IBM-MIT Sloan CISR Senior Executive Program: IT for New Business Value

Lima, Peru — August 23-25, 2010

The Value of Transparency in IT Management

George Westerman
,
Nils Olaya Fonstad

Oversight
' Cyrus F. (Chuck) Gibson
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Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
MIT CISR gratefully acknowledges the support
& contributions of its Research Patrons and CISR’s Mission
Research Patrons CISR’s
Sponsors.
•• Founded
Founded in in 1974;
1974; CISR
CISR has
has aa strong
strong track
track
record
record of practice-based research on
of practice-based research on how
how
firms
firms manage
manage & & generate
generate business
business value
value
from
from IT
IT
Research Sponsors •• Research is
Research is disseminated
disseminated via
via electronic
electronic
research
research briefings, working papers, research
briefings, working papers, research
workshops
workshops & & exec.
exec. ed.
ed. programs
programs
2010 CISR Research Projects
•• Agile
Agile IT
IT Decision-Making
Decision-Making with
with Accountability
Accountability
•• Adopting
Adopting Business
Business Applications
Applications inin the
the Cloud
Cloud
•• IT’s New Look
IT’s New Look
•• Innovating
Innovating the
the Future
Future of
of the
the Enterprise
Enterprise

•• Building
Building the
the Information-based
Information-based Organization
Organization
•• Digital
Digital Intelligence:
Intelligence: Capturing
Capturing the
the Value
Value of
of
Unstructured Data
Unstructured Data
•• Collaboration
Collaboration Platforms:
Platforms: Managing
Managing the
the
Opportunities
Opportunities of of Web-based
Web-based
Business
Business Practices
Practices
•• Increasing
Increasing Reuse
Reuse to to Improve
Improve Enterprise
Enterprise
Performance
Performance

•• The
The MIT
MIT CISR
CISR Value
Value Framework—How
Framework—How
Firms
Firms Achieve Superior Business
Achieve Superior Business Value
Value
from IT
from IT
•• Transparency:
Transparency: A A Critical
Critical IT
IT Management
Management
Competency
Competency
•• What
What we
we Measure
Measure Matters:
Matters: Key
Key Measures
Measures
for
for Digitization
Digitization
Contact Information:
5 Cambridge Center, NE25, 7th Floor
Cambridge, MA 02142
Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Ph. 617-253-2348; Fax 617-253-4424
-
-..&
& cisr@mit.edu; http://cisr.mit.edu 2.1
What Causes Difficulty in Getting Value from IT?

Transparency is the answer:

Clarity on performance, decision processes, and roles

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
2.2
The Value of Transparency at Intel

Source: Intel 2003 IT Annual Performance Report

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) www.intel.com/business/bss/infrastructure/managing/2003_apr.htm.
2.3
The Path to IT Value: Transparency is Fundamental

Source: The Real Business of IT: How CIOs Create and Communicate Value, R.
Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Hunter and G. Westerman, Harvard Business School Press, October 2009.
2.4
Improving Operations: Value for Money
IT delivers ‘Value for Money” when it provides the right
services for the right price and the right level of quality
Communicate about IT performance in useful terms
– /
– %
– 0 &
Link IT operations to business operations
Benchmark performance, internally or externally

Center Source: R. Hunter and G. Westerman, The Real Business of IT: How CIOs Create
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
and Communicate Value , Harvard Business School Press, 2009
5
Getting Started:
Service-Level Metrics at Freescale Semiconductor

IT Services Cost Metrics Service Level Metrics

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Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Source: The Real Business of IT: How CIOs Create and Communicate Value, R.
Hunter and G. Westerman, Harvard Business School Press, October 2009
2.6
Value for Money at JM Family
$10B private automotive company:
– World’s largest Lexus dealership
– Largest Toyota distribution
– 160 dealers with 20% market share
– Financial services, warranty and insurance
Many awards/rankings (for excellence and top place to work): Fortune,
Forbes, Information Week, J.D. Power, S&P
Shared services unit includes IT plus finance, procurement, food
services, relocation, dealer and associate services
Goal of 100% cost recovery for IT; IT cost reduced every year while
increasing service levels and business impact
Communicating about Value for Money improved IT performance
and credibility

Source: Westerman G and D. Soule: Taking Charge of the IT

Center Value Conversation at JM Family Enterprises, CISR Research
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
Briefing, July 2010
2.7
 IT Financial Trend
Technology Investment Labor

Cost Savings / Efficiencies Demand Growth

#

2003 2005
!
"

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
Source: JM Family – used with 2.8
permission
 Sample Service Catalog

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
Source: JM Family – used with 2.9
permission
 Service Dashboard

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
Source: JM Family – used with 2.10
permission
Improving Projects:
IT as an Investment in New Business Value

Establish the "Virtuous Cycle" of IT value

– : 1
– % ;
<# % =>
–
Identify new ways to generate value

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
11
The Virtuous Cycle of Business Value from IT

$ "
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Transaparency

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Notes: These tasks are statistically significantly related to higher business value from IT (BVIT) in a study of 153 senior non-
IT executives.
BVIT is the perceived effectiveness of IT in delivering four IT objectives: cost, asset utilization, revenue growth and business agility.
BVIT is correlated
to financial performance measures such as ROE andSource: market Adapted
cap growth.
from “Getting Business Value from IT: The Non-IT Executive
View,” G. Westerman and P. Weill, MIT Sloan CISR Research Briefing, Vol. VI, No.
3A, December 2006 and The Real Business of IT: How CIOs Create and
Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Communicate Value, R. Hunter and G. Westerman, Harvard Business School
Press, October 2009. 2.12
VF Corporation:
Improving Prioritization and Value Delivery

World’s largest branded apparel company, also with retail outlets

– ?@( % %
– $ + &
– A & % +

Performance focus is on improving project benefits delivery

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$ B# 1 %
% % %
– " 8 9 %&& 5 $%
– * +
Chaired by CFO, facilitated by CIO
Coalition heads accountable for benefits estimation and assessment;
coalition CIOs assist
– 3 %

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Source: Company interviews. Used with permission.
2.13
Assessing Expected and Realized Benefits:
"Value Dials" at Intel
Days of Inventory Capital HW/SW avoidance
Days of Receivables Unit / other cost avoidance
Headcount Factory uptime
Employee productivity Scrap reduction
Employee turnover Risk avoidance
Materials discounts Time to market

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
ource: “It’s the Metrics that Matter,” IntelPremier IT Magazine,
Winter 2007
Harvesting Value Through Post-Implementation Reviews

Company Value Harvest Practice

Intel 7 & -
< 1= <% =

BT 7 : % 8
%

Apparel ( 8
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3 : & 7* - !

Sappi NA '& 8 % & -

% &
8 % &

High-tech </ - =

Source: Adapted from The Real Business of IT: How CIOs Create and
Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Communicate Value, R. Hunter and G. Westerman, Harvard Business School
Press, October 2009
2.15
Raytheon—IT Governance Links to the Company-Wide
Integrated Product Development System (IPDS)

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Number
Evaluate
Strategic Develop Architecture Initiate Implement Install & Monitor /
Investment Maintain
Planning Projects Alignment Project Project Deploy Operations
& Risk

Strategic Planning Team Ent Arch & Stds Council Program Mgt Office Program Mgt Office
Emerging Technology Team ERP Council Ent Arch & Stds Council BV Service Delivery Team
Ent. Arch & Stds Council Ent Arch & Stds Council
ERP Council, Info Security
Council
BV Service Delivery Team
Project Management Team Business Mgt Council Program Management Office BV Service Delivery Team
Strategic Planning Team Portfolio Mgmt Team BV Service Delivery Team Bus Apps Council
Emerging Technology Team Info Security Council Ent Arch & Stds Council RayCERT
Bus Apps Council IT Councils & Teams

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Source: Raytheon Corporation. Used with permission.
2.16
Conclusion: The Value of IT Transparency
Build transparency to improve IT value
– ' &
– ' : %
– " : % %
Improve discipline and relationships
– # %& % 4
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– $ 1

Topics to discuss with your colleagues

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– # & * 1& 8 ; % % >D

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
2.17
Further Information:
MIT Sloan Center for Information Systems Research (http://mitsloan.mit.edu/cisr)

The Real Business of IT:

How CIOs Create and Communicate Value
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&.( ) + ,

IT Risk: Turning Business Threats Into

Competitive Advantage
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Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
2.18
Exercise
How effective is your organization at each task in the Virtuous
Cycle? Rank the tasks in order of effectiveness, from 5 (most) to
1 (least):
– ,
– %
– " +
– %&
– "

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
2.19
 Additional slide(s)

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
2.20
The Path to Value at Intel

VISION: (
VISION: ( +
+ 1&
1 &
AA -
-
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!
MISSION: 7
MISSION: 7 AA

% !
% !

Source: The Real Business of IT: How CIOs Create and Communicate Value, R.
Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Hunter and G. Westerman, Harvard Business School Press, October 2009.
2.21
Service-Level Metrics for a High-Tech Manufacturer
IT Services Cost Metrics Service Level Metrics
" " "
$ 1 )2 %"

3 " 4 5% &
4 $ %&

# 1 " %"
)
/ /

% 6 5% &
' , 1 / 4 "
$ , 1 '
%

( 5 )
7 " " 8 9
(&( 5 $ %&
$ %& (
$ "
9
%"

Source: The Real Business of IT: How CIOs Create and Communicate Value, R.
Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Hunter and G. Westerman, Harvard Business School Press, October 2009.
2.22
Improving IT Investment Transparency at Intel

IT Efficiency = composite index of project’s use or

enhancement of IT infrastructure
Business Value = composite index impact of project on
Intel’s strategy and priorities
FI = composite index of financial
attractiveness including: Investment,
cost-benefit and NPV (bubble size).

Source: "Managing IT for Business Value," M. Curley, Intel Press 2004. Used with
Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) permission.
2.23