I wrote last week on the importance of running your IT organization like a business and what I got back was that I had fallen into the classic trap of providing advice on what to do, but no insight into how to do it. This week I’m going to try to fix that by talking directly to how you can talk to the impact your IT organization has on some of the classic business measures without forgetting that these are being seen through the lens of the IT organization. In the following section I have identified some important talking points IT executives should use when framing their impact to the organization. For each major business driver I have identified a few questions you should ask yourself and then identified a few ways that you can express how your organization can frame its impact on these important business focused measurements. So put your business hat on and change your IT centric mindset.
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| How do you talk to the business? |
Growth
Growth is the lifeblood of most business discussions and finding ways to frame the IT organizations impact on growth is critical if you are going to forge a lasting partnership with the business. Growth comes in two flavors top line meaning adding to the company’s overall sales and revenues and bottom line essentially the company’s income after all of the expenses have been deducted from revenues. One of the reasons that the technology portion of Corporate Marketing Officer budgets has been steadily growing over the last few years is because of how much impact technology has on top line growth. The impact of social/new media, big data and analytics on sales and top line growth has made technology part of the executive discussion when avenues for new growth are being discussed. Unfortunately, these initiatives are often done as one-offs rather than as a comprehensive plan. Understanding the interplay between an analysis of existing customer data, trends within your organizations social presence and planned technology investments ensures that the IT organization is able to support top line growth without putting additional pressures on the bottom line. Growing the bottom line can occur by growing revenues while holding expenses constant as a function of revenues or in an ideal world reducing those expenses so that the bottom line grows faster than revenues. Technology can help here by reducing the costs associated with the delivery of the business capabilities necessary to support top line growth. Technology is critical to support growth based on the 90/10, 80/20, 70/30 investment concept as well. By spending 90% of its IT dollars for legacy operations and only 10% for improvement or future operations most organization’s are unable to keep up with organizational needs. At 80% legacy, 20% improvement/re-capitalization most organizations are treading water. At 70/30 or 60/40, depending on risk tolerance and the industry sector, is an organization that should be improving its posture relative to the market and industry. These are rules of thumb of course, and not hard and fast but they should prompt the right type of thinking. How the IT organization gets to that more innovative mix may include a mix of new investment and cost savings and the removal of redundancy from the existing investment mix to reduce spend and legacy investment.
What you should ask yourself
Is our technology aligned to our strategy?
Is our technology helping us reduce the cost to deliver business capabilities?
How does technology support our growth strategy?
Is our technology organization investing to meet the growth strategy of the company?
Framing IT’s Support of the Business
Develop the mapping of strategy to the technology that supports it.
Express your IT portfolio to ensure that growth and innovation are identified.
Risk
Risk includes the prospect and impact of uncertainties including those caused by both events and those tied to a lack of information. Recent events within our economy have highlighted the impact risk can have on a company and the economy as a whole, and most company’s are looking for ways to reduce risk both by better understanding their operating environment as well as by mitigating the outcomes of adverse risk related events. Within the technology organization a real opportunity exists to highlight enterprise risk that may otherwise go unnoticed. In this day and age, technology organizations span and support almost every aspect of the business. They support business processes, data collection, manage information exchange, understand who has access to what information and have opportunity to see the enterprise in a more holistic fashion than most individual business units. This cross cutting view, if leveraged, not only provides enormous opportunity to improve performance but also helps to understand systemic risk. The problem is that IT alone is often a few steps short of taking the holistic understanding of the businesses technology environment and using it to help the organization reduce its exposure to adverse risk. What is the real cost of downtime, security breach, etc.? What are the effects that ripple across the system? In an era of enhanced data sharing across business applications and a focus on analysis the same innovations driving top line growth may bring with them new risks. IT organizations need to be aware of and ensure they can adequately address the business risk buried within the technology.
What you should ask yourself
Do you understand which technologies support business capabilities and their risks?
Do you understand the risk profile of your IT investments?
Do you understand the risk profile of your IT organization?
Framing IT’s Support of the Business
Develop an enterprise risk map incorporating both IT and business risk so that concentrations of business and IT risk that cluster together are understood holistically.
Consumer Trends
Evolving consumer behaviors, expectations and desirements are driving purchasing behaviors and successful companies are able to keep abreast with this more rapid pace of change. The world of information has fundamentally changed and with it so has doing business. The saying that “Bad news travels fast” has never been truer, in an age where Twitter and Facebook make real time product evaluation a reality. The up side is that there has also never been so many ways to get close to, interact with and understand customers and potential customers. The level of pre, post and in sale opportunities for technology savvy companies is growing daily and companies that are able to stay better in synch with their customers will have a sustainable competitive advantage. Helping the business understand how you are developing your technology organization to better understand and interact with the customer and how you will use this to drive sales makes technology relevant to the business. Master Data Management doesn’t matter to business people unless they can understand why having access to specific information (customer sales) data can be helpful across multiple departments, systems and organizations.
What you should ask
How is our technology helping us understand our customers?
Is our technology able to meet evolving customer needs?
Are we getting enough information about our customers?
Is our technology helping us influence our customers?
Framing IT’s Support of the Business
Develop a mapping of evolving customer requirements, the businesses efforts to meet these requirements and the paths by which IT is supporting those efforts. Hint: Think multi-level. (Social Media, Big Data, MDM, etc)
Supply Chain Management
This includes the management of all of the businesses, activities, materials and information required to deliver from the various points of origin for raw materials to the value being delivered to the end customer. The modern supply chain is global in scope and includes a vast sea of participants all playing some small or large role in delivering the end value enjoyed by and purchased by the customer. This chain enables some pretty incredible cost savings to be passed on to consumers or taken by companies as profit. The combination of the supply chains breadth in spanning the distance from raw materials to the end customer, and complexity due to its many participants, events, and processes; the supply chain can be a place where major transformation of the bottom line occurs. Even small changes in the friction between moving parts can create enormous changes to the bottom line and in some cases improve the top line by improving time to market. Despite the enormous opportunity for cost savings, efficiency gains and increased profitability, the scope and complexity of the activity nearly ensure that the technology organization could be further improving the performance in this area.
What you should ask
Have we identified areas of improvement within our supply chain?
Where are the areas of “friction” within the supply chain?
Do we understand the supply chain well enough to drive down costs?
Framing IT’s Support of the Business
Overlay the complex and dynamic supply and demand network with the technologies and investments supporting these efforts. Highlight pain points.
Selling, General and Administrative Expense (SG&A)
SG&A includes expenses directly linked to the sales of individual product as well as indirect expenses allocated proportionally to sales and administrative costs like those reflected in the technology budget. A myriad of opportunities exist here for the technology organization to reduce the expenses by reducing the costs to deliver technology services. There is also a real opportunity for the technology organization to lead the reduction in cost in other areas within the organization that contribute to SG&A by understanding the major business processes surrounding and embedded within cost centers and working to implement technologies that can reduce the cost of doing business.
What you should ask
Where are the business processes that could benefit most from technology/modernization?
Where are the opportunities to reduce existing IT costs by moving to the cloud, outsourcing, etc. in order to reduce the cost to deliver capability?
Am I using the optimal technology mix to deliver my organizations capabilities?
Framing IT’s Support of the Business
Within your investment portfolio identify the projects that will specifically go to reducing overhead.
Display the process by which the IT organization works to discover and modernize business processes in order to reduce overhead including those results.
Time to market
Time to market is the gap in time between organization having the idea for a product and delivering it. The technology organization should be able to close this gap over time by fostering collaboration; increasing organizational agility and helping the organization make sense of market data in order to put more organizational focus behind ideas that are right for the market.
What you should ask
How does the technology organization support collaboration?
How easy is it for the organization to exchange data?
Does the organization have well defined and re-usable services available?
Is the technology organization capable of supporting experimentation by the business (POCs)?
How hard is it for the business to start a technology project?
Framing IT’s Support of the Business
Plot IT investments on a timeline and include the business initiative spawning the investment along with business initiatives made after the investment in order to better present to the business the ongoing value of past investments to future operations. The idea is to convey the idea of re-use and reduced time to market.
Technology investments
Technology investments are made with one purpose to recognize a gain in profits or benefits from the acquired technology. However many organizations have trouble making discreet business cases for investments in technology that are not directly tied to a specific project or program. Investments in technology strategy, planning, security, and even ongoing operations become a gray area as their distance from the customer grows. Many organizations struggle to get investments that IT executive “know” are necessary because they cannot describe the organizational return in a manner that resonates with business executives. Similarly, executives struggle for funding for “glue” initiatives that enable the exchange of information between applications, constrain technology purchasing decisions, or impose hard to define enterprise value over easier to quantify project value.
What you should ask
Do we have a repeatable process for developing an understanding of what the business will get from the technology?
Are we identifying and pursuing the technologies and solutions that will have a high ROI?
Is the business defined well enough to show how technology supports the different facets of the organization?
Framing IT’s Support of the Business
Graphically display the value of the infrastructure investments necessary to support the “projects” of the organization. In many organizations executives are less likely to question project type investments that have easily calculated ROIs but balk at the cost of the underlying capabilities and their costs. When these costs are simply allocated across units and projects as a slice or tax they are more likely to be characterized as excessive. Hint: This works better if your projects total area in the representation is larger than the projects.
Competitive landscape
The competitive landscape for most companies is rapidly evolving with factors including competitive rivalry, suppliers, customers, and new entrants and products. Each can play a unique role in reshaping industry dynamics and the interplay between the factors can make discerning the root causes of contributing factors difficult to understand at the same time that the reality of the change is greatly effecting the bottom line. Technology can play an enormous role in changing the competitive landscape by helping the organization directly attack a factor that is an obstacle for it within the competitive landscape. An example might be reducing switching costs for new customers by handling the movement of their data or reducing the bargaining power of suppliers by having better insight into material costs or enhancing your ability to work with more suppliers.
What you should ask
Have we identified the role technology can play in influencing the competitive landscape?
How does our technology support competitive advantage?
What technologies do our competitors use to gain advantage?
What technologies do our customers use that are changing the competitive landscape?
What technologies will change our relationship with our suppliers?
Framing IT’s Support of the Business
Lay out a matrix with competitors and capabilities that result in competitive advantage. Next, score yourself against each competitor. This can be a good way of understanding how your technology is helping you win in some areas and may fall short in others.
Joshua Millsapps
Senior Partner, Millsapps, Ballinger & Associates
Twitter: @jmillsapps
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