IS6600 – 8

1. IS6600 – 8 The CIO, Information and Strategy

2. Learning Objectives • What is the role of the CIO? • How can IS be strategised? • The alignment imperative – why alignment is critical. • From alignment to agility and accountability • The Balanced Scorecard – a strategic tool for action in organisations

3. Story One • The CEO of an insurance company wonders why a key competitor seems so much more innovative and responsive to customer needs. “How do they manage to initiate, customize, and support such a variety of insurance products so quickly?” she asks. “We could not cope with the complex information processing that must be required! What are they doing differently with their people and technology? Our systems personnel are always bogged down with last year’s priorities…” Chan, MISQE, 1, 2, 97-112.

4. Analysis • The competitor: • has developed core competence in the application of IS to business needs. • has developed the ability to respond to business conditions effectively (business intelligence + KM) • has employees who • can apply relevant knowledge efficiently & effectively. • are focused on today’s tasks • has identified information as a critical resource • ensures that the IS fits and supports the business • has, in consequence, a better Business-IS alignment

5. Story Two • A CIO wonders when he will be accepted at top management meetings. Although he has won a long, hard battle to be present at these meetings, to understand new business directions better, he senses that his presence is merely tolerated. His ideas have little clout. His colleagues acknowledge that IT is becoming increasingly important to business operations, but their thinking and behavior stifle innovation. Chan, MISQE, 2, 1, 97-112.

6. Analysis • The organisation itself barely recognises the importance of information • The CIO is marginalised • perhaps useful as someone important for operational support, but not strategic planning. • The organisation is probably failing to align its overall business direction with its IS policies, skills, capabilities

7. Story Three • The CEO of a luxury goods retailer asks the CIO to propose a new KMS. The KMS will ‘grab’ knowledge from global buyers about fashion trends so that sales staff can be more knowledgeable about these trends and so answer customer queries better. The sales staff are not interested in such a boring and un-interactive system. You are the CIO. How will you react to the CEO?

8. Core Competence in IS • A core competence can be defined as business or IS knowledge/expertise required to create, design, develop & maintain an application of value to the organisation. • Core competencies can be • (Past) • Current • Future

9. Competence Examples • Programming & application development skills • Project management skills • Integrated knowledge of our business from both strategic and IS perspectives • Including KM and BI capability • Including product knowledge • Product design skills • The ability to use IT/IS to create new products so as to ensure firm competitiveness

10. Questions to Ask about Organisational IS • Does IS drive your organisation’s competitiveness? • What role does IS play in your corporate strategy? • Mission critical, integral? • Peripheral, supporting? • Now? Five years later? • Are significant resources devoted to IS, or just a few $$ here and there? • Are IS people deeply engaged in many aspects of your business?

11. IS and Strategic Positioning • Consider the following companies. Is IS strategic, mission critical, supporting • China Light & Power, HK Electric • Cathay Pacific, MTR, OOCL • HSBC, HK Post Office • CityU, Sun Hung Kai Properties, PWC • Low-tech SMEs

12. What about Risks? • Risks are involved in different aspects of an IS/IT portfolio. • The level of the risk depends on the importance of the IS/IT to the organisation • Risks apply to software & applications, hardware, networks, procedures, … and … people & culture. • Each competence needs to be risk-assessed.

13. The Consequences of Poor Business-IS Alignment? • IT Competencies are not developed, promoted or managed. • IT and Business risks are poorly assessed (if at all). • Business executives cannot clearly articulate their IS needs and don’t really understand what IS is for. • IS people have limited business vision or knowledge. • IS investments are expensive and yield low returns. • Good ideas are not developed

14. Then What is (IS) Alignment? • “the degree to which the IT mission, objectives and plans support and are supported by the business mission, objectives and plans” • [Reich & Benbasat, MISQ, 24, 1, p.82] • “fit” & “integration” among business strategy, IT strategy, business infrastructure, and IT infrastructure. • [Henderson & Venkatraman, IBMSJ, 32, 1, 4-16] • Effective IS management requires a both a balance and effective alignment across four domains. • Note: Its co-alignment, not one-way alignment

15. IT Domain Business Domain External Business Strategy IS/IT Strategy Business Productsand Services Strategy Alignment Process(Linkage & Automation) IS/ITTransformation BusinessTransformation OrganisationalInfrastructureand Processes IS/ITInfrastructureand Processes Internal IS/IT Productsand Services Henderson & Venkatraman’s Strategic Alignment Model Adapted from Henderson & Venkatraman, 1992

16. Problems and Possibilities • How can we align IS and the Business? • How can we balance the different activities? • By changing the outlook • Making $$$ is not the only responsibility!!! • There are other stakeholders to be considered as well.

17. Who are the Multiple Stakeholders? ’s missions are… To be the supplier of choice by fulfilling service requirements and expectations of customers. To be the employer of choice by creating opportunity and providing fair reward for employees. To be an admired corporate citizen by respecting the interests of the community. To be the investment of choice by providing maximum long-term value of equity for shareholders. To be the partner of choice by ensuring maximum mutual benefit for business partners. Martinsons, 2005

18. Beyond Alignment is Agility • Strategic IT investments that will change the enterprise • Web 2.0 and Interactive platforms • A climate of continuous change is more powerful than globalisation • Project requirements will change (long) before the project is complete. • Agile Enterprise Management is needed to thrive in an environment of continuous change

19. What is Enterprise Agility? • The ability to respond to market challenges and opportunities fast enough so as to enhance or maintain enterprise value. • Is it better to focus on efficiency or value-added? • Rapid decision making is key to agility • Agile management is a critical part of an agile enterprise.

20. Agile Management Structures • Have highly distributed power coupled with the authority (and willingness) to make decisions • Information must be readily available • Clear rules and lines of responsibility • Instant access to EKRs and communities of experts • When change is the driver, nothing is sacrosanct • As business contexts change, so will both business processes and the competitive responses from the organisation • Out with the top-heavy, command-and-control management structures; In with agile, dynamic, empowered middle managers

21. In an agile enterprise… • Leadership must be collaborative • Strategic planning and action are no longer solely the prerogative of the CxOs • Business unit managers and business developers must be involved too • Reliance on Web 2.0 social networking applications will become commonplace • The right IT must be in place (not just EIS) for BUMs and BDs, where IT complexity is managed and Web 2.0 is leveraged at the enterprise level.

22. IT Payoff? • Historically, CIOs have struggled to make the case for IT ROI. • Where did all that $ in IT go? Where is the payoff? • Now, agility is set to become a large part of the ROI • Time to market is increasingly IT dependent in an agile world. • Web 2.0 should add value • But it should not become the next hype. Buy-in for good business reasons.

23. The Inside Role of Web 2.0 • Blogs, wikis, social networking… • Web 2.0 enables open, multipoint conversations – inside the organisation and beyond. • Inside the organisation is itself a distributed function – but that doesn’t matter • It is better to overcommunicate than under. • Collaboration is critical – and it must be online • FTF meetings are no longer feasible for planning and decision making • But will senior management understand? A shift of mindset is necessary.

24. So How is Web 2.0 Being Used? • We saw examples of blogs in our first class. • But these are more for opinion dissemination, not feedback management • Blogs that are critical of your products are a hazard that you can’t avoid • Some firms are experimenting with wikis for KM applications. • SAP’s developer network has over 1M members • SAP’s business process expert community - 280k people sharing process knowledge

25. IT Budgets will Shrink • And this may be quite a good thing! • Should technology be bought because of hype or business need? • New acquisitions may come from cost savings, and reduced complexity, not new money. • IT cannot be separate from business. IT is business. That is what alignment means.

26. Alignment and Accountability • Ten years ago, CIOs were expected NOT to understand the business • Today, if you don’t understand the business, you can’t be a CIO. • If a new system/product that the CIO delivers does not achieve the expected business value, it is the CIO’s fault (no one else’s). • IT-Business Alignment also means IT-Business Accountability & Trust

27. Alignment at CISCO • IT budget of US$1billion/year • The CIO returned 50% to the business functions • “Its really your money. Tell me how to spend it in a way that helps you” • But system integration and compatibility are important • Procurement process control • Business unit managers own their own projects • The CIO is the service provider but not the project owner • Users get more value from IT when they are responsible for it • Maturity of both IT and users is critical to develop trust

28. The Balanced Scorecard • One way to achieve alignment, accountability and agility is to use the Balanced Scorecard (BSC) • (Kaplan & Norton, 1996). • The BSC was designed, in recognition of the limitations of financial accounting measures: • They provide a narrow and incomplete picture of business performance • They hinder the creation of future business value • They are lagging not leading measures

29. Perspectives & Relationships in the Balanced Scorecard Financial Perspective Are we meeting the expectations of shareholders? Customer Perspective Are we delighting (or at least satisfying) our customers? Internal Process Perspective Are we doing the right things? Are we doing things right? Learning and Growth Perspective Are we prepared for the future? Adapted from Kaplan & Norton (1992)

30. Translating the Vision into Desired Outcomes VISION Intended Direction/Destination DESIRED OUTCOMES Satisfied Shareholders Delighted Customers Effective & Efficient Processes Motivated & Prepared Workforce STRATEGY How will we achieve “success”? Balanced Scorecard What do we want to achieve? Strategic Initiatives What do we need to do? Personal Initiatives What do I need to do? Martinsons, 2005

31. From Desired Outcomes to Initiatives Motivated & Prepared Workforce Motivation Preparation • What initiatives will • improve employee motivation? • better prepare employees? • but also what initiatives will • create more efficient / effective processes? • delight customers? Martinsons, 2005

32. Shareholder Value Revenue Operating Cost Market Share Satisfaction Index Patronage Service Pledge Safety Index MTR Corporate Strategy Map Financial Customer Processes Manpower&Succession Employee Satisfaction Talent Learning & Growth Leadership Organisational Capability Strategic Alignment Partnering & Teamwork Culture © MTR, 2005

33. Southwest Airlines • Southwest uses a different balanced scorecard layout to achieve the same kind of planning objective. • Note the detailed objectives, measures, targets, and initiatives. • This is a general BSC – not IS specific – but note that IS will play a critical support role, e.g. in data collection/analysis.

34. Objectives • Fast ground turnaround Airline Scorecard Parameters Strategy Map Measures: How success or failure is monitored Targets: The level of performance or rate of improve-ment needed Initiatives: Key action programs required to achieve targets Objectives: What the strategy is trying to achieve Strategic Theme: Operating Efficiency Profits and RONA Financial Grow Revenues Fewer planes Attract & Retain More Customers Customer On-time Service Lowest prices Measures Targets Initiatives Internal • On Ground Time • On-Time Departure • 30 Minutes • 90% • Cycle time optimization Fast ground turnaround Learning Ground crew alignment Wagner, 2003

35. The Scorecard is a Programme for Action Strategy Map Objectives Measures Targets Initiatives Strategic Theme: Operations Excellence Strategic Theme:Operating Efficiency Profits and RONA Financial • 30% CAGR • 20% CAGR • 5% CAGR • Profitability • Grow Revenues • Fewer planes Grow Revenues Fewer planes Attract & Retain More Customers • # Customers • FAA On Time Arrival Rating • Market Survey • 12% growth • Ranked #1 • Ranked #1 • Customer loyalty program • Quality management • More Customers • Flight is on-time • Lowest prices Customer On-time Service Lowest prices Internal • On Ground Time • On-Time Departure • 30 Minutes • 90% • Cycle time optimization • Fast ground turnaround Fast ground turnaround • % Ground crew trained • % Ground crew stockholders • yr. 1 70% • yr. 3 90% • yr. 5 100% • Ground crew training • ESOP • Ground crew alignment Learning Ground crew alignment Wagner, 2003

36. What About a Balanced IS Scorecard? • IS dept is an internal service supplier • IS projects are carried out for end-users and the organisation • Four Perspectives for IS • business value • internal processes • user orientation • future readiness

37. The Balanced IS Scorecard Business Value Perspective Are we satisfying management? Are we adding value? User Perspective Are we delighting (or at least satisfying) our users? Internal Process Perspective Are we doing the right things? Are we doing things right? Future Readiness Perspective Are we ready for the emerging technologies & practices?

38. Measuring and Evaluating IS (1) • Extension to the BSC • innovation and learning (future readiness) • the specifics of monitoring and control (key measures) • Measuring and evaluating business value • short-term cost-benefit evaluation • cost control, selling to third parties • long-term perspective (based on information economics) • business value of IT project, strategic options and risks • business value of IT department/functional area

39. Measuring and Evaluating IS (2) • Measuring and evaluating user orientation • metrics for being the preferred supplier of applications and operations • metrics for building and maintaining relationships with users • metrics for satisfying end-user needs

40. Measuring and Evaluating IS (3) • Measuring and evaluating internal processes • The planning and prioritization of IS projects • The development of new IT applications • The operation and maintenance of current IT applications • Measuring and evaluating future readiness • Improving the skill set of IS specialists • Updating the applications portfolio • Putting effort into researching emerging technologies

41. Building a Balanced IS Scorecard (1) • Develop awareness of the BSC/IS concept • Collect and analyse data • Define company-specific objectives & goals • Develop preliminary BSC/IS • Solicit stakeholder comments and feedback • Reach a consensus on BSC/IS • Communicate both BSC/IS and its underlying rationale to all stakeholders

42. Building a Balanced IS Scorecard (2) • Three principles for BSC • Cause-and-effect • Performance drivers • Linkage to financial measures • Three criteria for BSC/IS metrics • quantifiable • easy to understand • cost-effective to measure • One over-riding concern • Ensure that the BSC/IS is aligned with the corporate BSC

43. BSC for the IS Support Unit of a Global Airline

44. Activity Questions for Slide 45 • 1. Suggest suitable internal process objectives, measures, targets and initiatives. •  2. Explain why the user perspective initiative may not result in the the intended objectives being achieved. • 3. How does the label “user perspective” constrain the work that the IS support unit does? • 4. Why is it so critical that the IS support unit establish relationships between initiatives and objectives in its BSC? • 5. How should this BSC/IS be aligned with the corporate BSC?

45. Lessons 1 • Errors to Avoid • failure to include specific long-term objectives • failure to relate key measures to performance drivers by means of cause-and-effect relationships • failure to communicate the contents of, and rationale for the BSC/IS • failure to integrate the BSC/IS with a corporate BSC • All employees should be encouraged to use the BSC to gain a holistic understanding of the organisation

46. Lessons 2 • Critical Success Factors • Identify key cause-effect relationships, performance drivers and measures • This is very hard for non-financial/quantifiable measures • Make measures simple and measurable • Very hard to collect reliable data, but IS can help • Maintain intra-organisational communication • Link BSC/IS to performance appraisal criteria for individual IS specialists • Ensure staff awareness of the BSC and its value.

47. What Else? • Are the perspectives and measures necessary and sufficient? • How do cultural and institutional factors affect the BSC/IS? • What are the experiences of your companies?

48. And Now… • Time for you to create a BSC for the IS function of a company with which you are familiar • Use the blank sheet available from the course web page – and when you are done, email it to me. • Feel free to adapt the blank sheet to your own needs, design, etc.

49. References • Reich, B. & Benbasat, I. (2000) Factors that influence the social dimention of alignment between business and information technology objectives, MIS Quarterly, 24, 1, 81-113. • Henderson, J.C. & Venkatraman, N. (1993) Strategic Alignment: Leveraging Information Technology for Transforming Organizations, IBM Systems Journal, 32, 1, 4-16. • Chan, Y.E. (2002) Why Haven’t We Mastered Alignment? The Importance of the Information Organizational Structure, MIS Quarterly Executive, 2, 1, 97-112. • Martinsons, M.G., Davison, R.M. and Tse, D. (1999) A Foundation for the Strategic Management of Information Systems, Decision Support Systems, 25, 71-88. • Kaplan, R. and Norton, D. (1992) The balanced scorecard ‑ measures that drive performance, Harvard Business Review, 70, 1, 71‑79. • Kaplan, R. and Norton, D. (1993) Putting the Balanced Scorecard to Work, Harvard Business Review, 71, 5, 134‑142. • Kaplan, R. and Norton, D. (1996) Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review, 74, 1, 75‑85. • Kaplan, R. and Norton, D. (1996) The Balanced Scorecard: Translating Strategy into Action, Boston: Harvard Business School Press. • McFarlan, F.W., McKenney, J.L., Pyburn, P. (1983) Information Archipelago: Plotting a Course, Harvard Business Review, 61, 1, 145-156. • Davis, G.B. and Davis, M. (1984) Management Information Systems, McGraw Hill.