Nature of Information Technology Within Organizations

1. Nature of Information Technology Within Organizations Dr. Mary C. Lacity Thomas Cole, Course of the Empire: Archadian State, 1834

2. Session Objectives • Understand Context (nature) of IT • within organizations • Understand Role of the CIO • Understand that every organization has • an IT culture • Understand how IT is governed • within organizations Ensure Value for IT Spend to

3. Session Objectives • Understand Context (nature) of IT • within organizations • Understand Role of the CIO • Understand that every organization has • an IT culture • Understand how IT is governed • within organizations Ensure Value for IT Spend to The IT function provides a portfolio of IT products and services. For many IT products & services, there is a corresponding cost/service trade-off. For some IT activities, both costs and services can be improved. Stakeholders possess different expectations and perceptions of IT performance.

4. Session Objectives • Understand Context (nature) of IT • within organizations • Understand Role of the CIO • Understand that every organization has • an IT culture • Understand how IT is governed • within organizations Ensure Value for IT Spend to The CIO must deliver operational excellence to gain credibility The CIO must make strategic choices and communicate these effectively to stakeholders The CIO must propose new business opportunities The CIO must promote agenda Levinson, M., “CIO and CEO: How to Work with Your Boss,” CIO Magazine, Oct 1, 2004.

5. Session Objectives • Understand Context (nature) of IT • within organizations • Understand Role of the CIO • Understand that every organization has • an IT culture • Understand how IT is governed • within organizations Ensure Value for IT Spend to “A necessary evil,” “IT is support, not a partner,” “IT Rules!” “Business Can Do It Better” “Equal Partners” Kaarst-Brown, M., “Understanding An Organization’s View of the CIO: The Role of Assumptions About IT, MIS Quarterly Executive, Vol. 4, 2, June 2005, pp. 287-301.

6. Session Objectives • Understand Context (nature) of IT • within organizations • Understand Role of the CIO • Understand that every organization has • an IT culture • Understand how IT is governed • within organizations Ensure Value for IT Spend to “IT governance—specifying the framework for decision rights and accountabilities to encourage desirable behavior in the use of IT.” IT governance mechanisms: budgets, chargebacks, service level agreements, Committees, special offices (Office of Architecture; Program Management Office) Weill, “Don’t Just Lead: Govern, How Top Performing Firms Govern IT, MISQE, March 2004, 2004, pp. 1-17.

7. “Smurfit-Stone is North America's premier packaging company, working as ONE team to deliver exceptional value to our customers, employees, shareholders and the communities in which we do business.” --http://www.smurfitstone.com/Content/ Major product lines include corrugated boxes or containerboard, point-of-purchase displays and recyclable paper products. Major services include consulting, contract packaging, recycling, research & development, or testing

8. 2005 Data: Total Number of employees = 35,300 (28,200 in US) Total Number of IT employees in IT headquarters: 300 in-house & 80 contractors IT Spend ~ $100 million (1% of revenues) 1 Losses due to increased global competition, rising input costs, and soaring employee benefits costs.

9. IT Department: 5 locations (Alton) LAN WAN Tcom Desktops Midrange Security Continiuty Financial HR/Payroll CAD Bag Plants Converting Corrugated Asset Management Procurement PMO Customer Training Warehouse DBA BI DSS Customer support

10. IT Department Supports: • 12,500 customers (users) • 11,917 desktops & laptops • 246 Macintosh computers • 4,143 printers • 604 contracts with suppliers • 1,920 IT orders processed • 3,733 production system changes • 300 phone systems • 1,700 cell phones • 248 personal digital assistants • 2 mainframes • 2 data centers (Alton & Chicago) • 187 midrange computers • 589 routers & 1,778 switches • 84 business applications • 598 databases • 72,000 EDI documents per month

11. Nature of IT Within Organizations Top 4 things general managers must understand about IT: The IT function provides a portfolio of IT products and services. For most IT products & services, there is a corresponding cost/service trade-off. For some IT activities, both costs and services can be improved. Stakeholders possess different expectations and perceptions of IT performance.

12. The IT Function Provides aPortfolio of Products & Services The typical Fortune 500 company provides over 500 IT services:

13. The IT Function Provides aPortfolio of Products & Services The typical Fortune 500 company supports thousands of applications…

14. The IT Function Provides aPortfolio of Products & Services Different IT products/services require different skills, capabilities, and resources All of IT is not a commodity (despite what many CEOs think) All of IT is not strategic (despite what many IT managers think)

15. IT Cost/Service Trade-offs • For most IT products/services, there is a corresponding cost/service • trade-off. This trade-off suggests IT management practices: • Best service, but high cost practices: • Customization • Decentralization • Loose Controls that encourage consumption • Low cost, but lower service practices: • Standardization • Centralization • Tight Controls to harness consumption

16. Just some examples ofIT Cost/Service Trade-offs

17. For some IT activities, both costs and services can be improved Capability Maturity Model, ISO, Six Sigma, Structured SAD and other process methodologies are based on the notion that improving quality reduces costs. For example: Reducing the number of errors in programming code improves software quality and reduces maintenance costs.

18. IT Cost/Service Trade-offs The IT management challenge: For each product and service, should we focus on low cost or service excellence? Most IT managers face different expectations from different stakeholders.

19. Stakeholder Expectations/Perceptions of IT Senior managers typically want low costs because they pay for IT Users typically want service excellence because they consume IT products/services

20. Stakeholder Expectations/Perceptions of IT Senior managers typically want low costs because they pay for IT:

21. Stakeholder Expectations/Perceptions of IT Users typically want service excellence because they consume IT products/services:

22. Stakeholder Expectations/Perceptions of IT IT managers are often placed in the impossible situation of proving a Rolls Royce service at a Chevrolet price: • “I said [to management], ‘I cannot get any support from you all in how to allocate these resources. And we cannot be the traffic cop in this whole process because it’s not right. I’m trying to satisfy everybody and it’s not working.’” --IT Director, Petroleum Company • “We are an IT company, so we can transfuse current IT, state of the art IT, future IT, conceptual IT. But of course that transfusion as far as we are concerned is not free.The big problem is these people think that transfusion is free. All we are contracted to do is drive a service of this level.” -- CSC Quality Manager on BAe Account

23. Stakeholder Expectations/Perceptions of IT

24. Session Objectives • Understand Context (nature) of IT • within organizations • Understand Role of the CIO • Understand that every organization has • an IT culture • Understand how IT is governed • within organizations Ensure Value for IT Spend to The CIO must deliver operational excellence to gain credibility The CIO must make strategic choices and communicate these effectively to stakeholders The CIO must propose new business opportunities The CIO must promote agenda Levinson, M., “CIO and CEO: How to Work with Your Boss,” CIO Magazine, Oct 1, 2004.

25. Role of CIO: Ideal verses Reality

26. Operational Excellence Precedes Strategic Credibility “It’s very difficult to be seen as Mr. or Mrs. Strategy if the trains aren’t running on time.” -- Steve Agnoli, CIO, Kirkpatrick & Lockhart law firm (Seated left) Levinson, M., “CIO and CEO: How to Work with Your Boss,” CIO Magazine, Oct 1, 2004.

27. Three Steps to Image Alignment Make Strategic Choices –CIO at AskSam Systems told his CEO that he decided to pull headcount from the internal CRM project so that an upgrade to a core external product would be delivered on time Propose New Business Opportunities– CIO of Chicago Mercantile Exchange adopted Financial Industry Exchange (FIX) protocol before competitors and gained a competitive advantage by attracting more traders. Promote Your Agenda – If not invited to the party, lobby for 10 minutes in front of the Board or top management committees to explain what IT is working on and how it add value. Levinson, M., “CIO and CEO: How to Work with Your Boss,” CIO Magazine, Oct 1, 2004.

28. CIO of Smurfit Stone The CIO was awarded CIO Magazine’s prestigious “the CIO 100” in 2003. His award was for “demonstrated resourceful use of technology in tough economic times.” The CIO notes: “Even in declining times, we have a responsibility to move technology forward. We look for investment dollars that will make us more agile or more flexible. If there is something that can differentiate us in the market that is IT enabled, we will spend dollars there.”

29. CIO Status Depends More on Culture than: • Co-location with business peers • Business degree • Personal charisma • Tech savvy business peers Kaarst-Brown, M., “Understanding An Organization’s View of the CIO: The Role of Assumptions About IT, MIS Quarterly Executive, Vol. 4, 2, June 2005, pp. 287-301.

30. Session Objectives • Understand Context (nature) of IT • within organizations • Understand Role of the CIO • Understand that every organization has • an IT culture • Understand how IT is governed • within organizations Ensure Value for IT Spend to “A necessary evil,” “IT is support, not a partner,” “IT Rules!” “Business Can Do It Better” “Equal Partners” Kaarst-Brown, M., “Understanding An Organization’s View of the CIO: The Role of Assumptions About IT, MIS Quarterly Executive, Vol. 4, 2, June 2005, pp. 287-301.

32. Session Objectives • Understand Context (nature) of IT • within organizations • Understand Role of the CIO • Understand that every organization has • an IT culture • Understand how IT is governed • within organizations Ensure Value for IT Spend to “IT governance—specifying the framework for decision rights and accountabilities to encourage desirable behavior in the use of IT.” IT governance mechanisms: budgets, chargebacks, service level agreements, Committees, special offices (Office of Architecture; Program Management Office) Weill, “Don’t Just Lead: Govern, How Top Performing Firms Govern IT, MISQE, March 2004, 2004, pp. 1-17.

33. “Don’t Just Lead, Govern: How Top-Performing Firms Govern IT” “Top performing enterprises succeed in obtaining value from IT where others fail, in part by implementing effective IT governance to support their strategies and institutionalize good practices.” Survey of 256 enterprises in 23 countries 20 detailed case studies Performance: 1. IT Governance as assessed by CIOs on scale of 20-100 2. Financial as measured by Return on assets Revenue growth Profit (Industry Adjusted) 5 Major IT Decisions: Input & Decision: IT principles IT architecture IT infrastructure Business Application Needs IT Investment & Prioritization 6 Governance Archetypes: Business Monarchy IT Monarchy Feudal Federal IT Duopoly Anarchy Peter Weill, MISQE, 2004, pp. 1-16

34. Governance Defined “IT governance—specifying the framework for decision rights and accountabilities to encourage desirable behavior in the use of IT.” –Weill, MISQE, 2004 “A structure of relationships and processes to control the enterprise in order to achieve the enterprise’s goals by adding value while balancing risk verses return over IT and its processes.” –IT Governance Institute, www.itgi.org “IT governance is the organizational capacity exercised by the Board, executive management, and IT management to control the formulation and implementation of IT strategy and in this way ensure the fusion of business and IT.” –Wim Van Grembergen, 35th HICSS Conference

38. MOST COMMON GOVERANCE PATTERNS:NOT TIED TO PERFORMANCE

39. 3 3 3 3 2 1 1 2 2 1 3 2 2 1 1 TOP THREE PERFORMING PATTERNS AS MEASURED BY CIO ASSESSMENT

40. No dominant pattern Often multiple Architectures & infrastructures G G P G P P G G P P G P A A A A A TOP THREE PERFORMING PATTERNS AS MEASURED BY: Asset Utilization (IT coordinates) Growth (Balance needs of entrepreneurial units Profit(Largely centralized to control costs) with business wide objectives)

41. Eight IT Governance Critical Success Factors 1. Transparency to all managers 2. Governance should be actively designed 3. Governance should be infrequently redesigned—takes 6 months to define one! 4. Educate managers to understand and use IT governance 5. Simplicity—based on small number of performance objectives 6. An exception handling process (UPS) 7. Governance should be designed at multiple organizational levels (enterprise/ division/geographic, business unit) 8. Align incentives

42. IT Management Council User Board of Advisors Business Strategy CIO IT Strategy • Charter: Division IT and corporate IT management focused on cross sharing of ideas and experience. Will be used for issue resolution and enterprise IT strategy formulation. • Charter: Customer voice, strategy formulation, policy review • Comprised of Senior Business Executives from Corporate and Divisions PMO/ Change Management Business Process Automation Infrastructure Customer Support And Finance Business Applications Supply Chain Operations • Charter: Development of common project methodology and tools. Develop project performance metrics. Provide Coaching to projects • Charter: Working closely with the customers, plan, lead and manage mill software applications and projects • Charter: Create Centers of Expertise in areas of knowledge to share across SSCC • Charter: Working closely with customers, plan, lead and manage software application projects • Charter: Manage and ensure uptime of the data center and all information technology infrastructure • Charter: Improve customer satisfaction through problem prevention and timely resolution. Ensure proper fiscal, procurement and human resource operations within ITD. – DBA – Data Management – Data Warehouse/ Architecture – Business Intelligence/ Decision Support – eBusiness – Web Development – EAI • – CAD Eng. (Product Config) • – Business Apps • Development & support: • CRM • Finance • HR/Payroll • CPD Apps • Container Apps • – Business Process Group – Methodology Dev. – Training; Planning, Execution, Coordination – Communications – Performance management and measurement – Project Governance –SOM/SCORE –TMS –Panther –Majiq –CMS Management / Maintenance / Technical Support of: – Mainframe / Data Center – Server – LAN/WAN Network – Desktop Support – Security – Version control – Disaster Recovery – Customer Advocate – Help Desk/Support Center – Finance – HR/Personnel – IT skills enhancement – Procurement/ Technical Acquisition – Asset Management

43. Two Examples of Best Practices for IT Governance Mechanisms 1. Develop chargeback (billing) systems to motivate behavior towards cost minimization or service excellence 2. Develop service level agreements to articulate service requirements to stakeholders

44. Best Practices for IT Governance Mechanisms:Chargeback Systems A chargeback system is an accounting procedure for allocating the IT operating budget to user departments. “With a chargeback system, you get a bill that shows you here’s everything you ran for the month. And if you were wasting resources, and the bill jumps as a result of that, you’d be amazed how much people reduce their costs the minute a chargeback system is implemented.” -- Warren Gallent, Technology Partners Chargeback systems range from general allocation systems to profit centers.

45. Best Practices for IT Governance Mechanisms:Chargeback Systems • General allocation chargeback systems have set bills regardless • of IT use: • IT budget may be divided among departments based on • size of budget, number of users, etc. • Does not motivate efficient user behavior because users do • not perceive that consumption is tied to a cost. • General allocation chargeback systems are easy to administer.

46. Best Practices for IT Governance Mechanisms:Chargeback Systems At the other extreme, all 500 services may be individually priced with a Profit Center chargeback system. CPU minute: $ 8.00 Gigabyte of storage: $ 100.00 Printed page: $ 1.00 1 person-hour programmer $ 50.00 1 person-hour analyst $ 80.00 1 new workstation $10,000.00 etc….

47. Best Practices for IT Governance Mechanisms:Chargeback Systems • Pros of using a profit center: • Users take more responsibility for IT expenditures • IT managers motivated to provide cost efficient service • Cons of using a profit center: • Expensive to administer • Difficult to set correct prices to re-coup IT operating budget • Users may unfairly price shop: • “The purchase cost is the only cost the user sees. Maintaining it • costs five times as much as it does to purchase.” -- CSC Quality • Manager

48. Best Practices for IT Governance Mechanisms:Service Level Agreements • Develop service levels for every service you want to control • Example: Service level for security request for new logon ID or access to • data: • 95% of security requests will be correctly processed within • 2 working days after receipt of the properly authorized and • correctly completed security request form. • 100% of security requests will be correctly processed within • 4 working days after receipt of the properly authorized and • correctly completed security request form.

49. Best Practices for IT Governance Mechanisms:Service Level Agreements • Example: Service level for security request for new logon ID or access to • data: • Local security administrators will copy requests • Central security administrator will copy and log requests • Central security administrator will report on SLA once a • month to Data Center Manager • Missed SLA will be reported to Data Center Manager and • appropriate user manager • Criticality of service: moderate

50. Best Practices for IT Governance Mechanisms:Service Level Agreements • Principles of Good Service Levels: • 100% accountability • Accuracy and Timeliness addressed • Defines IT and user responsibilities • Criticality of service rated • SLA reporting system established • Escalation procedures defined for missed SLA • In cases of outsourcing, cash penalties may be awarded