4.
The state of strategy. The uses of formal strategic planning processes in
corporations have derived in mixed results. Faulty preparation and poor
execution procedures seem to be the most common reason of these results;
however, the end product is that in many corporations strategic planning efforts
have been drastically reduced in the early 90s.
Gary Hammel and C.K. Prahalad have established that current strategy models lead to a pathology of the ever catch-up game (Strategic Intent, Harvard Business Review); because in so may cases, companies try only to replicate proven successful strategies applied by their competitors.
Sometimes, when corporate vision is not clearly established,
strategic models enter in collision course with demands of value creation from
shareholders. This inevitably provokes unnecessary stress among the members of
top management.
Style of corporate governance will necessarily determine the
approach in which IT should be applied. It is frequent to find that corporate
governance style is not clear to all members of the company, leading to mixed
behavior and poor execution results.
5.
The digital economy. The universal connectivity provided by Internet is
redefining all forms of business systems and structures, as well as social
interaction among communities. The most profound impacts are in both fields,
economic and cultural.
Internet technology is becoming the common base of operation within and between enterprises. In the 70s and 80s, companies based their competitiveness on R&D and marketing (operating basically as centralized organizations), now increasingly decentralized companies (and quickly moving to distributed schemes) are trying to establish their emphasis around IT.
The digital economy shows elements based on key factors that
determine how the companies should operate from now, on: (a) change; (b) speed
and (c) complexity. Enterprises can conduct their business without physical
facilities, such as the case of the ever-present examples of Amazon.com and
Yahoo.com; even more, their market capitalization does not depend anymore on
tangible assets.
New technologies integrated within the digital economy allow
companies to provide massive personalization services to a huge amount of
customers, reshaping the core competencies of the organizations. Within this
context, local presence in a determined market is not a privilege anymore
(barely can be defined as a competing tool).
Now customers do not perceive value from products based on
atoms, but from those based on bits and information content, opening doors to
business opportunities never imagined before.
IT should be a key player supporting organizational efforts
to take advantage of these changes.
INFORMATION TECHNOLOGY STRATEGIC PLANNING PROCESS
In companies making the transition to the Century XXI it is necessary to
have specific IT strategic planning efforts because there is an accelerated
trend of growth in IT spending (problem compounded by the Y2K issue) and
it’s increasing impact on organizational competitiveness and business
results. For perspective, in 1991 US total capital spending on IT exceeded for
the very first time to capital machinery and equipment spending; now has a share
of more than 50% of business equipment capital spending.
According to Charles B. Wang, CEO of Computer Associates, IT is a fundamental force in reshaping organizations by applying investments in computing and communications to promote competitive advantage, customer service and other strategic benefits
Companies should prepare technology strategies and execute them with basis on strategic enterprise-wide initiatives, taking advantage of business planning cycle and with full involvement and commitment of top management. The framework of such strategic planning process needs to include vision, strategy and implementation action plans.
To complement IT planning efforts, to eliminate the disconnect between the CIO and their business counterparts, as well as to help companies leverage the technology, the following steps must be considered:
B. Establish an IT Committee to discuss and define how IT has to be applied to the business; company’s CEO
must be the chairman of this team and CIO the administrator.
C. Decentralize and disperse IT resources.
D. Raise levels of computing literacy among business people and business literacy among IT people.E. Promote end-user computing.
F. When applicable, try to align it deployment efforts with TQ efforts.
G. Establish an evolutionary, not revolutionary approach; especially in terms on spending rates, infrastructuredeployment and previous investments protection.
This process helps in changing the traditional reactive IT deployment work (which responds only to urgent organization’s demands) to a proactive focus, which strategically drafts a plan for IT development and application as a basis for new business initiatives. This proactive approach serves as preventive methodology for TQM, as discussed later in this paper.
One of the important features of a global CIO in current companies is to be
perceived, among his / her peers, as a key business consultant. Within this
context, it is extremely important to align not only general strategic planning
efforts, but also IT strategies, to the corporate governance style that has been
adopted by the company. There are mainly three different styles, which lead to
centralized, decentralized and even distributed operating schemes: (a) strategic
planning; (b) strategic control and (c) financial control.
The behavior that corporate headquarters will show regarding the business
units operations, depends largely on the style adopted, which is reflected in
two main dimensions (see figure # 1):
1.
Planning influence. The degree in which strategy is centrally
determined.
2.
Control influence. The degree in which short-term financial goals are centrally
enforced.
IT will not be the exception to these forces, thus the planning approach
must be aligned with them to be actionable. Otherwise, they could cause severe
conflicts with the operations of the business units.
Figure 1. - Strategic management styles determine how
strategic planning tasks are carried out.
The ideal forum to discuss how IT spending should be done, how IT
infrastructure should be deployed and which applications will be considered as
business priorities is an executive committee designed exclusively to deal with
these critical issues.
What is really intended with these decisions, is to use technology as a
trigger for a real change in the way business is conducted by the company. With
an IT committee personally chaired by the CEO, business sense of the
decision-making process is assured. Additionally, the contribution of function
managers is essential given that they face all kind of business problems on a
day-to-day basis, providing a customer orientation in the IT development.
A consistent operation of this kind of business team has to
lead to the consolidation of a computing and information culture in the company;
however, specific steps and goals for computing literacy have to be drafted to
assure it. CEOs and top executives have to feel comfortable using technical
terms and especially technical concepts; the only reasonable way to achieve this
is to apply information technology to solve business problems or improve
business processes. On the other hand, IT people have to be comfortable using
business terminology and specially business concepts to solve IT issues
Top management and end users with solid computing literacy show an attitude
towards technology that goes beyond to the ability of using PCs and specific
software or applications. Business people with proper IT preparation reflect
users that are eager to lead those projects that traditionally are considered
technical ones and left in the hands of IT people. By this way, those projects
lead by function managers but with close cooperation of IT managers are
typically much more focused on the business benefits than on technical
aspects.
Some universities have taken responsibility of preparing tomorrow’s
executives with these skills. In Mexico, ITESM is one of the most prestigious
universities, currently has 27 premises in 26 of the biggest cities in the
country. Its virtual system of education has 40,000 students within 13
postgraduate programs, as compared with 80,000 students under traditional
systems. ITESM
aims to have its whole student population using laptops as regular learning tool
by 2001
Technology infrastructure deployment is another area of key attention;
following Metcalfe’s law, strategic planning efforts should include
specific tasks to build decentralized, disperse and appropriately networked IT
resources, as the basis to increase collaboration across the organization.
In those enterprises where Total Quality Management is a central part of
strategic work, IT has to be managed and fully aligned with the company’s
TQ model to effectively support its focus. It is interesting to note that those
companies with solid TQ principles (i.e. winners of the Malcolm Baldridge
Quality Award) consistently show strong IT strategies and superior business
results.
When is strategically managed (in the terms described in this paper) IT is
a key component in at least five out of eight factors of the model used in the
Malcolm Baldridge, Juran Quality Prize and many other total quality systems
operating worldwide:
FACTOR |
STRATEGIC IMPACT |
|
Information & analysis |
Ø Providing reliable, timely and consistent data
collection Ø Establishing the basis for information analysis
process. Ø Facilitating the methods to translate markets
information into real |
|
Personnel development |
Ø IT people acting as internal business
consultants, aiming to improve processes, products and services. |
|
Process management |
ØSystematic management of business key processes. Ø Detailed attention to how finished goods &
services are produced and delivered to customers; how procurement
functions are implemented; how quality is assured and how
customers’ requirements are met. Ø Achieving operating excellence through quality
design and a preventive approach in business processes. |
|
Superior value to the client |
Ø Providing methodology to know the customers,
provide products & services according their requirements and
measure their satisfaction. Ø Offering personalized services to customers |
|
Business results |
Ø Developing and implementing only those IT
projects that really add value to the customer and deliver tangible
benefits (i.e. those with superior ROI rates) |
Articulating TQ and IT strategies with basis on consistent business
definitions, needs and requirements, determines in technological terms, the way
in which the business is conducted by the company:
ü
Identifying new services to be supplied to the customers.
ü
Integrating more robust supply-chain flows of material and information.
ü
Establishing new distribution channels.
ü
Identifying new markets.
ü
Expanding organizational boundaries.
ü
Establishing new methodologies for knowledge grasping and management.
IT strategic planning process requires similar methodology
to those used when a business strategic plan is prepared. Alignment of approach
and articulation of action steps through Integrated Business Planning:
1.
Develop a business alignment matrix
· Identify CSF
· Set goals
· Develop performance indicators
· Develop targets
2.
Develop a preliminary business plan
3.
Develop process improvement plan
4.
Develop the operations plan
5.
Develop the resource plan
6.
Develop optional other supporting plan
7.
Conduct periodic business plan reviews
IT STRATEGIC PLANNING IN THE CHEMICAL INDUSTRY
To illustrate the issues discussed in the previous section, I will use an
example from the chemical industry: GIRSA is a Mexican petrochemical
conglomerate of companies. Eight different business units integrate it, each one
producing different goods and materials, some of them are for the end consumer,
but most are raw materials (i.e. carbon black, synthetic rubber,
polystyrene… etc) used to produce other goods. The Group has sales in
excess of $800.0MM USD.
The company used to work in a tightly centralized scheme, so MIS was also
organized around a central department, providing service to the whole
corporation. This meant that all business units used to shared technological
infrastructure, business applications, office automation devices and learning
resources, although their operations and markets were very different. Corporate
governance was focused on a planning process centrally prepared and
executed.
In 1992 the corporate governance style changed to a very decentralized one.
Each business unit acquired a large degree of autonomy, looking for flexibility
and responsiveness to dynamic markets. From that point on, each business unit
began to operate independently of each other; corporate management style moved
to a emphasis on financial control.
IT strategies switched to the decentralized scheme too, dispersing MIS
department‘s human and technical resources among the business units,
creating their respective MIS areas and IT infrastructure with the intention of
having self-sufficient business divisions.
From the technology standpoint, in each facility an HP3000 was installed to
process their information using desegregated applications. They began to send
and receive general ledger transactions for consolidating and financial
information purposes (for further reference, you can see “Processing and
integration of Business Information from Decentralized operations”,
Interex 93 Proceedings).
As every MIS area began to work independently, different strategies arose:
some business units established an internal applications development approach,
while others decided to rely on commercial software. Some business units
assigned top priority to the definition of IT strategies, while others
considered IT as a merely operating issue.
As a result, the applications portfolio of the Group began to change
(especially in terms of diversification). On the other hand, LANs grew on each
one of business units’ facilities, the WAN changed to allow TCP/IP traffic
and expanded bandwidth, open architectures were adopted so a mixture of UNIX,
Windows NT and MPE platforms coexist within resource administration problems and
high cost of ownership.
An increasing rate of IT spending and mixed results of IT application to
business units has been the final product; in some cases, new client / server
applications are in full operation, while others still operated until recent
months in legacy systems (incidentally, Y2K non-compliant). It is interesting to
say that those business units with strong TQ culture, were the ones that began
to take real advantage of information technology. Furthermore, the gap among
business units and their approach to apply IT has been greater every day; this
is a dead weight that hampers the Group’s competitiveness.
Considering the management style followed by the Group, a framework of
corporate policies and specific strategies were prepared to reinforce how the
business units take advantage of IT. We identified four strategic elements of
information technology deployment, to be used as basis for a diagnostics of the
current position, as well as to rule strategy settings in every business unit,
as well as to the whole Group:
A.
Technology & infrastructure. Assure that IT devices (namely, hardware)
are sufficient, updated and properly deployed to meet corporate’s needs.
It evaluates the foundation to support future projects, as well as the ability
to execute utility applications with efficiency.
B.
Connectivity. Assure that interoperability among applications is in place
through specific methods, devices and mediums; it has to be installed for data,
voice and image exchange among all business unit’s premises.
C.
Systematization.
Assure that the company has a clear vision on which applications will
support key business processes and provide the basis for their continuous
improvement.
D.
Computing & information literacy. Assure that the company counts with a critical
mass of people, who have the know-how, are eager and willing to take advantage
of IT possibilities to solve business problems.
IT strategies were crafted by each business units around these four
elements and discussed not only in their respective IT committees but also at
the board of directors. Figure No. 2 shows an example of the diagnostic of one
of the business unit. A similar chart is used to project how these elements will
behave in the future, with basis on the opportunities already identified in each
one of them, as well as on the strategic direction that each business unit has
defined.
Evidently all these efforts have raised the level of discussion regarding
IT. On one hand, business strategies are the basis to define IT strategies and,
on the other, each project has to be justified on the basis of real benefits
that are going to be provided to the business, before being formally
approved.
It is important to say that now there is an information technology
committee in each one of the business units, personally chaired by the
corresponding managing director. One of the key duties of such committee is to
keep track of the progress on the strategic actions agreed with the board.
As a complementary effort, some ratios were adopted to assure that
indicators about process effectiveness, infrastructure deployment and business
results would serve as guidance systems. Among the ratios implemented I can
mention the following as examples:
Technology indicators:
· Volume of PCs as compared to employees requiring them (# of employees /
PC)
· Volume of PCs linked in a network
· Percentage of obsolescence in equipment used (according to a corporate
criteria)
· Bandwidth installed / bandwidth required
Process indicators:
· IT services availability (service factor)
· Software licenses sufficiency
· Volume of access visits to the corporate intranet
·
Applications response time vs. goal
Economic indicators
· IT spending (expenses) / total operating expenses
· IT spending (expenses plus investment) / sales
Figure 2. - Chart of IT elements diagnostic per
business unit.
The approach of establishing IT strategies in terms of these four key
elements have forced top management of each business units to pay attention to
every one and balance efforts among them, with basis on the perspective provided
by their respective business strategy.
In the case of infrastructure, for instance, specific decisions about how
to preserve the investment done in previous years have been made, along with the
ones regarding to new acquisitions. Economy is very important and in our
corporation to extend the life of the current HP3000 platform is a must; it is
important to highlight that investment considers not only the value of the
computers in operation, but also the knowledge created in IT people about the
platform as well.
There are about 18 MPE/ix machines in the Group and while most of them were
recently still used only for running legacy applications. These technology
strategies have allowed us to draft action programs to leverage them as file
& printing servers, as well as Intranet / Extranet central repositories (see
typical infrastructure of a business unit in figure # 3).
Given that mission-critical applications in all the business units have
been replaced by open ERP systems based on client / server architectures, all of
them require to have mechanisms in place to assure access to past data (for
fiscal purposes mainly). Assigning these equipments a new mission, such as
described in the previous paragraph, grants us that proper updated systems will
be always in place, while access to past data is provided in a natural way
(Windows), rather than thorugh terminal emulators.
Having attendance to HP World on a regular basis has provided us with the first-hand knowledge about the tools and technology evolution to establish these multiple-environment platforms within a reliable network administration. Just is the case of SAMBA, which was installed and tested during 1997/98, allowing us to provide file & printing services from these environments, as well as natural networking services provided in MPE/ix and HP-UX, avoiding terminal emulation.
Figure 3.- Typical multiple-environment infrastructure in
GIRSA’s business units.
Regarding which applications and services install in HP3000 platform to
extend their useful life, in a paper presented at HP World 97 and documented as
part of the Proceedings (“Intranet as a corporate communications
tool”), we described how we implemented an Intranet as a key application.
At the present time a HP9000 and a HP3000 are both Intranet Servers and are
working fine with very good results. Figure # 4 shows the Intranet in operation
(named SING because of
the initials in Spanish of “GIRSA Intranet System”).
In the field of systematization, an applications portfolio analysis has
been conducted to define which ones were the candidates to be replaced, in an
operating and strategic context, beyond the purely needs of Y2K. This analysis
was conducted with basis on the critical success factors of the markets in which
each business unit participates, aiming to a real strategic vision on how IT will
contribute to company’s competitiveness.
As a result of these efforts, a portfolio of projects was drafted in each
business unit, to be used as an implementation program guide. In some cases of
similar projects in different business units, we promoted a common project among
them, looking for synergies focused as an operation of common services, rather
than a centralization of IT functions (it would be against the management style
adopted by our corporation).
Figure 4. - GIRSA Intranet running on MPE/ix
environment.
The area of computing & information literacy is one of the most
important ones because it defines whether the company has an organization
capable of leveraging the technology or not. Within this, there are action steps
to be taken to assure that the company counts with properly prepared employees.
They should have enough IT skills related not only to abilities on how to use
PCs, office automation tools and specific applications, but also to become a
change agent, capable of leading IT projects as business oriented ones.
We have
defined a computing & information literacy map that defines what are the
minimum skills required to cover each one of the knowledge areas that each one
of the different kind of users should have. We have classified users in three
kinds, for role definition purposes, as follows:
A.
Managing directors and members of business units’ top management;
corporate officers. Those considered as sponsors of IT development and
deployment.
B.
Middle managers. All those that can be responsible of leading an IT
project; they are also typically ultimate responsible of quality of transactions
operated by others through company’s applications.
C.
Clerks and unionized workers. All those that typically execute transactions
capturing data, launching computer jobs and running specific functions of the
applications.
Knowledge areas are defined as those technology subjects, themes, operation
of IT services and applications that guide how to use and take advantage of IT
for business purposes. These represent knowledge required to be a key
contributor to the group’s competitiveness.
The computing & information literacy map helps in identification of
gaps existing between the knowledge level required and the skills actually shown
per knowledge area. Figure # 5 shows an example of such diagnostic.
Figure 5. - Computing & information literacy
map.
Specific programs for business literacy among IT people are also under
operation; our model for quality management is one of the key vehicles we use to
provide hands-on training to IT people on how to understand customers’
requirements and environment, financial analysis, business systems and the
rationale for business strategies. These are fundamental components of business
sense.
Having a specific program for business literacy development is especially
important. Gartner Group (1998) forecasts, with a .70 of probability, that by
2002, pure technical skills will represent only 35% (out of a current 65%) of
the expertise of internal IS work force in more than 50% of large
enterprises.
This will be the result of a fundamental change in the nature of the role
of the IT organization; it will move from a direct provider of technology
services, to become a broker and internal integrator of shared services.
As of to this point, we’ve presented how we approach the definition
process of IT strategies with basis on the business strategies but now it is
imperative to discuss two specific areas of internal IS work that are critical
for the successful preparation and execution of IT strategies: (a) definition of
operating practices around insourcing and outsourcing to meet company’s
demand and (b) organizational design and deployment of IT human resources.
Establishing a balance between insourcing and outsourcing practices begins
with a definition of the level of internal IT people structure. This is a matter
of capacity planning and the associated costs to such decision; along with this,
typically goes the deci9sion about to use or not outsourcing resources.
Business strategy theorists say that structures have to follow strategies.
IT is not the exception to such rule; it is necessary to identify the real level
of demand and its two variations: fixed (semi-fixed in reality) and variable,
which could lead to lost strategic opportunities or overhead, depending how the
human structure is set up, such as figure # 6 illustrates.
Figure 6. - Impact of IT structure definition on approaches
to meet internal customers’ demand.
In line with this point are those decisions related to how and where to use
outsourcing resources; there are some key reasons that drive this kind of
decisions: (a) IT operating costs control; (b) gain access to world-class
competencies; (c) risks sharing; (d) cash injection; (e) internal resources
scarcity… etc.
Although some companies have decided to use a full outsourcing practice,
and some others virtually meet all the demand via insourcing, we believe that a
selective outsourcing provides an excellent complement of competencies. As
Gartner Group has established (1998), by 2002, 50% of the IS work force will be
contract or external workers; on the other hand, IDC forecasts that 70% of
companies that have contracted outsourcing services to solve Y2K issues, will
continue using such services after such problem is gone.
Organizational design for IS departments should follow principles of
preparation of high performance organizations (structure, rewards, tasks,
decision making, information and people) attending both rational and emotional
sides because, after all, strong leadership is a key component of successful
business and IT strategies.
Using the scheme of IT strategies definition with basis on the four
elements, complemented by efforts on the consistent operation of IT committees
have provided us with valuable benefits. It has allowed us to reduce the
nuisance generated by the decentralization of business and IS operations, as
well as to close the gap existing between the group of business units with
better IT leverage with those business units that don’t have such
level.
Evidently we still have a long way to walk in the generation of business
opportunities application with basis on information technology, but we think we
are on the right direction. A relevant progress in the application of IT has
been achieved, moving our organization towards IT applications with more value
added, thus reinforcing our competitive position. Figure # 7 shows how chemical industry is
doing in terms of value creation from IT strategies, according a model prepared
by the MIT.
Figure 7. - IT strategy levels (MIT model).
Among our main opportunity areas (which by definition are part of our
working programs), I can mention the following: (a) reinforce business literacy
among IT people; (b) establish a competence center for common services and (c)
reinforce participation and commitment from top management in all business
units. A much more competitive GIRSA will raise from this work.
CONCLUSIONS
The role and nature of the IS areas is changing dramatically because of the
new dynamics of the markets, the emerging opportunities originated by the
digital economies and the accelerated development of information technologies,
but the responsibilities about IT resources management will remain.
IT strategic planning efforts and company wide strategic planning processes
have to be intimately linked and synchronized (this is, a specific sequence has
to be followed to achieve effectiveness and to consider funding and budgeting
approval). A complete system should include action steps to assure that IT
strategic planning generates quality products as input for the business
strategic planning.
Thorough work has to be done to reach a truly business position for IT
people (especially, in the case of the CIO); this obviously implies that they
must acquire strong business sense and skills.
IT strategic planning has to share the business vision of the general
strategic planning of the corporation. The strategic plan of information
technology represents the allocation of the IT resources to achieve the best
business results towards that common vision. IT strategic planning can be
painful. Several basic assumptions about IS processes and operation (otherwise
considered as “given”) have to be examined and challenged during the
strategic plan preparation process.
As Bill Gates establishes in his new book (“Business @ the speed of
thought”), companies will change more in the next 10 years than in the
previous 50 and IT will be at the center stage. Lots of opportunities are in the
upcoming months to position information technology as a key supplier of business
value; however, it is important to mention that there are also severe risks to
face since IT is now in the position of damaging, when abused, to practically
any business.
As shown in figure # 7 strategic planning for information technology has to
be focused and lead to delivering applications with more business value; from
purely oriented towards cost and expense reduction, to productivity improvement
& payback focus, to the ones that genuinely redefine our business.
However this is going to be a tough track. Gartner Group forecasted in 1998
(with a rate of 0.9 probability) that by 2000, 75% of enterprises that attempt
to create integrated business / technology architectures will fail to reach
their goals because they will not have created a viable process for
communicating and governing its implementation. It is imperative to be part of
the 25% that will succeed.
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