For most CIOs, aligning IT with the business is one of the hardest parts of the job. But with the help of a logical, repeatable process, it can be a whole lot easier.
In my 36 years in IT management, I have known the unique pain that CIOs and IT managers experience when they're trying to determine if their IT investments are fully aligned to support their corporate mission. As the former CIO at Chase Manhattan Bank, I remember well what it was like trying to divide up an annual pie of nearly $US1 billion for IT expenditures. Each year, hundreds of millions of dollars had to be allocated to new projects designed to support various companywide initiatives. During each annual planning cycle, we would sift through literally hundreds of individual IT projects, trying to determine which ones were most important to the overall strategic mission. It was not difficult identifying the top five or 10 projects. But as we went further down the list, things would start to get fuzzy. What was more important: a new customer information system to support cross-product sales and marketing or a new risk management system to support global capital markets? Also, many pet projects, lacking any formal justification, often made the final list due to political or personal preferences. I'm sure you've faced similar tough choices. But after years of reflection and working closely with colleagues in the CIO community, I've concluded that the "pain" we feel when trying to align IT with the business is not merely a result of the complex trade-offs we face in prioritisation and resource allocation or the difficulties we encounter in measuring IT value. The pain is symptomatic of a fundamental absence of a process -- one we can rely on to build consensus between business unit and IT executives, that can broaden executives' thinking beyond their departmental boundaries and that can break down the parochial walls around pet projects with limited business value. Our pain is really the manifestation of our desire for an alignment process that is simple, logical, repeatable and proven.
We've all spent countless nights unable to sleep, asking ourselves the same questions. How can I quantify and demonstrate the value of my IT? How do I reduce the risk associated with the appalling industry implementation failure rate? How can I show my business people that IT is supporting the processes that they say are most important? How can I show the impact of pet projects on the success of the overall IT portfolio? How can I get the business unit people to stop throwing projects "over the wall"? And how can I get IT and business people to speak the same language? In the end, all these issues come down to one fundamental question of alignment: Is there a repeatable process I can implement to determine if I'm spending the right amount of resources for the right reasons, on the right projects, that will get us all closer to the goal line? Unfortunately, there are no silver bullets when it comes to solving complex questions relating to alignment. That said, however, I believe there are several concrete elements that are critical in implementing a logical process by which to align IT with the business.
1. Identify Differences of Opinion
The first essential element of an alignment process is identifying divergence of opinion among various constituency groups in the company. Executives, business unit heads, IT managers, operations, sales and finance people all must be individually surveyed and asked to identify and rank what they believe to be the most important drivers of achieving business objectives. Following the survey, all the stakeholders must be brought together and shown where they differ on what they think are the key business drivers and the degree to which their thinking is out of alignment. Identifying a divergence of opinion among the stakeholders is the first step in mitigating the risks that eventually lead to implementation failure. If someone does not believe in the relative importance of a fundamental business driver, all projects associated with it that require that executive's support will be at risk. For example, at a leading commercial bank (let's call it Big Bank), various constituencies were asked to rank key drivers. Then they were shown the extent to which their thinking was out of alignment (see "Divergence of Opinion at Big Bank"). Most dramatically, the strategy head believed that total reach was most important to the business, while operations was almost exclusively focused on capacity building.
2. Prioritise Business Drivers
Next, there must be a dialogue to prioritise the drivers of the corporate vision. All stakeholders must have the opportunity to make the case for why they think certain drivers are more important than others. This is not an easy discussion to have, and more often than not, companies don't make the effort.
Outside facilitators can play an important role in the process. Because the entire alignment process hinges on achieving a consensus of vision, the dialogue is a critical step in getting all the parties necessary for the success of a project thinking on the same page. At the conclusion of this dialogue, the group must collectively define a set of vision drivers and rank them in terms of relative importance. An effective way to tackle the prioritisation is with a pairwise comparison analysis, based on utility theory, in which the group compares each driver against every other driver one by one, in pairwise fashion, with the final result being an overall ranking of most to least important.
However it is handled, the process of collectively prioritising vision elements is the underpinning for a successful aligning of IT and the business. Not only does it ensure that key constituencies are thinking cohesively, it also allows the team to identify and mitigate risks by uncovering managers whose support is questionable. And perhaps most important, it moves the dialogue away from parochial arguments in defence of individual projects and toward fundamental elements of business value. This enables business unit and IT managers to build consensus at the beginning of the process on the most important strategic objectives driving the corporation. Gaining this consensus is an important first step in determining the order in which projects will be evaluated and resources allocated across the investment portfolio.
3. Link Vision, Process and Projects
Next, the company must establish the relationships among vision, process and individual IT projects. As in prioritising the business drivers, this can be effectively accomplished using pairwise comparisons. First, starting with the prioritised list of drivers, each process should be compared with each driver one by one to assess the degree to which it supports that driver. Then, all those comparisons must be combined to arrive at a general ranking of processes, based on how well they support the prioritised drivers. For example, at Big Bank, total reach was determined to be the leading business driver among a set of 10; accordingly, the processes supporting global transaction processing and 24-hour customer support through IT were judged to be the most important.
Similarly, the group should undertake the same procedure to assess the relationships between individual IT projects and the newly ranked processes: Make comparisons between each IT project and each process on the ranked list; then, using matrix multiplications, combine those comparisons into an overall ranking of IT projects. The mathematics underlying some of these rankings can be somewhat complex and involved; it's easier to use software that automates the process. For example, I am on the board of directors for United Management Technologies (UMT), a New York City-based consultancy that specialises in helping top managers align IT with business, and it has developed a methodology and software to do just that, making this step easier. Using this procedure, Big Bank's management team was able to strategically prioritise its drivers, processes and projects to determine what was most important to its business success. Based on this knowledge, they could then make the most of their limited budget.
4. Incorporate Resource Constraints
The next step in the alignment process is to identify and incorporate all applicable resource constraints. The most obvious such constraint is cost, but for many companies the availability of human resources can be an even bigger one. Either way, before an organisation can decide on a final portfolio of IT projects to undertake, it must apply these constraints to the consideration of its prioritised list of projects. Using linear programming (an operations research technique often embodied in software packages, including the service offered by UMT), it is possible to determine an optimal portfolio for each resource constraint. So, for example, focusing on a constraint of budget, you can get a graph -- called an "efficient frontier" -- of optimal portfolios for various budget levels. By finding the point on the curve corresponding to a particular budget amount, you can determine the optimal IT project portfolio for that level. At Big Bank, for example, management had a budget of $US5 million. To determine the optimal project portfolio given this constraint, an efficient frontier was generated (see "Big Bank's Efficient Frontier"), and it was clear that project portfolio C would provide the optimal strategic value at that level.
Efficient frontiers can be generated for other constraints as well, such as human resources, showing the optimal portfolios for various levels of those constraints. For an overall view, it is also possible to get an efficient frontier taking all constraints into account. In each case, however, one particularly useful feature of this step is that the shape of an efficient frontier can be used to decide when it makes sense to allocate more of a given resource to an IT portfolio. In an efficient frontier for cost constraints, for example, places where the curve is sharply rising indicate that a small increase in budget could result in a large increase in the strategic value of the optimal portfolio. By contrast, in cases where that efficient frontier flattens out, a large increase in budget may not produce a significant increase in the optimal portfolio's strategic value and so would not be worthwhile.
Another attractive feature of this process is that it allows managers to perform "what if" analyses to determine the effect of making changes to constraints or of forcing pet projects into the portfolio. Big Bank, for example, wanted to see the effect of including an expensive pet project in its portfolio. At its budget level of $US5 million, however, the "forced" portfolio including this project (portfolio P on the graph) provided significantly less strategic value than portfolio C did. So management decided to forgo the pet project and implement portfolio C.
By assisting in the analyses of the strategic importance of myriad project sets, this alignment process empowers the company to define its IT initiatives by the value derived from the cooperation of business unit and IT executives as opposed to the declared value of departmental managers whose strategic thinking ends at their department's boundaries on the organisational chart. In the end, this alignment process enables the team to view all IT investments as a portfolio of projects measured by strategic importance and the company's ability to successfully implement them. Most important, it provides the management team with the tools and the ability to measure, analyse and align the IT portfolio on a continuous basis throughout the year, as opposed to just during the traditional yearly planning cycle. What strikes me about the process is that it makes sense. It is simple. It is rooted in logic. It is repeatable, and it is proven. It provides CIOs with the techniques by which to change people's attitudes and develop commitment to shared vision and shared goals. It enables CIOs to measure not just the ROI of individual projects but entire relationships between business processes, systems and new initiatives.
And finally, it allows both IT and business unit executives to visualise the IT portfolio as a whole and see the degree to which IT is aligned to meet the corporate mission.
It is true that there are no silver bullets when it comes to alignment. But this operating model allows CIOs to resolve priority issues based on an established business value road map, thereby minimising the pain and risk that comes with our territory.
Craig Goldman, president and CEO of Cyber Consulting Services Corp in Mahwah, New Jersey, served as CIO of The Chase Manhattan Bank from 1991 to 1996. He is a member of the executive advisory boards of Intel, Compaq, IBM's Lotus Development and Platinum Technology. Editorial assistance was provided by Jeff Parness, United Management Technologies' director of strategic relations