of benefits;
  • putting benefits management at the heart of oversight and governance of major programmes and projects;
  • increasing awareness and exposure of the business case;
  • using benefits management to prioritize investments; and
  • providing transparency through assurance.

Matthew stressed that achieving such a “benefits renaissance” would not be an “overnight journey”, but one that we must take – the “we” in this case including:

  • funders;
  • professional bodies;
  • business executives; and
  • construction industry practitioners.

I have long said that the issues around realizing value from IT investments or, more accurately investments in IT-enabled change, are not an IT issue but a business issue – a business issue that is not unique to IT. They are a symptom of our preoccupation with cost, activities and outputs, and our failure to move beyond this preoccupation to a focus on value – understanding the desired outcomes of an investment, and the full scope of interdependent effort required to deliver these outcomes, assigning clear accountability for outcomes – supported by relevant metrics and an aligned reward system, and designing and managing complete and comprehensive programmes to deliver those outcomes. Only when we do this – which will require significant behavioural change – will we  address “the challenge of value”,  and begin to consistently create and sustain value  for all stakeholders, including shareholders in the private sector, and taxpayers in the public sector. In today’s complex and rapidly changing economic environment, to quote from “Apollo 13”, “Failure is not an option!” Or, 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!

The Budgeting Circus

This article in Computerworld by Mitch Betts, The dreaded IT budget process wastes big bucks,  discusses research by the CIO Executive Board which found that “the traditional annual budget circus can waste 6% to 11% of the IT budget”. Reading it caused me to revisit a blog that I had posted back in March which I felt worth repeating below.

Managing in the fog

This article in the February 28th edition of The Economist starts with an interesting quote from Jack Welch that reinforces what I have been thinking and saying for many years. He says:

Not to beat about the bush, but the budgeting process at most companies has to be the most ineffective practice in management.

There are a number of problems with the “traditional” budgeting process:

  1. It’s not dynamic – it is usually an annual event/ritual and tightly coupled with planning – the result being that planning also becomes an annual event/ritual.
  2. It’s not efficient – it is incredibly time consuming – I once heard a former CIO of Microsoft joke at a conference that Microsoft had to get all its work done in 3 months because the budgeting process took 9 months.
  3. It’s not focused on outcomes – when you cut through all the “window dressing”, people go into the process to justify keeping the resources they already have.
  4. It is far too detailed – as a result of point #3, enormous effort is spent on defining projects that might happen, to justify resources that might be needed for what might actually need to be done.
  5. It’s not objective – budget decisions are all too often emotional – the result of “relationship based ” or “decibel based” decision making rather than a rational, objective process.
  6. It’s not flexible/agile – once struck, the budget is hard to change – other than through “across the board” cuts.

Even before the current economic meltdown, the rate and pace of change makes annual budget cycles not just obsolete but downright dangerous. We certainly need some form of budgeting process, but we need a much more practical, pragmatic and dynamic process. The article discusses a number of alternatives , which I would summarize as:

An efficient and flexible/agile scenario based budgeting process, with contingency planning for each scenario, and dynamic rolling forecasts, at an appropriate level of detail, reviewed and adjusted regularly (monthly or when certain trigger conditions occur) by senior management, making objective, outcome-based decisions supported by relevant, reliable and up-to date information (as of today vs. last month/quarter).

Such an approach has implications for governance processes, for the information, and enabling technology required to support them, and for management behaviour.

Focus Must Shift beyond IT Spending to Business Value

I have been a little quiet on the blog lately as I have been, and am still heavily involved with my wife in organizing and running the Sidney Fine Art Show – one of the largest and most anticipated shows in British Columbia and a highlight on the cultural calendar of Vancouver Island. In the space of three days, we transform a community hall

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into a world-class art gallery which is visited by more than 5,000 people over the three days of the Show.

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The Show is also an example of what can be done when you have a clear vision, great people – over 300 volunteers – and appropriately used technology – in this case good old Excel which supports just about every element of the Show. In the current economic climate, and certainly in the context of significant cuts to government support for the arts in this part of the world, we have certainly had to be careful with our finances this year – the 7th year of the Show. We did not however make cuts “across the board” – we focused our spending on those areas that we felt would add the greatest value within the context of our vision. We spent less, sometimes nothing, in some areas, and more in others. I should add that the Show, totally run by volunteers, is not for profit, and not only do artists receive 85% of their sales revenue, but also any surplus from the Show goes directly back to the Community Arts Council of the Saanich Peninsula to support their many diverse programs. The cuts in government arts funding make the Show’s contribution even more important this year.

So, what does this have to do with IT – other than Excel? I read two somewhat conflicting reports on IT spending today, interestingly both under the CIO banner. The first, More CIOs Planning to Spend Money, Hire IT Staff, by Carolyn Johnson, suggests that more CIOs are planning to increase IT spending than at any time since mid-2008, with the average overall change (mean) being +5% . The second, IDC: IT spending unlikely to recover fully before next recession, by Leo King, reports  that IDC has warned that spending on technology will not return to pre-recession levels before the next downturn. IDC said CIOs should expect their budgets to grow, but only to a lower level than was reached before the recession, the highest realistic prediction was for a two per cent growth in spending by 2013.

Now, I don’t know who is right – nor quite frankly do I really care. While the amount of IT spend is interesting, and budgets should be managed responsibly, such discussion  continues to focus on the cost of IT. As in the case of the Sidney Fine Art Show above, the real focus has to shift to what is the business value of that spend. Our continued focus on spend – the cost of IT, is plain wrong-headed.We need to focus on value – value as defined by the Val IT ™ framework as “total life cycle benefits net of total life cycle costs adjusted for risk and (in the case of financial value) the time value of money”. Only when we do this will we come anywhere near to realizing the full potential of IT-enabled change.

CIOs in the Era of Doing More with Less

A shorter post than usual, but I wanted to  highlight an interesting article by Brian P.Watson in CIO Insight which quotes, among others, Peter Whatnell, CIO of Sunoco and President of the Society for Information Management (SIM).

While quite a bit of the article is about tactical stuff, the quotes below capture the type of thinking we should be looking for from CIOs, and that CEOs should be demanding. These include:

“Most importantly for IT leaders today, doing the right things means focusing on the long-term view—the strategic components of your plan and that of the overall business, not the bits and bytes of whatever hot technology is dominating the IT buzz”. – Brian Watson

“…the opportunity for IT leaders is more strategic than tactical, more business than technology.” – Peter Whatnell, CIO, Sunoco and President, SIM

“When all is said and done, blending a strategic business focus with the right IT decisions could be what separates the CIO wheat from the chaff. Put those skills together, and you’ll become a true partner:  A CIO has to become the internal, go-to expert consultant for every functional head in the organization to help them execute, innovate and enable strategy more efficiently with the right technology.” – Vincent Cirel, CIO, Norwegian Cruise Line

While these quotes are encouraging, we should remember that the requirement for CIOs to be more strategic business partners should not come as a “Eureka” – resulting from the current economic crisis. The requirement has existed for a long time – certainly well over two decades. The difference today is that the consequences of not doing this are much more serious. CIOs and CEOs who do not understand this are putting the very survival of their organizations at risk!

You can be assured that I will be discussing this topic more in presentation at my SIMposium09 in Seattle on November 9th.

Ending the management illusion: Preventing another financial crisis

This is an Ivey Business Journal article by Hersh Shefrin that provides a very interesting perspective on the current financial crisis. While this is interesting in itself, there are many parallels here with other failures of governance, including IT governance – in fact, particularly on the first page, if you drop the word “financial”, what Hersh is presenting is that governance failures all too often result from our failure to understand the need to both recognize and change human behaviour. A few (slightly restructured and “de-financialed”) quotes:

“The root cause…is the psychological excess that was manifest in unsound managerial judgement and poor managerial decisions…much of that excess was preventable….going forward, we need to figure out how to deal with our self-destructive elements. We need to learn how to build organizations that are psychologically smart. We need to structure organizational cultures that foster sensible approaches to risk-taking…the starting point is to face up to a major management illusion…the belief that organizations can ignore psychological obstacles to effective decision-making, and yet succeed in the long-run without being lucky…addressing psychological obstacles effectively requires the development of a co-ordinated, integrated approach…setting clear goals. It means:
  • planning with a view to execution and the achievement of goals;
  • putting in place a balanced mix of financial and non-financial incentives which reward members of the organization according to how well goals are met;
  • excelling in the sharing of information about whether the organization is track in carrying out its plans, achieving its goals, and rewarding its members.