ITIL Goes to Harvard
Although some of us may think that ITIL is the ultimate expression of strategic management dogma for the IT world, there is a ‘rest of the world’ out there that has never heard of ITIL, but has been very busy running large businesses and competing in the world marketplace. So at the risk of commiting ITIL heresy (and being attacked by the IT Skeptic), we thought it would be interesting to better understand how the ‘rest of the world’ develops their business strategies and relate that back to ITIL doctrine. We believe that ITIL v3 is a dramatic step forward to help IT management become more business savvy. But the goal of this paper is to expose IT management to some of the best practices that many companies have been employing in their business strategy development for years and how these methods can augment the IT toolkit and help complement the ITIL movement. Many complement or have a mirror reflection of ITIL’s content anyway. Some of the key thought leaders in this area are Bob Kaplan and Richard Norton from Harvard (neither of whom are ITIL certified!!!).
In addition there is a second point that we want to emphasize. We see in the interpretation and implementation of ITIL a trend toward defining IT services and strategies in terms of the ‘technical services portfolio’ as opposed to the ‘business services portfolio’. The business service portfolio can be defined as the IT products and services that are directly consumed by IT customers (this sounds a lot like ‘old school’ business applications, but these are now repackaged into IT services). We will make the case that, although it is fine to define the technical service portfolio as part of operational planning, only the business services can actually fullfill user demand and therefore contribute to a strategic objective. We will now discuss how to apply Kaplan’s ‘Strategy Maps’ to define these IT strategic objectives and then to align the business portfolo to these objectives (ITIL v3 does pay homage to them).
There are some key articles that Kaplan and Norton have written which explain their concepts of developing Strategy Maps, and these are an extention of their original Balanced Scorecard concepts. These are good reading:
1. “Managing Alliances with the Balanced Scorecard”, by Robert S.Kaplan, David P. Norton, and Bjarne Rugelsjoen, Harvard Business Review January–February 2010
Every business must have a Management System defined by Kaplan as ‘an integrated set of processes and tools that a company uses to develop its strategy, translate it into operational actions, and monitor and improve the effectiveness of both’. However IT is often considered a support organization, and is not always included in the strategic dialog (the CIO will be invited to the party, but these strategy discussions are focused on markets and products and IT is often considered to be a non-core competency). So once one can recover from the knife through the heart that you are considered non-core, there then comes the uplifting revelation that IT may be non-core, but it’s one heck of an important non-core function, and truthfully most companies are fully dependent upon its successful peformance. In fact, I’d venture that no business could operate today without IT. I’ve said many times, even the corner shop has a point of sale device or register that automates stock control and basic accounting and it’s an IT device, like it or not! So let’s investigate how IT should be strategically positioned within an orgnaization.
First the “I” of IT is the company’ information, and this is clearly a strategic asset, of which IT has become the sole caretaker of. (Don’t tell the CEO this for fear that he or she may have a life threatening anxiety attack knowing that the ‘company jewels’ are fully in the hands of the intrepid IT department.) The constant availability, integrity, and security of this information asset is absolutely critical to a business’s viability, and this massive asset is basically maintained and protected by the business services that IT provides on a daily basis; include here not only the services that create the data but also Security Management, Business Continuity Planning, and Identity Management. Therefore the business service portfolio is strategic to the company and needs to be aligned with strategic objectives and properly managed with ITIL best practices and ITSM principles.
Second is the “T” of IT, which is the technical and human capabilities that are required to manage the information asset, and this happens to be very expensive. (Don’t tell this either to the CEO, or reveal that there will never be an end to the investments in new technology, since the basic premise is to keep spending money on new technologies to replace the technologies that you just bought last year and can now make them run more cheaply). This is sometimes referred to as ‘leveraging’ technology, other times as ‘being held hostage by a band of geeks’, but always it is appealing in how ‘cool’ the new technologies are and how they can and have actually created real competitive advantage in many companies, and destroyed value in others which we won’t talk about. These investments in “T” need to be prioritized in the business services portfolio and this can only be done in the context of the company’s strategic objectives. Now that we have positioned IT in its proper strategic context, we will discuss how Kaplan’s Strategy Maps can help IT to have an actual real strategy.
Although it is impossible to fully explain the in and outs of Kaplan’s strategy maps in this article, we have included a generic example from Kaplan’s “Mastering the Management System” article (figure 1.1) which can give the reader an intuitive idea of how these instruments help capture the priorities and logic of the strategic objectives of a business.
Many companies have these kind of tools in place and they drive the strategic direction of the company. The first thing IT management should do is discover these objectives and make sure that you are aligning your resource allocations to these the company objectives. Typically the CIO will be aware of these objectives and in some businesses where IT is critical, both the CIO and the IT management team are fully involved in the strategic planning process . But in the majority of shops there will be some big and important IT projects or change initiatives which are considered the “IT strategy”, and the rest of IT, the poor persons who are stuck maintaining the “I” or all the existing information assets (whose costs are normally at least 70% of the total IT cost), are left in the duldrums of the company management’s interest level and are labeled “non discretionary maintenance” or, if you are really unlucky, it is considered “very discretionary maintenance” and you have to cut costs by 10% across the board”.
So our premise is that IT itself should develop its own Strategy Map to better describe how it contributes to the company strategy. The goal of Strategy Maps is to cascade objectives downwards through the organization as business goals become translated down to IT goals and so on, and it is important that the IT management team develop a Strategy Map for its own business and people. If this is done, in most cases, it will reinforce how important IT really is to the business, it will result in real IT strategies that are nicely aligned with the business, and it will enable communication to even the most technical of IT staff as to how their work contributes to the goals of their customers (if their reponse is “what goals and what customers”, maybe you can forget the Strategy Map and go straight into an outsourcing study).
The following is a generic example of a business strategy map showing the four basic Balanced Scorecard perspectives, financial, customer, process, and growth and it has three underlying strategic themes: improve operating quality and efficiency, increase revenues in existing segments and markets, and accelerate product innovation. These will change for every business, but you can see how the map communicates the strategic objectives and shows intuitive relationships between objectives.
Generic Strategy Map, figure 1.1
Now to develop an equally simple and generic IT Strategy Map (figure 1.2) from the Business Strategy Map, one should cascade objectives down from the top.
2. The three strategic themes should be maintained as common objectives, only now IT’s role is to best ‘support’ the business in achieving these objectives, and in this generic example each objective is absolutely dripping with IT business impact.
3. Customer Perspective – this objective should now be directed to the IT customers, not the end customers, but in many cases the values of end customer service excellence would be passed through. In other words if your business wants to be perceived by their customers as a ‘leader in quality and reliability’, then it is almost imperative for IT to have the same objectives toward their customers in order to achieve their common goals.
4. Process Perspective – these objectives almost always identify where the company wants to focus its internal resources and what process improvements need to have highest priorities. So IT’s job is to have innovative ideas on new projects and to manage a portfolio of IT business services that best support the business processes (projects are just creating new business services or improving existing ones). It is imperative that ITSM and Portfolio management is in place to manage IT resource allocation in favor of the high priority initiatives. And the theme of improving ‘operating quality and efficiency’ is an easy penalty kick to make the connection with some basic ITIL initiatives such as emphasizing problem and change mangement, improving the help desk, and especially moving toward a service portfolio management and KPI system which will enable the efficient management of the IT business portfolio.
5. Learning and Growth Perspective – Often these are objectives that relate to good communications of information, again, where IT is the key enabler of the solution. Although many times the payback on these initiatives is more soft because they don’t directly impact bottom line results, they can have a major impact on company performance where major collaboration efforts are enabled, and decision making is supported by quality information.
6. Once the IT Strategy Map is developed, IT management needs to allocate resources to the high priority objectives, and this can only be done if there is a well defined portfolio of IT projects and services in place, and these services can be ranked according to their contribution to the business objectives, and then finally resources can be assigned to the highest contributers.
Figure 1.2 - Generic IT Strategy Map
Another reason to focus on the business services as opposed to the technical services concerns measuring IT performance. It is basically impossible to determine if you are doing a good job or not if IT activitities are not associated with the business services that they are supporting. For instance, if a goal is to reduce the cost of servers, the cost of the server pool itself is a moving and undifferentiated target since there is a constant influx of new functionality requirements and new projects being loaded into the pool, thus negating the ability to develop a baseline from which to measure performance improvements. However, if there is a baseline of the cost of servers for each business service (major applications such as Siebel CRM for instance), then a trend line can be developed against the benchmark cost of simply maintaining the on-going operations of Siebel, and a KPI can show the true cost reductions (on a per unit basis) through good technology leveraging (you can now tell the CFO that you need to buy more servers to replace the ones that you just bought a while back as referred to earlier, but in this case you will have a real business case that can be proven).
So our point here is that everything IT does should be translated and understood from a business service perspective. Every server is running some kind of application that is either ultimately being used by a customer for a clear business purpose, or if not, the asset is destroying value. It can be difficult to track this information but with some effort the asset base that is supporting a business service can be identified on an activity based basis, and services can be fully costed against the value that they are creating. Then all assets are aligned with the business services that they support, and then each business service is aligned with the strategic objectives of the company through the Strategy Maps. In this scenario not only is IT fully aligned with business strategy, but the IT management team has now become a strategic asset in themselves because they are providing business management with the information they need to optimize the allocation of IT resources (and the underlying strategy of the IT management team should be to be so effective that they will always keep their jobs!).
In conclusion by developing an IT strategy map, IT can align its own set of objectives with company objectives, IT can position and align the IT business portfolio to these IT objectives in order to prioritize resources, and IT can communicate with their stakeholders how IT is contributing to the business. And you don’t need to go to Harvard to do so.
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