IT Value – Making IT Real Shafeen Charania Director, Platforms Communications Microsoft Corporation "Getting Past the Hype -- Delivering Business Value"

IT Value – Making “IT” RealIT Value – Making “IT” Real

Shafeen CharaniaShafeen CharaniaDirector, Platforms CommunicationsDirector, Platforms CommunicationsMicrosoft CorporationMicrosoft Corporation

"Getting Past the Hype --Delivering Business Value"

© 2004 Microsoft Corporation. All rights © 2004 Microsoft Corporation. All rights reserved.reserved.

The Value of IT?The Value of IT?


E-Government Hype Cycle E-Government Hype Cycle EvolutionEvolution

Source: Hype Cycle Shows E-Government Overcoming Disillusionment3/17/04 - Gartner


So – What Matters So – What Matters More???More???IT…IT…

……or the or the Business??Business????

Related question – what Related question – what matters more – the people? …matters more – the people? …or HR?or HR?


Revenue growth Return on assets Revenue per employee

BUSINESS UNIT FINANCIAL BVBUSINESS UNIT FINANCIAL BV

Dilutionof Impact

Time to bring new product to mkt. Sales from new products Product or service quality

BUSINESS UNIT OPERATIONAL BV

BUSINESS UNIT OPERATIONAL BV

Dilutionof Impact Time to implement a

new application Cost to implement a

new application InformationTechnology $

BUSINESS UNITIT APPLICATIONS BV

BUSINESS UNITIT APPLICATIONS BV

Dilutionof Impact

Source: P. Weill & M. Broadbent “Leveraging the New Infrastructure: How market leaders capitalize on IT,” Harvard Business School Press, June 1998.

Time

Dilu

tio

n o

f IT

Imp

acts

ITITManagementManagement

Responsibilities

BusinessBusinessManagementManagement

Sample Value MeasuresImpact Sought

Infrastructure availability Cost per transaction Cost per workstation

FIRM-WIDE IT INFRASTRUCTURE BV

FIRM-WIDE IT INFRASTRUCTURE BV

InformationTechnology $

Tracking the Impact of Tracking the Impact of Information Technology Information Technology InvestmentsInvestments

Center for Information Systems Research

BVBV = business = business valuevalue


ContextContextBusiness Business StrategyStrategy

Business Business ProcessesProcesses

IT IT StrategyStrategy

Business Business CapabilitiesCapabilities

IT SolutionsIT Solutions

Approach:Approach:

Cost/Value Cost/Value AnalysisAnalysis

Focus: Focus: Governance Governance Portfolio Portfolio Architecture Architecture SourcingSourcing

Need: Resilience, Need: Resilience, Flexibility, OpportunismFlexibility, Opportunism

Drivers: People, Drivers: People, Process, Information, Process, Information, RelationshipsRelationships

Focus: Focus: “Processized” “Processized” Analysis – Analysis – Vocabulary Vocabulary MetricsMetrics


Agility and the Process of ChangeAgility and the Process of ChangeAgility is “Optimal Sense and Response”Agility is “Optimal Sense and Response”

ActAct: Are you able to follow : Are you able to follow through as efficiently as you can?through as efficiently as you can?

StrategizeStrategize: Are you able to : Are you able to effectively plan to respond to effectively plan to respond to the change?the change?

DecideDecide: Can you : Can you commit to the plans?commit to the plans?

SenseSense: Are you aware of significant : Are you aware of significant changes in your business environment?changes in your business environment?

CommunicateCommunicate: Are you able to : Are you able to get the word out to everyone who get the word out to everyone who needs to know?needs to know?


The AQ AnalysisThe AQ Analysis

AwarenessAwareness

FlexibilityFlexibility

ProductivityProductivity

PeoplePeople

ProcessesProcesses

RelationshipsRelationships

InformationInformation

What key What key technologies technologies

can help?can help?

What can you What can you do to improve do to improve your agility?your agility?

What does your What does your company do that company do that needs to be agile?needs to be agile?

Business DriversBusiness Drivers Agility EnablersAgility Enablers Key Agility technologiesKey Agility technologies

Those you haveThose you have

Those you needThose you need

RecommendationRecommendation PrioritizationPrioritization Assessment & Assessment & Gap AnalysisGap Analysis

Current vs. Desired StateCurrent vs. Desired State

You vs. IndustryYou vs. Industry

PrioritizedPrioritizedInitiativesInitiatives

Top IssuesTop Issues

OverallOverall


AQ Executive SummaryAQ Executive Summary

P W

A F

P W

A F

P W

A F

P W

A F

P W

A F

A: AwarenessF: FlexibilityP: ProductivityW: Willingness

CUSTOMERCUSTOMER wants to be sense environmental changes quickly and respond efficiently and effectively to wants to be sense environmental changes quickly and respond efficiently and effectively to those changes. It wants to be agile not only to survive but to maintain its leadership in the industry.those changes. It wants to be agile not only to survive but to maintain its leadership in the industry.

Agility is the ability to sense, strategize, decide, communicate and act throughout the organization at the Agility is the ability to sense, strategize, decide, communicate and act throughout the organization at the right time with the right economics.right time with the right economics.

CUSTOMERCUSTOMER does a fairly good job in strategizing and communicating with appropriate support from IT does a fairly good job in strategizing and communicating with appropriate support from IT infrastructure and services. The effectiveness of good strategy is tampered by lack of timely awareness infrastructure and services. The effectiveness of good strategy is tampered by lack of timely awareness and flexibility and speed in taking actions.and flexibility and speed in taking actions.

Based on the response to the agility questionnaire and the agility analysis tool developed by Gartner and Microsoft.

Poor

Moderate

Good

Agility State

SenseSense: Awareness is a prerequisite for sense and respond. : Awareness is a prerequisite for sense and respond. CUSTOMERCUSTOMER must ensure that the right information is made must ensure that the right information is made available to the right people at the right time. available to the right people at the right time.

StrategizeStrategize: The organization is reasonably good at : The organization is reasonably good at planning in response to changes in the environment it can planning in response to changes in the environment it can detect.detect.

DecideDecide: In order to evaluate and execute the plans, : In order to evaluate and execute the plans, CUSTOMERCUSTOMER needs the flexibility of re-wiring processes and needs the flexibility of re-wiring processes and integrating information across application and integrating information across application and organizational boundaries.organizational boundaries.

CommunicateCommunicate: The organization has various : The organization has various communication channels and culture to communicate communication channels and culture to communicate information and decisions at all levels and across groups.information and decisions at all levels and across groups.

ActAct: Due to limited flexibility to connect and consolidate : Due to limited flexibility to connect and consolidate information and processes, business activities and people information and processes, business activities and people are not very efficient and effective in executing strategies.are not very efficient and effective in executing strategies.

Enterprise ArchitectureEnterprise Architecture: Develop set of principles and : Develop set of principles and guidelines to direct the process of acquiring, building, modifying, guidelines to direct the process of acquiring, building, modifying, interfacing and managing IT services and resources.interfacing and managing IT services and resources.

Role-based Information DashboardsRole-based Information Dashboards: Provide consolidated : Provide consolidated view of information and business processes for individual groups.view of information and business processes for individual groups.

Firm-wide infrastructure and applicationsFirm-wide infrastructure and applications: standard (utility) : standard (utility) desktop and server infrastructure (email, office tools, directory, desktop and server infrastructure (email, office tools, directory, OS); Collaboration (Web Ex, net meeting); SAPOS); Collaboration (Web Ex, net meeting); SAP

Architecture and governanceArchitecture and governance: Primarily application-based; : Primarily application-based; Insufficient architecture for application and data integration.Insufficient architecture for application and data integration.

IT Environment

Recommendations

Sense

Strategize

DecideCommunicate

Act

Actual

Desired


What is IT Governance?What is IT Governance?Decision rights and accountability framework to encourage Decision rights and accountability framework to encourage desirable behavior in the use of ITdesirable behavior in the use of IT

Who has decision rights and input to key IT Who has decision rights and input to key IT decisions.decisions.

IT Principles—role for ITIT Principles—role for ITIT Infrastructure—what is shared and put in firstIT Infrastructure—what is shared and put in firstIT Architecture—integration & compatibilityIT Architecture—integration & compatibilityBusiness application needs—what is requiredBusiness application needs—what is requiredIT Investment & Prioritization—how much and whenIT Investment & Prioritization—how much and when

What is desirable behavior in the enterprise.What is desirable behavior in the enterprise.Sharing, reuse, cost savings, innovation, growthSharing, reuse, cost savings, innovation, growth

What mechanisms are used to implement What mechanisms are used to implement governance.governance.

E.g., IT council, process teams, architecture office, SLAsE.g., IT council, process teams, architecture office, SLAs

How much business value.How much business value.Responsibilities, accountabilities, measurement and Responsibilities, accountabilities, measurement and metricsmetrics

Source: Don’t Just Lead, Govern!: Empowering Effective Enterprise Use of Information Technology, P. Weill & J. Ross, Harvard Business School Press: Boston, Forthcoming


How do enterprises How do enterprises govern?govern?

Most commonpatterns

The numbers in each cell are percentages of the 256 enterprises studied in 23 countries. The columns add to 100%.

Decision Domain

IT Principles

IT Infrastructure

Strategies

IT Architecture

Business Application

Needs IT Investment

Input Decision Input Decision Input Decision Input Decision Input Decision

Business Monarchy 0 27 0 7 0 6 1 12 1 30

IT Monarchy 1 18 10 59 20 73 0 8 0 9

Feudal 0 3 1 2 0 0 1 18 0 3

Federal 83 14 59 6 46 4 81 30 93 27

Duopoly 15 36 30 23 34 15 17 27 6 30

Anarchy 0 0 0 1 0 1 0 3 0 1 Go

ve

rna

nc

e A

rch

ety

pe

No Data or Don’t K now

1 2 0 2 0 1 0 2 0 0

©MIT Sloan Center for Information Systems Research 2002 – Weill This framework is adapted from Weill & Woodham's work originally published and copyrighted by the MIT Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective IT Governance," April 2002.


( ) = public sector

Source: Weill & Broadbent “Leveraging the New Infrastructure: How market leaders capitalize on IT,” Harvard Business School Press, 1998.

© 1994-2003 Weill

Increased salesCompetitive advantageCompetitive necessityMarket positioning

Business integrationBusiness flexibilityReduced marginal cost of BU’s ITReduced IT costsStandardization

Increased controlBetter informationBetter integrationImproved quality

Cut costsIncrease throughput

(Innovation)(Major Change)(Facilitation)(High Value Added)(Interact with customers)

Rethinking IT as an Investment Rethinking IT as an Investment PortfolioPortfolio- asset class, risk and return, strategy- asset class, risk and return, strategy

INFORMATIONAL STRATEGICINFORMATIONAL STRATEGIC

TRANSACTIONALTRANSACTIONAL

INFRASTRUCTUREINFRASTRUCTURE



IT Portfolios In Different IndustriesIT Portfolios In Different Industries


4 Source: Leveraging the New Infrastructure: How Market Leaders Capitalize on Information Technology, Peter Weill & Marianne Broadbent, HBS Press, 1988.

5 Services include Professional, Scientific and Technical Services, Heath Care Services, Social Assistance, Accommodation and Food Services

1 Net Sales = Interest Income plus Fees2 Total Expenses = Net Sales – (Net Sales * Net Margin)3 Discretionary Expenses = Net Sales – (Net Sales * Operating

Margin before Depreciation)

NSF Grant Number IIS-0085725

IT Investment 2001/02

18% 13%

54%

15%

22% 11%

56%

11%

12% 20%

14%

26% 11%

45%

18%

20% 13%

54%

13%

54%

Firm-wide $IT as a Percentof Net Sales

(Three year averages)

Nonmetal Manufacturing,

Utilities, Construction

19

1.4

Metal Manu-facturing

86

2.3

Finance, Insurance1

7

3.5

Information&

Services5

14

2.0

All147

2.1

No. of firms

Firm-wide $IT as a Percentof Discretionary Expense3

(Three year averages)

1.7 2.65.2 2.0 2.5

17% 17%

52%

14%

WholesaleRetail,

Transport21

1.3

1.4

15

IT Investment 1993–974

(54 businesses over 5 years)

22% 14%

52%

12%

13% 13%

13%

16% 14%

57%

13%

61%

22% 14%

12%

52%

Information (15)

Strategic (5)

Transactional (40)

Infrastructure (40)


IT PortfolioMix of

Investments

IT PortfolioMix of

Investments

$IT compared to industry avg. as %

of expenses or revenues

IT is 10-20% lower than industry average

IT is around industry average

Average % of Revenues & Expenses

IT is 10-25% higher than industry average

20% 15%20% 13%

13% 5%

14% 17%

Cost Focus Balance Cost & AgilityAverage Firm Agility Focused

Business Strategy

Synchronize Information Synchronize Information Technology Portfolios to StrategyTechnology Portfolios to Strategy

42%40%

50%

15%58%

11%

54%

13%


Source: P. Weill & M. Broadbent “Leveraging the New Infrastructure: How market leaders capitalize on IT,” Harvard Business School Press, June 1998. (Based on a study of 54 businesses in 7 countries over five years and 117 firms studied in 2001/02.)



Value ToolsValue ToolsTotal Value of OpportunityTotal Value of Opportunity

Measures both costs and Measures both costs and benefitsbenefits

Standard business measuresStandard business measures

TCO AnalystTCO AnalystFocus = costFocus = cost

Reference database Reference database

REJ (Rapid Economic REJ (Rapid Economic Justification)Justification)

Alignment, Quantification, Alignment, Quantification, AccountabilityAccountability

Framework independent of toolsFramework independent of tools


Business Value InventoryBusiness Value InventoryStudyStudy FocusFocus DeliverablDeliverabl

eeDurationDuration

Microsoft REJ BDM Relationship Building Cost/Benefit Analysis ROI Analysis

Business Case 4 to 6 Weeks

Gartner TVO Cost/Benefit Analysis ROI Analysis Gartner Credibility

Business Case 2 to 4 Weeks

Microsoft RPA BDM Relationship Building Application Portfolio

Analysis Microsoft/Customer Action

Items

Customer/MS Account Plan

2 Weeks

Microsoft AQ BDM/TDM Relationship Building IT Alignment to Business

Agility Gaps Uses Gartner IT Agility

Impact Model

Prioritized Technology InitiativesSustained xDM Engagement

2 Days

Navigant Office Value

Industry and process orientation Value analysis (productivity

focused) ROI Analysis

Vertically-aligned business case focused on KW productivity

1-2 Days

Microsoft BVA Product Feature Mapping Cost/Benefit Analysis ROI Analysis

Collateral for Business Case

1 Day

Gartner TCO Analyst

Limited to Infrastructure ROI Analysis Gartner Credibility

Cost Analysis Document 1 Week

3rd Party TCO Tools

High Level TCO Estimate Product Specific TCO ROI Analysis

Limited Cost Analysis Document

2 Hours

NerveWire Deployment Cost Tool

Desktop Deployment Costs For MS, Partners &

Customers Predictive Modeling from

RDP Data

Deployment Cost Estimate

1 Hour

Bu

siness V

alue

To

tal C

ost

Co

st


AQStrategy

Assessment Spectrum Assessment Spectrum

TCO Analyst1-2 weeks

Cost Oriented

Value Oriented

Comprehensive/LongBV Consultants required

Simple/Fast

Mini – REJ4-6 weeks

TVO2-4 weeks

Office System BV Model

1 day - 1 week

REJ8 – 12 weeks

TCO Manager4-8 weeks

Deployment Cost Tool1-2 hours

ROI (VS03) Calculator30min - 1 hour

BVA1 day


FedEx “Smart Tags” for MS Office FedEx “Smart Tags” for MS Office XPXP


Level and Effectiveness Level and Effectiveness of Senior Management in Governanceof Senior Management in Governance

More senior management is better…More senior management is better…

1.1. CEO (4.4)CEO (4.4)

2.2. COO (3.0)COO (3.0)

3.3. Business Unit Leader (2.7)Business Unit Leader (2.7)

4.4. Business Unit CIO (1.7)Business Unit CIO (1.7)

5.5. CFO (1.5)CFO (1.5)

6.6. CIO (1)CIO (1)

Rank/(Scale) of Effectiveness When Involved*

* Statistically significant relationship with governance performance – scale estimated by strength of coefficient.

CIO must be involved for effectiveness

© 2002 MIT Sloan Center for Information Systems Research (Weill).

© 2004 Microsoft Corporation. All rights reserved.© 2004 Microsoft Corporation. All rights reserved.This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

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IT Value – Making IT Real Shafeen Charania Director, Platforms Communications Microsoft Corporation "Getting Past the Hype -- Delivering Business Value"