Repositioning the IT Organization to Enable Business Transformation (Practice-driven research in IT management series)

Repositioning the IT Organization To Enable Business Transformation

Carol V. Brown Indiana University

V. Sambamurthy University of Maryland

Practice-Driven Research in IT Management SeriesTM Madeline Weiss and Robert W. Zmud, Editors www.pinnaflex.com/apc

© 1999, Pinnaflex Educational Resources, Inc., Cincinnati, Ohio www.pinnaflex.com All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Cover design: Kevin Cox, Custom Editorial Productions, Inc. Production coordination: JaNoel Lowe, Custom Editorial Productions, Inc. This book was set in Times Roman by Custom Editorial Productions, Inc., Cincinnati, Ohio. It was printed and bound by Malloy Lithographing, Inc., Ann Arbor, Michigan. ISBN:1-893673-03-0

PREFACE As scholars keenly interested in practice-oriented research on contemporary information technology (IT) management issues, we teamed with the Advanced Practices Council of the Society for Information Management (SIM International) in January 1995 for an 18-month project initially aimed at examining the use of IT coordination mechanisms for strategic intraorganizational relationships. However, as our project unfolded, it became evident that we were developing useful insights about an even broader phenomenon: How do firms reposition their IT function to play a heightened strategic role in contemporary business environments? This book shares our findings about visions, strategies, and tactics for successfully repositioning IT organizations to deliver business value in today’s hypercompetitive environments. Our insights are based on an initial survey of more than 40 organizations and 6 in-depth case studies. Senior IT leaders are our targeted audience, but we think this book will also be of interest to other readers, including IT management consultants and researchers. Our monograph would not have been possible without the motivation and support of many partners throughout this research project. First, we would like to thank our research sponsors, the Enterprise Plus members of the Advanced Practices Council (APC) of SIM International. We are grateful not only for their financial support of the project, but also for their spirited interactions with us in which they tested our interpretations, challenged us to delve deeper, and encouraged us with generous comments about the significance of our findings. We are also indebted to the APC research program for providing the opportunity for the two of us to begin a research collaboration that we expect to endure for some years to come. Two individuals who not only made the research process personable, but also intellectually enriched our research agenda, deserve our heartfelt thanks: Madeline Weiss and Robert W. Zmud, program director and research director respectively for SIM’s APC. These very special individuals spent many hours with us throughout the project, helping us to hone our deliverables, and deserve a great deal of the credit for the success of our presentations for the APC members. We also wish to publicly acknowledge our indebtedness to our respective families for their understanding as we spent many evenings and weekends communicating with each other rather than with them. Thanks are also due to our respective academic departments and business schools for their administrative support. Finally, we would like to acknowledge the invaluable contributions of the CIOs and other IT and business leaders from the six companies that we selected for this study. These executives were not only generous with their time, but they were also among the first to reinforce for us the potential value of our study through their genuine enthusiasm and willingness to share their visions, strategies, and tactics, including some bumpy rides along the way. Not all companies willingly open their doors to academic researchers for a work-in-progress, and not all IT and business leaders make themselves personally accessible to academicians. We therefore salute the willingness of these executives to share their experiences so that others might learn from their missteps as well as their triumphs. iii

ABOUT PINNAFLEX Pinnaflex Educational Resource, Inc. produces high quality, timely, and exceptional-value print products for improving corporate, individual, and executive learning and development. Our products are prepared by leading content providers in business, academe, government, and the non-profit sector. Through its sister company, U. S. Learning Systems (USLS), Pinnaflex provides innovative and unique online training and educational materials through its cadre of “world class” online content providers. Pinnaflex and USLS integrate new technologies and proven content to achieve highly interactive “anytime, anywhere” learning whether content is delivered in hard type on the page or through a computer monitor. ALSO AVAILABLE FROM PINNAFLEX Practice-Driven Research in IT Management Series. Crossing Boundaries: The Deployment of Global IT Solutions (Collins/Kirsch). This book, based on extensive research, addresses the question of implementing and deploying global IT solutions to support worldwide business activities. It deals with these issues and more by analyzing the unique nature of global (versus domestic) IT solutions and identifying successful practices for deploying them. Coping With Labor Scarcity in Information Technology: Strategies and Practices for Effective Recruitment and Retention (Agarwal/Ferratt). This book is about the effective management of the strategic HR/IT organizational resource. It asks and answers the question, “How can organizations more effectively find and keep productive IT professionals?” It is the culmination of over two years of primary field research conducted in several large and small corporations and illustrates what can be done to effectively address the IT labor shortage. MANAGEMENT 2.0: Managing in the 21st Century (Duening). This book is predicated on the premise that the basic assumptions that had formed the foundation for the practice of management have been overturned. The idea that there is “one best way” to manage organizations has been replaced by contingency approaches. The idea that managers are responsible only for the “bottom line” has been replaced by a more expansive view that managers must be tactical as well as strategic. The “age of technology” has introduced a “new economy”, wherein organizations must face the reality that they are global entities, must embrace technology and must exist within networks of strategic alliances, some long lasting, some short term. The book also deals extensively with successes and failures in E-Commerce, the ethical implications of the Internet, E-mail, and other tools of our age that impact managers. To learn more about Pinnaflex’s products and online capabilities, access our site at www.pinnaflex.com, call us at 1-888-420-3232, or E-mail [email protected] To learn more about U. S. Learning Systems’ online programs and capabilities, E-mail [email protected]

iv

CONTENTS Chapter 1: Introduction: The New Business Environment The New Business Environment: The Era of Hypercompetition The IT Leadership Challenge The Upcoming Chapters: A Navigation Guide Chapter 2: Business Transformation Thrusts Process Integration: Building Capabilities Through Common Processes Knowledge Leveraging: Building a Knowledge Asset Competitive Agility: Building Capabilities for Rapid Response The New IT Role Chapter 3: Repositioning Strategies for IT Transformation Heightened Role of the IT Function Dissatisfaction with Current IT Performance Desire for New IT Capabilities Strategies for IT Transformation Chapter 4: Lateral Coordination Capability Taxonomy of Five Coordination Mechanisms Lateral Coordination Capability As an IT Transformation Vector Chapter 5: Repositioning IT Organizations for Process Integration IT Transformation Strategies The IT Transformation Journey at Material-System Executive Guidelines Chapter 6: Repositioning IT Organizations for Knowledge Leveraging IT Transformation Strategies The IT Transformation Journey at Bio-Leverage Executive Guidelines Chapter 7: Repositioning IT Organizations for Competitive Agility IT Transformation Strategies The IT Transformation Journey at Tele-Nimble Executive Guidelines Chapter 8: Repositioning IT Organizations: The Navigation Map IT As a Strategic Differentiator IT Capabilities High Performance Designs Five IT Transformation Vectors The CIO As Transformational Leader Closing Thoughts Appendix: Research Methodology Phase I: Field Survery Phase II: In-Depth Case Studies About the Authors

v

1 1 4 4 7 8 14 17 19 21 22 23 24 25 31 31 38 40 40 45 57 59 59 62 68 71 71 75 84 87 87 88 90 91 93 94 95 95 95 97

List of Numbered Tables Table 2.1 Business Transformation Thrusts at Six Case Firms Table 2.2 Process Integration Thrust: The Case Evidence Table 2.3 Knowledge Leveraging Thrust: The Case Evidence Table 2.4 Competitive Agility Thrust: The Case Evidence Table 3.1 Imperatives for IT Transformation Table 3.2 Evidence of Four IT Transformation Vectors Table 3.3 Pacing Strategies for IT Transformations Table 4.1 Coordination Mechanisms for Lateral Coordination Capability Table 4.2 Integrator Roles for Lateral Coordination Table 4.3 Group Mechanisms for Lateral Coordination Table 4.4 Portfolios of Coordination Mechanisms for New Lateral 4.4 Coordination Capability at Six Case Firms Table 5.1 IT Transformation Strategies for Enabling Process Integration Table 5.2 Process Integration at Material-System: Background Table 6.1 IT Transformation Strategies for Enabling Knowledge Leveraging Table 6.2 Knowledge Leveraging at Bio-Leverage: Background Table 7.1 IT Transformation Strategies for Enabling Competitive Agility Table 7.2 Competitive Agility at Tele-Nimble: Background Table 8.1 IT Capabilities and the Three Strategic Differentiator Roles List of Figures Figure 2.1 Tran-Integrate’s Vision Figure 2.2 New Processes at Diverse-Synergy Figure 4.1 Iceberg Metaphor for Formal and Informal Mechanisms Figure 5.1 New IT Organization at Material-System Figure 5.2 Global Process Model and Project Teams at Material-System Figure 5.3 Eleven IT Capabilities at Material-System Figure 5.4 Six Shared Values for the IT Organization at Material-System Figure 6.1 Four Quadrants of Data Sources at Bio-Leverage Figure 6.2 The KMA’s Linking Pin Role at Bio-Leverage Figure 7.1 Key Groups and Roles for New IT Organization Design at Tele-Nimble

vi

7–8 10 15 17 22 25 28 32 33 35 38 41 45 60 62 72 75 88 11 13 32 48 49 52 55 65 65 78

CHAPTER 1 INTRODUCTION: THE NEW BUSINESS ENVIRONMENT Contemporary conversations among business managers and scholars inevitably center around emerging trends such as cycle time management, mass customization, globalization, electronic commerce, supply chain management, knowledge management, process management, and competing on capabilities. These terms describe a new paradigm for the conduct of business strategy proposed by other authors: sense and respond.1 A sense-and-respond business strategy refers to the realization that business success will be defined by the ability to detect the fleeting windows of opportunity in the marketplace and to respond quickly with winning products and services. As described by these authors, this is a dramatic reversal of the conventional paradigm that has prevailed for nearly 40 years: make-and-sell. In this new paradigm, firms strive to anticipate market needs, manufacture the products or services desired, and market them to the appropriate market segments. Compared to make-and-sell, the sense-and-respond paradigm focuses the attention of business firms toward intimate market relationships, capabilities for sustaining product innovation to rapidly respond to shifts in consumer preferences, and the use of innovative channels. What are the environmental drivers for the sense-and-respond paradigm? And how do firms resposition their IT function to play a heightened strategic role for this new environment? To set the stage for our six IT repositioning stories, we begin with a description of the hypercompetitive environments faced by contemporary firms. For those readers anxious to leap ahead to our conclusions, we recommend that you page forward to the end of this chapter, where we provide a navigation guide to the remaining chapters.

The New Business Environment: The Era of Hypercompetition Experts are describing today’s business environments as hypercompetitive because of the significant increase in competition within most sectors of the economy.2 The velocity of competitive pressures is severe because globalization increases the number of potential competitors; customers are quick to reward and sanction firms for their market responsiveness and service quality; companies are more capable of altering the “rules of the game” through innovations; and information technologies enable the execution of new business strategies faster, cheaper, and better than their rivals. We believe that four characteristics of the hypercompetitive environment are key to understanding the drivers for today’s business and IT transformations: globalization of business, consumer preferences for “solutions” rather than products or services, the emergence of mass customization capabilities, and the rising prominence of information in customer relationships.

1

2

Repositioning the IT Organization

Globalization of Business Globalization refers to the ability of firms to operate in different geographic product-markets, to set up operations and service facilities in different countries, to leverage their comparative costs and proximity to markets, and to tap into the capital and labor markets of different countries to weave together global operations. Advances in information and communications technologies have compressed space and time discontinuities and enabled firms to pursue globalization efforts. Globalization creates pressures on business firms to: • • •

•

anticipate competition from new rivals who might have better abilities to extend their reach into the markets across the globe. conceptualize their business on a global scale in terms of product-markets, capital markets, and labor markets. locate operations in different geographic regions and weave them together to take advantage of the comparative costs in different regions as well as the proximity to key markets for products and services. create customer interactions and distribution arrangements that enable order fulfillment on a global scale.

Collectively, these pressures suggest that the traditional make-and-sell paradigm is no longer appropriate: firms must be able to rapidly revise their products, services, distribution systems, and operational strategies in response to shifts in the global landscape of consumer preferences, labor and capital markets, and national regulations. With the make-and-sell paradigm, firms could be saddled with bloated inventories, idle plant capacities, or inefficient deployment of capital when global shifts invalidate prevailing managerial understanding about markets. The sense-and-respond paradigm directs managerial attention toward active probing and rapid response to emerging global shifts. Consumer Preferences for “Solutions” Rather Than Products or Services Traditional market segments are being fragmented as innovative firms discover sophisticated ways to analyze demographics and practice “finer niching” of consumer markets. However, as products and services proliferate, consumers are facing a bewildering array of decisions for satisfying their needs. Therefore, opportunities for building value-added relationships with customers through solution selling, rather than marketing specific products or services, are also emerging. Solution selling is the art of helping customers discover their needs, make decisions about solutions to their needs, and bundle a wide array of complementary products and services to satisfy those needs. Firms that reorient their customer interactions toward providing solution guidance are more likely to be successful in these new business environments. For example, Amazon.com’s business success has been partly due to its obsessive attention to helping customers discover solutions to their reading interests and needs. By carefully recording and tracking its customer’s past purchases and reading habits, the firm facilitates consumers’ attention toward other books that they might wish to read. Similarly, computer resellers, such as Computer Discount Warehouse, are emerging as a significant force in the personal computing industry because they provide “bundled” solutions for their customers’ home computing needs, including the hardware, software, and peripherals.

Chapter 1

Introduction: The New Business Environment

3

The sense-and-respond paradigm directs attention toward building capabilities for actively probing and sensing customer needs in order to respond with appropriate solutions. Emergence of Mass Customization Capabilities Revolutions in manufacturing technologies and methodologies have made it feasible for firms to dramatically alter their production and operations capabilities. Traditional manufacturing technologies and methodologies were designed to accomplish economies of scale––produce large batches of similar products in order to lower the costs of production. Firms focused their efforts on producing optimal quantities of specific products and services and marketing them to large customer segments whose size permitted them to realize the economies of scale. However, current information technologies, such as computer-aided design (CAD) and computer-aided manufacturing (CAM), and manufacturing approaches, such as lean manufacturing and flexible manufacturing systems,3 have made it feasible to realize economies of scope. These advances in manufacturing have made it possible for firms to target the unique needs of smaller customer segments without sacrificing cost advantages in production.4 As a result, firms are in a better position to offer customized products and services to the marketplace while still holding the line on their manufacturing and operations costs. Similar advances have also occurred in distribution technologies and methodologies. Just-in-time inventory approaches and individualized inventory tracking technologies have enabled firms to alter their manufacturing and distribution value chains to be more responsive to the changing consumer preferences. For example, Dell has pioneered the “build-to-order” business model, whereby specific configurations of computing solutions (hardware, software, network cards) are manufactured and delivered in response to customer orders. Not only is Dell able to execute the order rapidly, but it is also able to customize its solutions according to individual customer orders.5 The sense-and-respond paradigm directs managerial attention toward capturing customer needs as a trigger for “build-to-order” capabilities and the delivery of customized solutions. Rising Prominence of Information in Customer Relationships Traditionally, businesses have managed customer relationships through physical distribution chains, with a focus on effective delivery of products and services. These physical chains provided customers with the information necessary for their buying needs and also enabled the movement of the physical product or service from the producer or intermediary to the customer. In the sense-and-respond paradigm, firms are reorganizing in order to focus on their interactions with their customers. Increasing attention is being given to the development of information-based relationships that enable customers to discover solutions to their buying needs and to order the appropriate products and services. The physical distribution chains are assumed to be efficient and not a competitive differentiator. The rising prominence of information-based relationships characterizes both business-to-end consumer as well as business-to-business relationships. Advanced information technologies, including the suite of

4

Repositioning the IT Organization

Internet technologies, have made it feasible to create “virtual experiences” for product and service demos, “porous” and intimate relationships between firms and their customers, and a faster velocity of customer transactions.6

The IT Leadership Challenge Given these characteristics of today’s hypercompetitive business environments, how are contemporary firms transforming themselves to effectively compete? And how do they reposition their IT organizations to enable these new competitive moves? This book is aimed at providing some practical answers to these contemporary phenomena. Our insights are based on data collected from more than 40 organizations. We focus here on rich examinations of six large firms in diverse industries, in which IT executives were repositioning the IT function for the new sense-and-respond paradigm. Each of these firms already had a solid reputation for business performance in their prior competitive environments. Further, the top leaders at each of these firms envisioned IT to be a strategic differentiator and the companies had already made significant commitments to the transformation of their IT functions. Yet doing things right in the past does not create an exemplar for the future, and as researchers we knew that we were constrained to selecting these firms based on their past performance records and current transformation visions. During our multiyear data collections, however, we knew that these transformation stories were of interest to our research sponsors (CIOs in mostly Fortune 200 firms). Fortunately, we also now have access to their early performance returns, which suggest that we have indeed focused on success stories. We therefore share these six anonymous stories with confidence born not only from skills honed as academic researchers but also from some external reports of marketplace success. Our data were collected during site visits, often at multiple geographic locations, where we interviewed key senior IT and business executives. We were also able to obtain access to important documents that helped us better understand their transformation imperatives. Follow-up visits and conversations with several of these firms after the conclusion of our initial project for the APC have also yielded additional insights. More specific details about our methodology can be found in this book’s appendix. Though our sponsors were senior IT leaders and this is our target audience, we think that IT management consultants and researchers will also find value in the pages that follow. The next section provides a navigation guide to what’s ahead.

The Upcoming Chapters: A Navigation Guide At the beginning of this chapter, we set the stage for why businesses are encountering sharp discontinuities in the success of their traditional strategic activities and are transforming themselves for hypercompetition. We have described the emergence of a new sense-and-respond paradigm, including the environmental drivers for businesses competing in today’s hypercompetitive era, based on a synthesis of work by others.

Chapter 1

Introduction: The New Business Environment

5

In Chapters 2 to 4 we continue to set the stage for our own case-study findings by describing the systemic business transformation thrusts and the IT transformation vectors that emerged from our own analyses. In Chapter 2 we describe the three systemic transformation thrusts for our six case studies that were discovered: process integration, knowledge leveraging, and competitive agility. We profile the six firms in our study in terms of their visions and strategies for competing in the new sense-and-respond business environments. In Chapter 3 we begin to tease out how these six firms repositioned their IT organizations in order to enable these new business strategies. We begin by profiling the six cases in terms of three general imperatives for IT transformations. Then we detail their IT repositioning initiatives in terms of five key elements, or vectors, that we discovered to be in common across our six stories: talent infusion, governance redesign, pacing, sourcing, and lateral coordination capability. We define a lateral coordination capability as the development of a portfolio of formal and informal mechanisms in order to facilitate communication, coordination, and decision making across functions. The last vector, building and sustaining a lateral coordination capability, is an IT management competency that was of special interest to the senior IT executives who sponsored and molded our research. Chapter 4 presents our framework for describing (and architecting) a lateral coordination capability for the IT function. The framework includes five categories: integrator roles, groups, processes, informal relationshipbuilding, and human resource practices. Here our findings extend beyond the six case studies to include what we have learned from a field survey of more than 40 additional organizations. Chapters 5 to 7 present the heart of our IT repositioning stories. Taken together, they provide detailed descriptions on how to transform an IT organization for a sense-and-respond era. We devote one chapter to each systemic transformation thrust and discuss in detail how the relevant cases repositioned their IT organization to be a strategic differentiator and key enabler of this systemic thrust. Chapter 5 focuses on repositioning an IT function for process integration. Chapter 6 focuses on knowledge leveraging, and Chapter 7 focuses on competitive agility. A similar structure is used across these three chapters. First we describe how the five IT transformation vectors were used by the relevant firms. Then we describe in rich detail the transformation journey of one case study, including some improvised solutions along the way. Executive guidelines specific to the transformation thrust close each chapter. Chapter 8 is our capstone: we summarize our key findings in terms of practical recommendations. We begin with a discussion of the IT role as a strategic differentiator. Then we describe what it takes for the IT function to become a strategic differentiator under four themes: IT capabilities, high performance designs, the five IT transformation vectors, and the CIO as transformational leader. Endnotes 1 S. P. Bradley and R. L. Nolan (Eds.), Sense and Respond: Capturing Value in the Network Era, Harvard Business School Press, Boston, 1998. For a discussion of this new paradigm in contrast to the conventional make-and-sell paradigm, see Chapter 1 of Bradley and Nolan’s publication. 2 R. A. D’Aveni, Hypercompetition: Managing the Dynamics of Strategic Maneuvering, The Free Press, New York, 1994.

6

Repositioning the IT Organization

3 J. P. Womack, D. T. Jones, and D. Roos, The Machine That Changed the World: The Story of Lean Production, HarperCollins, Boston, 1990; M. A. Cusumano and K. Nobeoka, Thinking Beyond Lean: How Multiproject Management Is Transforming Product Development at Toyota and Other Companies, The Free Press, New York, NY, 1998. 4 B. J. Pine, Mass Customization: The New Frontier in Business Competition, Harvard Business School Press, Boston, 1993. 5 J. Magretta, The power of virtual integration: An interview with Dell Computer’s Michael Dell, Harvard Business Review, March-April 1998: 72–84. 6 N. Venkatraman, and J. C. Henderson, Real strategies for virtual organizing, Sloan Management Review 40 (1), Fall 1998: 33–48.

CHAPTER 2 BUSINESS TRANSFORMATION THRUSTS Given today’s hypercompetitive business environments and the drivers for sense-and-respond capabilities, how are businesses transforming themselves? Three systemic thrusts characterized the business transformations of our six case studies: Process integration Binding together the enterprise’s business units through common end-to-end processes that offer integrated solutions to customers’ needs Knowledge leveraging

Leveraging the ability to apply existing knowledge to respond rapidly to marketplace changes by capturing and providing access to dispersed expertise across the enterprise

Competitive agility

Leveraging the ability to sense fleeting marketplace trends and rapidly offer a stream of innovative solutions without being hampered by the inertia of existing commitments

We do not mean to suggest that these three thrusts capture all of the transformation goals of these firms. Rather, they capture their primary focus at the time of our data collections and the systemic pressures for IT repositioning. Table 2.1 maps our six case studies into these three systemic thrusts. We then devote the remainder of this chapter to describing each of the transformation thrusts in some detail. Understanding these business transformation pressures is key to understanding why a new IT role—as strategic differentiator—was required, which will be the focus of the chapters that follow. Table 2.1: Business Transformation Thrusts at Six Case Firms Transformation Thrusts Process integration

Transformation Description Binding together the enterprise’s business units through common end-to-end processes that offer integrated solutions to customers’ needs

Case Sites

Case Background

Tran-Integrate

Large firm in the transportation and logistics industry with a history of significant autonomy among its business units Large global firm operating in automotive, chemicals, office products, and electronics industries with a history of significant innovation under autonomous divisions

DiverseSynergy

(continued on next page)

7

8

Repositioning the IT Organization

Table 2.1 (continued) Transformation Thrusts

Transformation Description

Case Sites MaterialSystem

Knowledge leveraging

Competitive agility

Leveraging the ability to apply Bio-Leverage existing knowledge to respond rapidly to marketplace changes by capturing and providing access to dispersed expertise across the enterprise Leveraging the ability to sense Pub-Enabler fleeting marketplace trends and rapidly offer a stream of innovative solutions without being hampered by the inertia Tele-Nimble of existing commitments

Case Background Large global firm in building materials and advanced composites industry with new top leadership brought in for financial turnaround Large global firm competing in chemicals, agricultural products, and pharmaceuticals with new top leadership focused on biotechnology opportunities Large global publishing and printing firm facing significant competitive disruption due to new digital technologies Large telecommunications firm competing in local markets but anticipating significant competitive disruption due to industry deregulation

Process Integration: Building Capabilities Through Common Processes Given today’s hypercompetitive business environments, firms must develop the ability to weave together seamless enterprises so that they can quickly respond to opportunities in the product, capital, and labor markets around the globe. Increasingly, sense-and-respond strategies require the integration of enterprise actions through common processes. Process integration is our term for business transformations aimed at building sense-and-respond capabilities through enterprise-wide processes that facilitate more intimate relationships with customers and the rapid delivery of solutions to customers’ needs. Examples of such global processes include customer order gathering, order fulfillment, manufacturing flow, supply chain management, and capital acquisition and management.1 Seamless enterprise-wide processes enable the rapid movement of information required to respond with appropriate solutions to customers’ needs.

Chapter 2

Business Transformation Thrusts

9

Process Integration Building sense-and-respond capabilities through global and enterprise-wide common processes that bind together organizational units During most of the 1980s, prevailing organization structures were built around the multidivisional (Mform) or holding company (H-form) organizational models. These structures facilitated attention to the needs of specific market segments, while overcoming the weaknesses of earlier functional models. However, as hypercompetitive business environments demand integrated solutions for global customers, firms need to integrate operations across individual lines of business, particularly when these units serve common customers. Process integration requires a joint ownership of decisions and collective responsibility for outcomes.2 It allows organizations to create solutions that cross the lines of business effectively and efficiently in a way that is invisible to customers. Process integration is therefore one of the most widespread transformation thrusts among contemporary firms as they seek to bind together the activities of their business units and become more customerresponsive.3 As shown in Table 2.2, one service and two manufacturing firms that we studied had initiated transformation thrusts toward process integration. This transformation thrust typically requires some structural reorganization, but the movement toward common, enterprise-wide processes, rather than restructuring, was the systemic driver. In the following sections we capture some of the highlights of the process integration thrusts at three firms: Tran-Integrate, Diverse-Synergy, and Material-System. Chapter 5 is devoted to describing the repositioning of the IT organizations to enable these business transformations. Process Integration at Tran-Integrate In early 1996, Tran-Integrate emerged as a new corporate entity within a large transportation and logistics corporation. Previously, the firm operated as a holding company, with the operating companies enjoying high levels of autonomy in their respective lines of business: emergency shipments, dedicated logistics, package delivery, and less-than-truckload shipments. The restructuring involved two major actions: (1) a spin-off of a unionized business into a separate corporation, and (2) the creation of Tran-Integrate, with nonunionized businesses that included dedicated logistics and package delivery. This new corporation was expected to operate as a multidivisional firm, with a much tighter integration of operations and initiatives of business units that had previously been independent operating companies. The logistics and transportation industry is experiencing intense rivalry, fueled in part by deregulation. The industry itself is very mature and has had a history of unionization. The industry response to this new competitive environment had been to segment into different niches––for example, dedicated logistics for large organizations, such as retailers, distributors, automobile manufacturers, and so on; emergency shipments for medical products and services; small package delivery for catalog retailers; and less-than-truckload shipments. Within each segment, new rivals had sprung up and created excess

10

Repositioning the IT Organization

Table 2.2: Process Integration Thrust: The Case Evidence

Firm Tran-Integrate

Motivation for Transformation Intense industry rivalry in the transportation industry Sharpened value proposition of customer intimacy Customers’ desire for integrated logistics solutions

Diverse-Synergy Revival of innovation fervor that characterized past success Sharpened value proposition of operational excellence Marketplace consolidation created misalignment with “autonomous” organizational model

Material-System Enhanced customer satisfaction through superior solutions that leverage the firm’s product range Sharpened value proposition of customer intimacy Growth that exploits global reach of the business

Process Integration Actions

Complementary Transformation Actions

Common customer solution process Account management of customers

Spin-off of specific business units Reintegration of business units within a “tighter” organization structure IT as the “glue” for the new organization Core Processes Spin-off of specific business units Customer relationship Reintegration of existing management divisions into five market centers to focus on supply Demand chain management, product management innovation, and brand Customer order marketing fulfillment Manufacturing flow Emergence of IT as the key integrator Procurement Common, simple Corporate vision that global processes emphasizes core values: for value-chain global, mobile, paper-free, and corporate integrated, team-oriented, support learning-based, customerfocused, and technologyenabled New integrative role for IT

capacity. Although the operational processes of these segments are different, the services themselves had become commodities with little differentiation among the rivals’ offerings. This, in turn, had begun to squeeze profitability margins. Tran-Integrate developed a new strategic response to this hypercompetitive business environment: rather than operate in the individual market segments of its industry, it sought to leverage its customers’ desire for integrated solutions. By 1996, the firm had therefore embarked on a transformation that would enable it to combine the talents of its different operating units to offer its customers a seamless blend of package, freight, logistics, and expedited services from a single source. Logistics and supply chain management was anticipated to be a growing segment of the economy. As more firms recognized the

Chapter 2

Business Transformation Thrusts

11

critical value-added role of effective supply chain and logistics management, Tran-Integrate would be poised to differentiate itself through its new capability to provide total, end-to-end customer solutions. Tran-Integrate’s primary transformation thrust was a tighter integration of its lines of business, which included four business divisions and a separate technology unit. For some of its largest customers, account managers would be responsible for sensing their logistics and supply chain needs and then working with appropriate experts from the four different business units to develop integrated solutions. These market-facing account managers and the processes that they use for developing customer solutions were significant elements of their transformation thrust. They altered the firm’s relationship with their customers––moving away from being based on products and services and toward the delivery of integrated logistics and supply chain expertise and solutions for the customers’ total needs. Figure 2.1 graphically describes this vision: the four lines of business are channels of expertise to the customer base, and IT-based processes will facilitate cross-unit synergies and better customer relationships. Though the firm had traditionally used IT strategically, the transformation catapulted IT into a key role as strategic enabler of its integration efforts. The mission of Tran-Integrate Technology was to provide integrated IT services to these business units and to play a new role as key enabler of a new business strategy based on the integration of value-chain activities across its new enterprise. IT was viewed as the “glue” that would bind together the processes of the units that previously operated in distinctive industry segments in order to facilitate a “one-window” face to its customers and the strengthening of its customer relationships. This meant the building of a new IT organization capability to facilitate greater levels of customer service differentiation. Figure 2.1: Tran-Integrate’s Vision Package

Freight

Logistics

Expedited Services

s rvice IT Se

Customer Base

Process Integration at Diverse-Synergy Although it had had a tremendously successful business model for many years, Diverse-Synergy also initiated a fundamental transformation in 1996. Traditionally, the firm had been structured around products, with each division given high levels of autonomy to manage its family of products that fulfilled specific customer needs. In response to an increasingly hypercompetitive environment, Diverse-Synergy

12

Repositioning the IT Organization

began to transform itself from being a product-centered enterprise to a market-centered enterprise, in which groups of divisions serving a common market would be consolidated in order to exploit synergies and build relationships with common customers. One of the distinctive characteristics of this new market-centered organization was the creation of a “one-window” interface between the company and its markets through a core set of common processes. Diverse-Synergy operates in more than 60 countries with a diverse range of businesses including more than 40 major product lines in the automotive, chemicals, office products, and electronics industries. The company’s culture fosters a spirit of entrepreneurship, and the firm has consistently spawned a stream of groundbreaking products. More than 25% of its sales each year come from products introduced within the previous four years. Previously, individual business units enjoyed considerable autonomy while operating as parts of three broader strategic sectors. Significant investments in R&D occurred at three levels: (1) the division laboratories that are close to the customers and work on day-to-day developments to support existing product lines and create new ones, (2) sector laboratories, where scientists work on technologies that will reach the market within 5 to 10 years, and (3) corporate research laboratories, where the focus is a 10- to 15-year technology horizon. Though the company has been a model of corporate excellence and had consistently demonstrated innovation and business success, concerns grew internally about the appropriateness of the prevailing culture and organization design to meet the challenges of hypercompetitive environments: 1. The culture of the company had emphasized the creation of winning products based on inimitable, “blockbuster” innovations and the ability to extract high premiums for these products. However, there was a growing concern about the company’s ability to sustain the rate of innovation needed for a strategy based on “proprietary” product innovation and premium pricing strategies. Therefore, one of the challenges facing the company is to revitalize its innovation fervor and accelerate the pace of product innovation. At the same time, the firm also recognized the necessity for complementing its “proprietary product pull” strategy with a deliberate “channel push” strategy. The latter realization has prompted a higher level of attention to marketing in contrast with the past, when attention was mostly focused on product innovation through R&D. 2. While divisional autonomy had enabled success in focusing products and services on specific market segments, two characteristics suggested the need for enterprise-level solutions: (1) not all divisions were effectively managing their supply chains, and (2) many of the divisions were selling their products to the same markets. For example, the firm discovered that more than a dozen of its divisions sold office products to a common set of 12 distributors who jointly controlled about 85% of the global business for this industry. Yet the traditional mode of organizing divisions around product lines had masked this commonality and fostered “silo-oriented” thinking among the divisions. As a result, potential synergies for supply chain operations and marketing relationships had not been exploited. Therefore, another significant challenge faced by the firm was the creation of marketing and supply chain management processes that would better balance the dual needs for autonomy and coordination across its product-based divisions.

Chapter 2

Business Transformation Thrusts

13

Overall, while Diverse-Synergy wished to preserve the traditional strengths that it had developed through divisional autonomy and product leadership, there is a clear realization that it needs to pursue operational excellence through common enterprise-wide processes and greater collaboration among the divisions that serve similar customers and markets. Therefore, process integration is viewed as a significant strategic commitment in order to sustain superior performance in the future. Diverse-Synergy’s transformation began with a restructuring of its businesses, including a business spin-off that accounted for about 20% of revenues, and the integration of its remaining businesses into five market centers. The cornerstone of the transformation was the identification and implementation of a core set of processes within each market center, including customer relationship management, demand management, customer order fulfillment, manufacturing flow, and procurement centers (see Figure 2.2). Senior executives were assigned to be process leaders, and process councils were created to link together the process leaders across the five market centers to share ideas, practices, and solutions for common processes. Figure 2.2: New Processes at Diverse-Synergy Enterprise-wide Processes Customer relationships Demand management Order fulfillment Manufacturing flow Procurement

Divisions Within Market Center

In addition, three key initiatives directed at achieving supply chain excellence, renewed product innovation leadership, and brand marketing were championed by three top managers charged with evaluating the prevailing organizational practices, identifying best practices from inside and outside the organization, and transferring these best practices throughout the organization. For example, in the context of supply chain management, aggressive enterprise-wide targets were set with respect to the channel fill rates and product availability. A critical element of the transformation at Diverse-Synergy is the role of information technology: IT is expected to shape the organization’s success at supply chain management and the building of customer loyalty—to be a strategic enabler of the business. While the firm had historically been a big spender on IT, the focus had primarily been on facilitating cost control in manufacturing, marketing, and distribution activities. IT is now being viewed as a core business competence. Process Integration at Material-System Material-System was heavily in debt when the current CEO took over the reigns of the firm in early 1992: it had used up significant levels of cash in fighting off a takeover bid and responding to lawsuits

14

Repositioning the IT Organization

related to products containing harmful materials that it manufactured two decades earlier. The new CEO began to transform the firm by (1) renewing its focus on R&D, and (2) making the customers in its four major markets its first priority. The early restructuring initiatives included the divestiture of noncore businesses, investment in new plants on three continents, and these business process reengineering projects: reengineering the logistics and customer service processes and consolidating of the finance function. By 1996, Material-System was well on its way toward deploying common, global business processes to support its sense-and-respond business goals: accessing worldwide information in real time to make fully informed decisions and customizing responses to meet customer needs. Material-System is a world leader in manufacturing building materials and advanced composites. Its primary lines of business produce and market more than 2000 specific building products, including insulation, roofing materials, and siding, and it is a market leader in composite materials. Three core values underlie its new global strategy based on common processes: customer satisfaction, individual employee dignity, and shareholder value. These values were also embodied in the CEO’s vision for a new workplace, which was communicated with a set of eight qualities: global, mobile, paper-free, integrated, team-oriented, learning-based, customer-focused, and technology-enabled. Key to this transformation was a new prominent leadership role for the IT function. In the past, the IT organization had been led by a string of business managers and the IT organization had been an order taker; for example, there was no significant IT management involvement in the early business process reengineering projects. By 1994, it was clear to top management that IT would have to become an enabler of its new vision and a new IT leadership role would be needed to help move the company into the next century. In summary, then, all three of these firms had business transformations well on the way toward process integration by early 1996. In Chapter 5 we profile and compare the IT transformations of all three of these firms. We will also describe in detail the IT transformation journey of Material-System as it repositioned its resources for one of the earliest global ERP implementations by a U.S.-based firm.

Knowledge Leveraging: Building a Knowledge Asset Firms possess vast amounts of knowledge about markets, competitors, suppliers, and other important stakeholders. But this knowledge is typically dispersed throughout the firm. Integrating the dispersed knowledge and facilitating its availability throughout the enterprise can dramatically enhance competitive ability by allowing firms to sense new trends and then quickly shape responses by drawing on history, experience, and prior learning.4 Knowledge leveraging is our term for the building of sense-and-respond capabilities through the creation, nurturing, and maintenance of a knowledge asset. As knowledge becomes recognized as a fundamental organizational asset for sustaining competitive edge in today’s hypercompetitive business environments,5 firms are attempting to identify “what they know”: capturing, storing, and maintaining this knowledge to create an organizational knowledge base, and facilitating access to this knowledge throughout the enterprise.6

Chapter 2

Business Transformation Thrusts

15

Knowledge Leveraging Building sense-and-respond capabilities through the creation, nurturing, and maintenance of a knowledge asset The knowledge embedded in the people, systems, culture, and overall organizational architecture of a firm enable it to sense emerging opportunities and shape the competitive future better than its competition. The term economies of expertise refers to the benefits accruing to a firm when it can leverage its existing knowledge across a wide range of business opportunities in different markets, geographic regions, and customers. Only one firm, Bio-Leverage, was engaged in a transformation in which leveraging knowledge was a primary thrust (see Table 2.3). Complementing this thrust were several other integration initiatives, but better understanding how to build an enterprise-wide knowledge asset was a centerpiece of its transformation. Table 2.3: Knowledge Leveraging Thrust: The Case Evidence

Firm Bio-Leverage

Motivation for Transformation

Knowledge Leverage Actions

Complementary Transformation Actions

Innovations for fast-changing markets Competitive advantage dependent on firm’s collective insights

Connecting via global themes: operational excellence, growth, sustainability, globalization, cultural change New units to focus on learning and growth (balanced scorecard measures)

Restructuring of leadership and corporate functions IT as key architect of knowledge assets

Knowledge Leveraging at Bio-Leverage In the spring of 1995, the new chair and CEO of Bio-Leverage embarked the company on a transformation that would lead to the spin-off of a mature chemicals business in order to focus on biotechnology. To survive in the new hypercompetitive environment, the firm needed to increase its capabilities to sense-and-respond by leveraging knowledge across functions, businesses, and business sectors. In the future, competitive advantage would depend on the firm’s collective insights and how fast it learns. A culture characterized in the past by “radical decentralization” would need to be transformed to also reward knowledge sharing. The CEO’s new vision was communicated as “small and connected.” In the past, Bio-Leverage had competed in related industries, including chemicals, agricultural products, and pharmaceuticals. Its mature chemicals businesses provided over half of the company’s 1995

16

Repositioning the IT Organization

revenues, but its agricultural businesses were its “crown jewels” and generated about two-thirds of the company’s profits. The firm’s growth was heavily dependent on biotechnology innovations within fastchanging markets. In early 1996, Bio-Leverage had four global operating companies, fourteen strategic business units, and four world areas, with about 30,000 employees worldwide. In the past decade, the firm’s business units had been deliberately radically decentralized in order to quickly bring innovations to market in response to customer demand. But being small and not connected had led to “silo-itis” and missed opportunities for leveraging one of the firm’s key competencies––its intellectual capital. Becoming “connected” would therefore be a key challenge, and advanced IT was identified by the new chairman as the single most valuable tool in helping the company redesign itself to compete in fast-changing markets. Bio-Leverage adopted a balanced scorecard approach in which Learning and Growth was one of four primary performance objectives. Under the leadership of a VP of Strategic Change, organizational measures for new competencies and behaviors associated with learning and growth would help track the firm’s progress toward these new objectives. The CEO also initiated two new top management groups to help actualize his new vision for the company. His management board––including the CFO, five industry “family” heads, and international heads––began meeting a couple days each month, and a new operations council––including all SBU heads, the management board, plus other corporate senior VPs––also met monthly. The corporate functions were also restructured. A new corporate stewardship unit was separated from the “shared services” unit in order to focus on innovation, leadership, and “doing the right things” to achieve the corporate vision. Another one of the highly visible changes was the introduction of five high-priority themes to help focus the company on new ways of doing business: operational excellence, growth, sustainability, globalization, and cultural change. A series of global forums was held to create rapid enterprise-wide awareness of these themes. Five hundred employees participated in each forum–– representing a “diagonal slice” of all levels, including board members, and all functions. By early 1996, about 40 enterprise-wide initiatives and councils had been set up to facilitate the development of a portfolio of capabilities to realize the five global themes and overall vision of the firm. Examples of new councils included the Corporate Marketing Council and a Manufacturing Leadership Council, which had both a steering committee with members from the highest ranks, and working groups with members from across the organization. Examples of new initiatives included a Public Policy Institute and the Global Learning Network. Under corporate funding, the Global Learning Network (GLN) was a new initiative to focus on the corporate objectives of learning and growth.7 Its initial focus would be a major redesign of the human resource function, building on recommendations from an earlier reengineering team. The GLN would also take the leadership role for the identification and dissemination of best practices in partnership with IT. This transformation also significantly changed the role of the IT function: it would no longer be a “provider of solutions,” but an enabler of the business transformation. IT was viewed as critical for eliminating the time and distance barriers to being small and connected. The attainment of a seamless global IT infrastructure for connecting its disparate businesses would be critical for knowledge

Chapter 2

Business Transformation Thrusts

17

leveraging. By mid-1995, a new Knowledge Management Architecture (KMA) unit within IT was charged with developing a new business intelligence capability enterprise-wide. In Chapter 6 we describe in detail the IT transformation journey of Bio-Leverage.

Competitive Agility: Building Capabilities for Rapid Response A competitively agile firm anticipates the marketplace by developing the competencies needed to exploit emerging opportunities. Agile firms embrace change since change and uncertainty are sources of opportunities for superior competitive performance. Competitive agility is the term we use for a transformation thrust aimed at enhancing the ability to rapidly respond with a stream of innovative products, services, and distribution arrangements that satisfy customer needs and take advantage of the emerging markets.8 When market opportunities are fleeting and customer needs keep changing, competitive success is associated with rapid innovation that delights customers and surprises the competition.9 Competitive Agility Building sense-and-respond capabilities through the ability to rapidly respond with a stream of innovative solutions that reflect customer needs and emerging markets Agile firms are not constrained by the inertia of their commitments to existing products, services, or distribution structures; they are willing to be change-ready. Significant cultural changes are typically required in order to develop this new entrepreneurial orientation. Table 2.4 shows the characteristics of the two firms in our study in which the primary transformation thrust was to achieve competitive agility. Table 2.4: Competitive Agility Thrust: The Case Evidence

Firm

Motivation for Transformation

Agility Actions

Complementary Transformation Actions New set of core values Business process redesign New IT leadership role Business process redesign Investments in digital capabilities New IT role for digital future

Tele-Nimble

Impending deregulation in the industry Cycle time pressures

Cultural change to an entrepreneurial mindset

Pub-Enabler

Emerging discontinuities due to new digital technologies Cycle time pressures

Cultural transformation toward an entrepreneurial workforce

18

Repositioning the IT Organization

Competitive Agility at Pub-Enabler Pub-Enabler’s traditional competitive strengths in the publishing and printing industry were its size, technological expertise, and long-term customer relationships. Yet by 1995 it had become clear that the demand for traditional ink-on-paper print was facing obsolescence: the future was a digital one. Its greatest competitive threat was substitute products based on new digital technologies, but it also faced severe cycle time pressures. It needed to transform itself into an agile marketing-and-services company that could provide future customers with editorial content in whatever format they requested. Pub-Enabler had about a dozen business units grouped into three major sectors, competing in the United States and four international markets. Its customers included major magazine publishers (weekly magazines), Baby Bells (yellow pages), and software vendors (software diskettes). The CEO’s dual strategy of heavy investments in new technology and expansion into developing countries that have high literacy rates had led to record sales growth. Among its investments were digital printing plants with the capability to print the same day that data are electronically transmitted from customers and new computerized sorting equipment with the capability to print inserts or ads targeting specific demographic groups. The centerpiece of the transformation efforts toward agility was the cultural transformation toward an entrepreneurial mentality. By early 1996, there was a realization that competitive agility required a still more flexible organization and a highly skilled workforce. The company’s size, a historical asset, was now viewed as an impediment to building the flexible organization and highly skilled workforce needed to compete in the new marketplace. Some of the Pub-Enabler workforce had been at the firm for 40 years; some employees had done the same jobs for 25 years. To be “nimble,” the firm needed to transform its business culture and diversify its workforce. At the same time, it needed to better compete on low cost by sharing resources across the corporation. Through its business process reengineering efforts, it was discovered that many of the firm’s current information systems didn’t have the capabilities needed for responsiveness to fast-changing markets. The new vision for the IT organization was to be an enabler of competitive agility: IT would be an integral part of the business, and every IT goal would be linked to an overall company goal. Competitive Agility at Tele-Nimble Tele-Nimble competed in the local voice and data market segments of the telecommunications industry. Prior to 1996, the telecommunications industry had operated as an oligopoly, governed by regulatory bodies. By 1995, landmark federal legislation that would fuel an industry consolidation and shakeout was anticipated and only a handful of major national and international providers were expected to survive. Tele-Nimble therefore faced the prospect of a world where “market windows of opportunity” open and close rapidly. The transformational imperative for Tele-Nimble was to move from a protected, regulated, and oligopolistic market environment to a hypercompetitive market environment. Sustained success in this context would require mastering the sense-and-respond business paradigm. According to the CEO, The winners in this era of open markets will be those who are organized around the requirements of the market and ready to take advantage of emerging opportunities.

Chapter 2

Business Transformation Thrusts

19

In anticipation of this paradigm shift, the firm initially focused on a cultural transformation: an entrepreneurial mindset in which customer needs and the speed of response would be the watchwords embraced by all employees. It also embarked on developing common enterprise-wide processes to facilitate agility. Key to this transformation effort was a new leadership role for the IT function. A new CIO with business process reengineering oversight expertise was sought to transform IT from a back-office function to an enabler of agility. In Chapter 7 we describe in detail the IT transformation journey of Tele-Nimble.

The New IT Role The six firms in our study each pursued one of three systemic business transformation thrusts in order to compete effectively in a hypercompetitive business environment: process integration, knowledge leveraging, or competitive agility. A key element of the business transformation to sense-and-respond capabilities in all six companies was the emergence of a new IT role: IT would be a strategic differentiator and a key enabler of their business transformation success. The remaining chapters focus on how the IT organization was repositioned in response to these business imperatives. In Chapter 3 we introduce the five key elements, or vectors, of the IT transformation strategies that emerged from our research.

Endnotes 1 T. H. Davenport, Process Innovation: Reengineering Work Through Information Technology, Harvard Business School Press, Boston, 1993. 2 B. Gray, Collaborating, Jossey Bass, San Francisco, 1991. 3 J. Liedtka, Collaboration across lines of business for competitive advantage, Academy of Management Executive, May 1996: 20–37. 4 T. A. Stewart, Intellectual Capital: The New Wealth of Organizations, Double Day/Currency, New York, 1997; K. E. Svelby, The New Organizational Wealth: Managing and Measuring Knowledgebased Assets, Berrett-Koehler Publishers, Inc., San Franscisco, 1997; T. H. Davenport and L. Prusak, Working Knowledge: How Organizations Manage What They Know, Harvard Business School Press, Boston, 1998. 5 M. J. Kiernan, The Eleven Commandments of 21st Century Management, Prentice Hall, Englewood Cliffs, N.J., 1996; J. Martin, Cybercorp: The New Business Revolution, American Management Association, New York, 1996. 6 R. M. Grant, Prospering in dynamically-competitive environments: Organizational capability as knowledge integration, Organization Science 7(4), July-August 1996: 375–387; B. Moingeon and A. Edmondson, Organizational Learning and Competitive Advantage, Sage Press, Newbury Park, Calif., 1996. 7 Learning and growth is one of four “balanced scorecard” measures in a management system devised by R. S. Kaplan and D. P. Norton. (See the authors’ The Balanced Scorecard, Harvard Business School Press, Boston, 1996.)

20

Repositioning the IT Organization

8 S. L. Goldman, R. N. Nagel, and K. Priess, Agile Competitors and Virtual Organizations: Strategies for Enriching the Customer, Van Nostrand Reinhold, New York, 1995. 9 R. A. D’Aveni, Hypercompetition: Managing the Dynamics of Strategic Maneuvering, The Free Press, New York, 1994.

CHAPTER 3 REPOSITIONING STRATEGIES FOR IT TRANSFORMATION Heightened roles for the IT function were required to enable the systemic transformations described in Chapter 2: IT was expected to not only be an enabler of the transformation thrusts, but also a strategic differentiator for the business. How did these firms reposition their IT function to play this new strategic differentiator role? We believe that five major elements, or transformation vectors, capture well the strategic choices that repositioned the IT function at these six firms: Hiring of new senior IT executives, including a CIO, in order to guide the IT transformation initiative

Talent Infusion

Redesign of the allocation of authority for significant IT management decisions among corporate IT and divisional IT managers, including matrixed designs

Governance

Pacing

Sourcing

Lateral Coordination Capability

Speed at which the IT transformation should be driven relative to the business transformation thrust Decisions about the sourcing of key IT assets, applications, or skills: internally sourced or outsourced Introduction of coordination mechanisms to link business and IT management, as well as corporate and dispersed IT management, to facilitate cross-unit work and decision making

To set the context for our descriptions of how these vectors were used to reposition an IT organization, we begin by mapping the six case studies into three overall imperatives for IT transformation: the heightened role of the IT function, dissatisfaction with current IT performance (at four of the six firms), and the new IT capabilities required in order to respond to the first two imperatives. Table 3.1 summarizes these mappings.

21

22

Repositioning the IT Organization

Table 3.1: Imperatives for IT Transformation Imperative

Tran-Integrate

DiverseSynergy

MaterialSystem

Heightened role of the IT function

Enable cross-unit synergies

Enable cross-unit synergies

Participate in solution development for external customers

Provide greater attention to strategic opportunities for IT use

Dissatisfaction with current IT performance

Desire for new IT capabilities

Enhance customer Infuse strategic orientation of IT thinking in IT organization applications

Bio-Leverage

Pub-Enabler

Tele-Nimble

Lead development and implementation of common, global processes

Enable the transformation vision of small and connected

Facilitate organizational agility that leverages external alliances

Facilitate rapid delivery of IT applications that build strategic value to the business

Frequently maintained and incompatible legacy applications

IT infrastructure gaps an impediment to “connectedness” goals

Legacy systems inadequate for fast-changing markets

Legacy development environment an impediment to quick cycle times

“Order-taking” mentality promoted “silo” solutions

IT leaders not connected

Create flexible IT infrastructure

Create seamless IT infrastructure

Build high performance IT organization for integrated package environment

Become primary architect of knowledge asset

IT skills outdated Entitlement mentality of IT workforce in conflict with entrepreneurial values Develop partnerships with business Build generalist talent for packaged environment

Infuse strategic thinking in conceptualization of IT applications Build IT talent base that is change-ready

Heightened Role of the IT Function At each of the six firms, the IT function was expected to play a significant role in facilitating the business transformation thrusts. In most cases, these expectations meant a new direction and a departure from the past activities and focus of the IT function. For example, at both Tran-Integrate and DiverseSynergy, the IT function had traditionally focused on aligning itself to the autonomous operations of the business units. While IT devoted some efforts toward enterprise-wide synergies in the management and use of information and information technologies, the prevailing vision was to respond to the unique IT needs of the individual business units. The charter for the IT function changed dramatically to being the agent for facilitating cross-unit synergies. Similarly, the IT function at Material-System was expected to lead the implementation of common global processes. Given the risks and uncertainties associated with the implementation of ERP systems to facilitate common processes, the IT function needed to transform itself to successfully execute its anticipated role in the business transformation thrust. At Bio-Leverage, the IT function was expected to be an enabler of the business transformation thrust envisioned by its CEO. IT was considered to be critical for eliminating the time and distance barriers required for being small and connected, as well as a key partner in a new initiative: the development of

Chapter 3

Repositioning Strategies for IT Transformation

23

intellectual assets. Both Pub-Enabler and Tele-Nimble faced unprecedented industry uncertainties due to the arrival of the Information Age, and their IT functions were now required to facilitate agility. Both organizations had “entitlement” workforces that needed to be transformed in order to deliver strategic IT applications rapidly.

Dissatisfaction with Current IT Performance At four of the six firms, the IT transformation pressures also originated due to dissatisfaction with the current performance of the IT function and the realization that the current IT function would simply not be able to help achieve the desired business transformation thrusts. Some of the reasons underlying dissatisfaction with the current performance include excessive burden of legacy applications, an “ordertaking” mentality of the IT function rather than a proactive focus on delivering strategic value, IT infrastructure gaps impeding seamless enterprise-wide information networks, and restricted IT skillsets. The burden of legacy applications was a significant concern at Material-System. These applications were characterized as “complex, fragmented, incompatible, unreliable, and highly redundant.” In the words of a manager, “we had to get better at what we were doing, but legacy systems wouldn’t let us do that.” At Tele-Nimble, an environment of legacy applications development meant long lead times and excessive efforts devoted to applications maintenance. According to a senior IT executive, “to paraphrase a Chinese proverb, it was realized that if we didn’t change our direction, we might end up ‘where we were headed.’” Another significant concern with the performance of the IT function related to the “order-taking” mentality of the IT function. At Material-System, the initial reengineering efforts for building common processes were undertaken by three separate groups in finance, logistics, and customer service. The IT group did not have a significant involvement in these efforts; IT was simply expected to respond to the new application development needs of the separate reengineering task forces. This “order-taking” mentality of the IT group in the past meant that commonalities across the reengineering initiatives were being overlooked. The new CIO realized that the current mode of operation would lead to “silo” solutions rather than the common global processes that the firm sought in its transformation thrusts. IT infrastructure gaps were a source of dissatisfaction with the performance of the IT function at BioLeverage. Traditionally, with the emphasis on divisional autonomy, about 80% of the communications were within an employee’s workgroup. Therefore, IT infrastructure standards were decentralized down to the individual business units. As a result, e-mail packages had proliferated and made it difficult for different business units to “talk to each other.” As the firm embarked on a transformation thrust of knowledge leveraging, it was imperative that the IT function build a seamless IT infrastructure that allowed global communications and information exchange. Both Tele-Nimble and Pub-Enabler realized that their IT staff primarily had skills that were inadequate for rapid delivery of strategic applications. At Tele-Nimble, a history of legacy applications enhancement meant that the IT staff did not possess expertise with the emerging IT skills and methodologies. Further, its workforce had developed an “entitlement” mentality––they assumed lifetime employment privileges and looked for their superiors to path their careers and identify their training and development needs.

24

Repositioning the IT Organization

Since entrepreneurship was likely to be critical in the emerging business environments, there was a realization that the IT function needed to develop an entrepreneurial workforce: individual employees would chart their training and development, display initiative in developing innovative ideas, and embrace the values of customer orientation and speed of response. Similarly, at Pub-Enabler, many of the IT employees had been doing the same jobs a long time and had programming expertise only in “old” tools––for example, Adabase. Most of the corporate IT workforce was primarily providing legacy support.

Desire for New IT Capabilities Whether or not there was dissatisfaction with the current performance of the IT function, senior IT executives at all six firms realized that they needed to nurture new IT capabilities in order to effect the new heightened IT role. These capabilities included not only more flexible IT infrastructures, but also an expanded IT talent base that had a new teaming/partnering orientation. Strategic thinking in the conceptualization of IT applications was one of the significant capabilities sought within the IT function. These firms (particularly Tran-Integrate, Diverse-Synergy, and TeleNimble) realized that the high payoff applications needed to focus on the customers’ needs and to facilitate the delivery of solutions to those needs. Both Tran-Integrate and Diverse-Synergy expected its IT function to be more proactive in enabling customer solutions through collaboration among the different business units. The IT staff were also expected to be able to interact with the external customers in identifying strategic applications as well as stimulate the business managers with ideas about winning IT applications. Overall, there was a desire to see a more active role for the IT function in identifying value-adding IT applications. Material-System recognized the need for a flexible IT infrastructure that would permit the development of common global processes. In particular, the CIO realized the need to transition to an open-systems solution based on UNIX, relational databases, and user-friendly desktop technologies. Further, the firm also recognized the desirability of creating high performance project teams that could apply state-of-theart technologies, methodologies, and skills in developing common global processes. Such an environment would also create greater partnership with the business unit managers in conceptualizing strategic IT applications. Additionally, high performance project teams would be motivated by a new core set of values: invention, fast-tracking, partnership, project mentality of deadlines and deliverables, everyone contributes, and attitude wins. These values would be important for encouraging IT employees to challenge the status quo, initiate bold changes, learn, work fast, and be a team player. The “attitude wins” value also sets up an environment in which an individual was free to fail: “integrity, pride, and enthusiasm count.” Finally, both Tele-Nimble and Pub-Enabler realized that they needed to expand their repertoire of IT skills: technical skills covering emerging technologies such as client-server, networking, object-oriented, and databases, as well as project management and account management skills. These firms in particular realized that the soft skills associated with managing customer interactions and delivery of projects on a tight cycle time could not be neglected and needed considerable attention if their firms were to succeed in developing competitive agility.

Chapter 3

Repositioning Strategies for IT Transformation

25

Strategies for IT Transformation What are the key strategic choices for repositioning the IT function? How should CIOs transform the IT function to take on its new role as an enabler of the firm’s business transformation, overcome its current performance gaps, and develop the desired IT capabilities? At the beginning of this chapter, we introduced five IT transformation vectors that emerged from our analysis. With an understanding of the context for which these new IT capabilities were sought, we are now ready to discuss how these five vectors were used by our case firms to transform their IT organizations. Our objective for this chapter is to establish an understanding of the five-vector framework. We will then use this framework to describe in detail the IT repositioning strategies for process integration, knowledge leveraging, and competitive agility in Chapters 5 to 7. For a summary of our findings for the first four vectors, see Table 3.2. Table 3.2: Evidence of Four IT Transformation Vectors Vectors

Tran-Integrate

DiverseSynergy

Infusion of new IT management talent

Governance redesign

CIO’s membership on the corporate executive committee

Recentralization through matrix reporting relationships of divisional IT heads

MaterialSystem

Bio-Leverage

Pub-Enabler

New CIO

New CIO

New CIO

New senior IT executives to develop key capabilities

Division managers with successful KM pilot transferred to corporate IT

Recentralization of IT units

Recentralization through new corporate IT units and matrix reporting of eariler decentralized IT heads

Recentralization through new corporate IT units and matrix reporting of decentralized IT heads

First “real” CIO

CIO’s membership on key executive committees

Dynamic balancing

Dynamic balancing

Anticipatory

Outsourcing of legacy system maintenance

Reduced dependence on and new use of contractors for skill infusion

First “true” CIO

CIO’s elevation to membership on corporate executive team Pacing Sourcing

Concurrent

Concurrent

Dynamic balancing Outsourcing of legacy system operations and maintenance

Tele-Nimble New CIO New senior IT executives to lead divisional IT and key corporate IT units Recentralization of IT units

26

Repositioning the IT Organization

Vector 1: Infusion of New IT Management Talent

Talent Infusion

Hiring of new senior IT executives, including a CIO, in order to guide the IT transformation initiative Four of the firms initiated their IT transformation efforts with the infusion of new IT executive talent. All four of these firms brought in a new CIO from the outside; three of these CIOs also imported key senior IT managers from the outside or a business division. For instance, at Material-System, a “string of people with business expertise” had been at the helm of the IT organization. The firm realized that it needed a CIO with significant IT management expertise if it expected its IT organization to overcome its existing performance gaps and build the IT capabilities commensurate with its new role. At both Tele-Nimble and Material-System, key direct reports to the new CIOs were also brought in from the outside to help develop new IT capabilities. The CIO at Material-System needed new talent for program management and vendor alliance management. The CIO at Tele-Nimble hired senior IT executives from other firms to import reengineering experience and a vision for transforming the workforce. At Bio-Leverage, managers with a successful knowledge management initiative were transfered to corporate IT in order to apply what they had learned to an initiative at the enterprise level. Governance

Vector 2: Governance Redesign Redesign of the allocation of authority for significant IT management decisions among corporate IT and divisional IT managers, including matrixed designs We define IT governance design as the locus of decision rights for IT activities. The two most common governance designs for today’s IT organizations are primarily centralized designs and federal designs. The distinguishing feature between centralized and federal designs is that under federal designs, business units have primary decision rights for systems development and related activities. We use the term recentralization for a change in governance in which decision rights previously decentralized to business units (such as in a federal design) are either partially or totally reassigned to a corporate IT organization. Five of the six firms initiated some change to their prevailing governance arrangements, and all five initiated moves toward recentralizing IT governance. At these firms, significant IT management responsibilities had been located within business units, with the divisional IT heads often reporting directly to their business units heads. These CIOs recognized that while decentralization had provided benefits in the form of greater partnership with business leaders, the redefined roles of the IT function would require a tighter-knit coordination of initiatives across the enterprise. Recentralization placed the divisional IT heads in a direct reporting relationship with the CIO. At three of these firms, a matrix reporting structure was introduced. This arrangement preserved the reporting relationship of the divisional IT heads to their business unit heads, while adding another (dual) reporting relationship to the CIO. In addition, two of these firms, Bio-Leverage and Pub-Enabler, introduced new senior corporate IT positions to consolidate some targeted IT functions. For instance, at

Chapter 3

Repositioning Strategies for IT Transformation

27

Bio-Leverage, the CIO had four new direct reports within the corporate IT function: (1) major corporate systems development efforts, (2) IT architecture, (3) IT policies, practices, and people development, and (4) IT strategic planning. Similarly, at Pub-Enabler, the CIO’s new direct reports included corporate IT executives responsible for IT deployment, technical architecture, outsourcing management, and program management. Another element of governance redesign involved the nature of the CIO’s reporting relationship and the CIO’s inclusion as a formal member of the corporate executive committee. At Tran-Integrate, the CIO was a formal member of the corporate executive committee and reported directly to the CEO of the firm. Similarly, at Diverse-Synergy, the CIO was formally included as a member of the corporate executive committee, while reporting to the vice-chair of the firm. At Pub-Enabler, unlike his predecessors, the new CIO became a member of the corporate operating committee and the strategic planning committee. These memberships ensured face-to-face contact with the firm’s top managers at least once a week. Further, the CIO also became a member of the corporate acquisition committee; membership in this group was considered critical for developing the organizational capability to merge units more quickly. Finally, the new CIOs at both Bio-Leverage and Material-System were regarded as the firm’s “first” CIOs due to their significant IT management expertise and officer titles. Pacing

Vector 3: Pacing Speed at which the IT transformation should be driven relative to the business transformation thrust Pacing refers to the speed at which the IT transformation should be driven relative to the business transformation thrust. The conventional wisdom for achieving IT performance objectives is that the IT function must be strategically aligned with the business.1 The traditional notion of strategic alignment implies that activities of the IT organization will lag behind business transformation initiatives since the ultimate goal of the IT function is to support the business. Yet recent critics have pointed out that this alignment logic is misleading when the role of the IT function is to help shape or enable new business capabilities.2 Under some circumstances, it might therefore be more appropriate for the IT function to “lead” the organizational transformation. We uncovered three different pacing strategies in our study. These strategies are described below and summarized in Table 3.3. 1. Anticipatory pacing describes an approach in which the pace of IT transformation is faster and more aggressive than the pace of the business transformation thrust. The underlying logic is that the IT function must move rapidly to fix existing performance gaps and develop new IT capabilities in order for the business to develop its desired new capabilities. Anticipatory pacing requires a CIO who can envision the future state of the business, identify the appropriate IT role and capabilities, sell this vision of the IT organization, and initiate organizational design actions to transform the IT organization. This strategy is appropriate when the firm recognizes the necessity for the transformation but when the specific timing of the business transformation is an unknown.

28

Repositioning the IT Organization

Table 3.3: Pacing Strategies for IT Transformations Anticipatory Description

Primary Imperatives

IT transformation is driven at a pace faster and more aggressive than the pace of the business transformation; the IT function is being positioned to deliver capabilities for an anticipated business future. Dissatisfaction with current IT performance Desire for new IT capabilities

Concurrent IT transformation is driven at a pace in synchronization with the business transformation thrust.

Heightened role of the IT function

Dynamic Balancing The pace of IT transformation alternates between being faster and more aggressive than the business transformation (anticipatory) and being in synchronization with the business transformation (concurrent). Heightened role of the IT function Dissatisfaction with current IT performance Desire for new IT capabilities

For instance, Tele-Nimble anticipated the imperative to become more agile due to significant changes to its competitive landscape, but some of the fundamental industry changes were yet to occur. However, the CIO had developed an overall vision of the new IT capabilities that would facilitate agility, so that the IT function would be ready to deliver the expected enabling role in the firm. A new direct report to the CIO got buy-in to an organization design experiment from the other IT leaders, and then embarked on building a rapid application delivery group in advance of the rest of the business. 2. Concurrent pacing describes an approach consistent with the traditional alignment logic. Here, the transformation of the IT function occurs in synchronization with the business transformation. CIOs recognize the changes that are necessary to the IT function, yet they do not wish to disrupt the current state of performance of the IT function or its contributions to the business by driving the IT transformation at a pace faster than the business transformation. Such a strategy is appropriate when IT performance gaps are not a concern; instead, the primary emphasis is on responding to the business transformation imperatives. Both Tran-Integrate and Diverse-Synergy had concurrent pacing strategies. This strategy was appropriate in these firms because the IT function was effectively contributing to the prevailing business; the CIOs wished to preserve this success even as the IT function underwent transformation. The most effective way to preserve the current success and facilitate the business transformation would be to synchronize the pace of IT transformation with the pace of business transformation. 3. Dynamic balancing describes an approach in which the IT transformation is driven at a pace that alternates between leading the business transformation and being in synchronization with the

Chapter 3

Repositioning Strategies for IT Transformation

29

business transformation. This strategy is appropriate when CIOs are attempting to balance two concerns: on the one hand, there are significant IT performance gaps and the IT function must develop new capabilities. At the same time, the business itself is in a state of transformation and the IT transformation must be attuned to the evolutionary trajectory of the business transformation thrusts. Such a strategy is appropriate when the IT function needs to significantly upgrade its capabilities and credibility in order to be a valued partner in the business transformation. At the same time, since the business transformation itself is underway, this strategy enables synchronization with the firm’s repositioning moves. For instance, at Material-System, the IT function had significant performance gaps and needed to urgently develop new IT capabilities in order to facilitate process integration. At the same time, the CIO recognized the need to keep the IT function in synchronization with the pace of business transformation since the implementation of common, global processes was likely to encounter significant challenges. Thus, the dynamic balancing strategy would allow the building of new IT capabilities while also partnering with the business community in pursuit of the overall business transformation goals. Vector 4: Sourcing

Sourcing

Decisions about the sourcing of key IT assets, applications, or skills: internally sourced or outsourced Sourcing refers to strategies for locating IT capital and human assets, work processes, and IT skill resourcing either internally or with external partners. CIOs utilized outsourcing as another key vector in enhancing the capabilities of the IT function.3 At Tele-Nimble the IT organization had in the past relied on outside contractors when new projects required new IT skillsets. As part of its IT transformation, contractors began to be used in new ways: to diffuse new IT expertise among the internal workforce. At both Material-System and Pub-Enabler, the CIOs realized that the excessive burden of legacy applications development and maintenance would not only continue to contribute to IT performance deficiencies but would also impede the development of new IT capabilities. At Material-System, about 75% of the IT budget was being consumed with legacy systems support rather than new applications development. The new CIO instituted outsourcing in order to reduce the costs of legacy applications support on mainframe platforms and redirect the savings toward investments in ERP systems using a client-server platform. Outsourcing also enabled the accomplishment of another goal for the IT organization: it helped the IT function focus on the future rather than the past. Outsourcing sent a clear signal to the organization as a whole that the old systems were “going to go away.” This enabled a concerted focus on the process integration effort at Material-System. At Pub-Enabler, the outsourcing of legacy applications work enabled the IT function to focus its attention on the development of new skills and to collaborate more effectively with business clients in order to achieve competitive agility goals. Both these firms outsourced their legacy applications work in order to “fence off” problematic issues that could adversely affect their transformation initiatives.

30

Repositioning the IT Organization

Vector 5: Lateral Coordination Capability

Lateral Coordination Capability

Introduction of coordination mechanisms to link business and IT management, as well as corporate and dispersed IT management, to facilitate cross-unit work and decision making The term lateral coordination capability describes the ability to link strategic stakeholders for cross-unit partnering. A lateral coordination capability for an IT function involves linking not only key business and IT managers, but also corporate IT and IT managers dispersed throughout the enterprise. The building blocks for a lateral coordination capability for IT activities are formal and informal coordination mechanisms, such as roles, groups, processes, and human resource practices. The heightened IT role as a strategic differentiator requires strong collaboration, and each of the six firms made significant investments in the building of a new lateral coordination capability. Since descriptions of how to build a lateral coordination capability for the IT function are not well understood, we devote the next chapter to describing a framework of five categories of mechanisms. We have found this framework to be useful for describing and benchmarking this type of organization design capability for both transformational and evolutionary IT contexts.

Endnotes 1 J. Henderson and N. Venkatraman, Strategic alignment: A framework for strategic information technology management, in T. Kochan and M. Useem (Eds.), Transforming Organizations, Oxford University Press, New York, 1992: 97-117. 2 J. M. Burn, A professional balancing act—Walking the tightrope of strategic alignment, in C. Sauer and P. Yetton (Eds.), Steps to the Future: Fresh Thinking on the Dynamics of IT-Based Organizational Transformation, Jossey-Bass, San Francisco, 1996: 55–80. 3 A. DiRomualdo and V. Gurbaxani, Strategic intent for IT outsourcing, Sloan Management Review 39(4), Summer 1998: 67–80.

CHAPTER 4 LATERAL COORDINATION CAPABILITY The heightened IT role as a strategic differentiator requires strong collaboration among business and IT leaders.1 The term lateral coordination capability refers to the ability to quickly link across managers from different organizational areas in order to effectively communicate and problem-solve with other decision makers; it enables the pooling of expertise and influence.2 Although the need for joint business and IT decision making has been recognized for some time, 3 today’s hypercompetitive environments make this a more critical capability. Further, as firms have located their IT leaders in individual business units and divisions in order to promote greater partnering with their business clients, pressures increase for fostering collaboration across the company’s dispersed IT workforce. The sense-and-respond paradigm requires that organizations not be constrained by existing physical boundaries or structures. Therefore, the development of a lateral coordination capability is a critical element in the repositioning and transformation of the IT function. A lateral capability is built through coordination mechanisms that bind together stakeholders via formal roles, groups, or processes, or via opportunities for voluntary informal exchanges.4 These coordination mechanisms create lateral linkages across individuals or units to facilitate information sharing, to develop a common language and shared understanding, and to nurture the trust requisite for influencing. What types of coordination mechanisms are being used to build a lateral capability for the IT function? This chapter describes our taxonomy of five different types of coordination mechanisms being used by CIOs to develop a lateral coordination capability for linking both business and IT leaders, as well as dispersed IT experts and leaders. Our findings are drawn from interviews with more than 40 senior IT executives in mostly Fortune 500 companies that were noted for their IT management and use in the trade press and by peer reputation.5

Taxonomy of Five Coordination Mechanisms Five different categories of coordination mechanisms are important for building a lateral organizational capability in contemporary business firms.6 Table 4.1 provides a brief generic description of each one of these categories of mechanisms. In Figure 4.1 we depict these categories through an iceberg metaphor to portray their relative roles in the development of the lateral organizational capability. Three of these mechanisms, namely, integrator roles, groups, and processes, are the formal, more visible mechanisms for creating cross-unit linkages. These mechanisms usually surface first in conversations with senior executives because they require significant investments of managerial time and effort, and are highly visible. Two types of mechanisms appear “below the waterline”: informal relationship-building and human resource practices. They are used in two important ways. First, they supplement the effectiveness of formal mechanisms. Second, they can be used as substitutes for formal mechanisms, particularly when prevailing organizational conditions preclude the introduction or use of a more formal mechanism; they may even be used as “paving the way” for the introduction of a more formal mechanism in the future.

31

32

Repositioning the IT Organization

Table 4.1: Coordination Mechanisms for Lateral Coordination Capability Coordination Mechanism Integrator roles Groups Processes Informal relationship-building

Human resource practices

Description An individual who is formally assigned the responsibility for linking across units Formally established councils or teams given specific linking responsibilities Formalized routines used to link stakeholders in different units and provide decisional guidance Intentional actions or practices that link managers from two or more organizational units to facilitate voluntary interactions for cross-unit problem solving Intentional human resource management actions to facilitate voluntary cross-unit problem solving and interactions

Figure 4.1: Iceberg Metaphor for Formal and Informal Mechanisms

Integrator Roles Groups Processes

Informal Relationship-building HR practices

In the following paragraphs we describe how specific mechanisms in each category have been used by CIOs to develop a lateral coordination capability, including some of the salient design challenges that emerged from our own research. Integrator Roles An integrator role is an individual formally assigned with the responsibility for linking activities between the IT organization and one or more business units.7 This individual is the primary point of contact for the business unit, accountable for sensing and responding to business management’s needs.

Chapter 4

Lateral Coordination Capability

33

Individuals who play this role are also in a position to informally educate and “seed” business managers with innovative ideas for IT use, as well as to sensitize corporate IT managers about strategic IT issues. Five types of integrator roles emerged in our research (see Table 4.2). Three of these are found in organizations that have centralized governance structures and locate the integrator as a corporate IT manager. The most common integrator of this kind has a single-point-of-contact role that is typically found in consulting organizations: an account manager who reports to corporate IT (typically the CIO) but has no direct responsibilities for a systems development staff and is usually physically co-located with one or more business clients. Few account managers have any formal reporting relationship to the business unit, although they are typically part of business management team meetings and are expected to be knowledgeable about their business client’s strategy and major processes. Table 4.2: Integrator Roles for Lateral Coordination Type of Integrator Role Account manager

Process manager Enhanced systems director Client liaisons

Divisional information officer

Description Member of the corporate IT staff, often reporting to the CIO or the CIO’s direct report Often physically co-located in the business unit, but carried on corporate IT payroll No reporting relationships with business unit management, but actively involved in key IT use decisions in the business unit Account manager used for linking IT with business process owners in process-based organizations Account manager with additional responsibility for managing a group of systems development staff IT-literate business managers responsible for coordinating initiatives with corporate IS; they are located in the business units without any reporting relationship with corporate IS Senior IT executive with a solid reporting relationship to the business unit or divisional head and, very often, a solid or dotted-line reporting relationship with the CIO Most prevalent in organizations with a federal governance design Manages the applications development and IT operations of the business unit Member of the senior management team in the business unit

Two other variations of the integrator role were also found within centralized IT contexts. The process manager role is similar to an account manager, except that this role links with business process owners in process-based organizations with major reengineering initiatives underway or responsibilities for ongoing integrated IT solutions for multiple business clients. Another integrator role is referred to as “enhanced” systems director because these directors played the role of account manager and managed an IT unit (usually systems development staff).

34

Repositioning the IT Organization

The fourth type of integrator role was also found within centralized IT contexts, but the role was played not by IT managers but by business managers. Labeled here as client liaisons, these integrators were typically IT-literate business managers responsible for coordinating initiatives with corporate IS, such as serving as the “owner” of a key business application. These integrator role positions were typically implemented without any dotted-line reporting relationship with corporate IS. Another popular integrator role was found to be most prevalent in firms with a federal governance mode: the divisional information officer (DIO). These individuals were senior IT managers with a solid-line reporting relationship to a divisional business head. They were a recognized member of the division’s management team, and in some cases, they were in officer-level positions within their business unit. These senior IT managers were typically responsible for major applications development staffs and also may have had significant IT operations responsibilities for a business unit, or business sector, in addition to their integrator role responsibilities. In addition, more than half of the examples had instituted formal reporting relationships to the corporate CIO––either matrix reporting (solid-line report to corporate IT as well as the business) or a dotted-line DIO report to corporate IS. Design Challenges CIOs reported two design solutions to help integrators achieve the “right balance” of allegiance between the business unit and corporate IS. The first solution was to implement a dual reporting structure. A second solution was to design performance appraisal and incentive systems that included input from both IT and business management. For those integrators with dual reporting relationships, both IT and business input was already ensured; for those integrators without dual reporting relationships, multiunit input provided an institutional incentive to achieve an appropriately balanced allegiance without a formal dual report. Another significant challenge was related to the combination of skills necessary for effective performance in the integrator role positions. CIOs mentioned three types of skills as being important: (1) strategic thinking––envisioning opportunities for strategic IT use; (2) negotiation and collaboration skills––including influencing people through interpersonal interactions; and (3) IT service brokering skills––diagnosing client problems in order to identify appropriate IT service experts to resolve them. The scarcity of individuals that possess skills in all three of these areas was also mentioned, and mentoring strategies were among the solutions. Groups Group mechanisms (see Table 4.3) are formally established councils or teams of business and IT stakeholders, or central and dispersed IT stakeholders, that are given specific linking or oversight responsibilities for IS-related activities. In contrast to integrator role mechanisms that vest specific individuals with a coordination responsibility and authority, group mechanisms vest multiple individuals with coordination responsibilities. Further, while the coordination activities of integrator roles are bilateral (the individual integrator and specific organizational units), groups typically have multilateral responsibilities (i.e., coordination across more than two organizational units). We identified three group mechanisms to link senior business managers with one or more key IT leaders. The typical membership of an executive council, the most common type of group mechanism, includes the chief operating officer and/or the chief financial officer, and senior business executives from the dominant lines of business, along with the CIO. Executive councils deal with enterprise-wide IT issues

Chapter 4

Lateral Coordination Capability

35

Table 4.3: Group Mechanisms for Lateral Coordination Group Mechanism Executive council

Project steering team Divisional steering team

IT management council

IT standing teams

Task forces

Description Senior business executives, perhaps including the CEO, COO, CFO, along with the CIO Addresses IT strategy and enterprise-wide IT issues Prevalent under centralized governance Key business and IT executives responsible for a project or process Senior business executives in a business unit or division and the divisional information officer Prevalent under federal governance Membership of the CIO and other senior IT executives in the corporate IT or business units Prevalent under federal governance Directs attention toward the “IT business of the business” Teams of IT professionals or managers, often with specialized skillsets Teams of experts with specialized IT knowledge that serve as “gurus” for internal IT consulting (expertise centers) Groups formed to facilitate the development, retention, and motivation of IT professionals with specific IT skillsets required by the business (competency centers), under group leaders that serve as mentors Ad hoc groups of managers created to address specific tasks that require cross-unit coordination for a limited period of time

such as capital appropriation for large IT projects, IT policy endorsements, and articulations of IT vision and business-IT strategy. They also serve as educational and communication forums on IT-related issues. Executive councils were primarily observed in firms with centralized governance modes. Another type of business council typically found in centralized governance modes was the use of a project steering team to oversee a process or one or more large application projects. The use of such a steering team ensured the ongoing involvement of key business executives in major initiatives. The third type, divisional steering council, was found in large multidivisional companies, usually with federal governance modes. These are intradivisional councils comprised of the divisional senior business executives and the senior IS leader for that division. In federal contexts, council members are senior business managers of the division and the divisional information officers. Two types of group mechanisms to link across IT stakeholders were also frequently mentioned as significant coordination mechanisms: councils of IT managers and IT standing teams. In two-thirds of the organizations with a federal governance mode, an IT management council was used to formally link divisional IT heads with the CIO and other corporate IT managers who had IT strategy, infrastructure,

36

Repositioning the IT Organization

and corporate (or enterprise-wide) IT application responsibilities. More specifically, these councils direct attention to the “IT business” of the organization and serve as a coordination forum to: 1. 2. 3. 4.

Advise (counsel) the CIO on strategic IT organization issues Surface potential impacts of corporate IT policies Share IT-related best practices, solutions, and problems Nurture and grow IT human resources

IT standing teams typically are groups of IT professionals formed to address specific IT issues on an ongoing basis, such as IT standards issues or the identification of IT skill gaps. One common example was an IT architecture group of IT experts to develop recommendations on high-level infrastructure issues. Another form of IT standing teams we observed was IT expertise centers. The “gurus” who comprised these centers of expertise were selected for their IT knowledge leadership; they were rewarded for their expertise as internal technical consultants. A less obvious type of IT standing team, IT competency centers, served as “virtual homerooms” for IT professionals in order to facilitate training and development. The members of these competency centers were trained in valued IT specialties, such as object-oriented development, client-server technologies, or project management. As the name suggests, IT competency centers facilitate the grooming and nurturing of an IT workforce as well as the leveraging of specific skillsets across different applications projects. The heads of these centers typically act as mentors and coaches; they are responsible for the counseling and career development of the IT personnel assigned to their competency centers. Similar to IT standing teams, task forces are ad hoc groups of managers created to address a specific task that requires cross-unit coordination for a limited period of time, such as problem solving related to a new technology, enterprise-wide applications of technologies, or enhancement of specific processes or applications.8 Design Challenges Several challenges known to be associated with group mechanism designs include identifying appropriate representation and ensuring the communication of group decisions to the members’ constituencies. Some of those we interviewed also mentioned the need to monitor the relevance of a given group mechanism over time, especially in light of other structural changes within the business. Processes Processes are formalized routines used to link stakeholders in different units. Three types of IT processes were highlighted: strategic planning (including IT capital investments), chargeback and service level agreements (SLAs), and software acquisition and deployment processes. In centralized governance modes, corporate IT typically initiated the planning process with an assessment of strategic thrusts at the enterprise level. In decentralized governance modes, corporate IT typically played a review role in order to identify overlapping initiatives. Methodologies for evaluating packaged software were mentioned, along with methodologies for delivering in-house developed applications. Design Challenges Several companies reported a concern with ensuring that a given process continued to direct attention to cross-unit coordination and did not degenerate into a “ritual.” A second challenge was designing feedback to those responsible for overseeing a process, including formal postreviews.

Chapter 4

Lateral Coordination Capability

37

Informal Relationship-Building Informal relationship-building mechanisms are intentional activities or practices that link managers from two or more organizational units to facilitate voluntary interactions for cross-unit problem solving. We identified three different types: one-on-one management contacts, periodic briefings and conferences, and physical co-location. One-on-one contacts are scheduled and unscheduled interactions initiated by senior IT executives, most commonly with business peers or top managers but also with IT heads reporting to business managers. CIOs used one-on-one contacts to gain senior executive buy-in to key IT initiatives as well as to increase IT-related knowledge and awareness with the CIO acting as a “personal coach.” Some CIOs used this mechanism as a substitute for an executive council when the prevailing organizational culture in their companies precluded the use of group mechanisms to link with high-level business managers. Periodic briefings and conferences entail structured information sharing but are also occasions for facilitating informal networking. This type of mechanism may be more important under governance designs that are not highly centralized for bringing together dispersed members of an IT community. A co-location mechanism is heavily used in companies with centralized governance. Close physical proximity can be used to promote behaviors associated with formal reporting relationships––that is, some CIOs reported that their co-located individuals acted as if they had a formal accountability to business management, which was the desired behavior. Design Challenges A key design challenge is determining when to continue to rely on these informal mechanisms versus institute a formal group, role, or process mechanism. The effectiveness of this type of mechanism is dependent on the willingness of the participants to engage in voluntary cross-unit interactions, so organizational cultures need to be taken into account. Human Resource Practices We defined human resource practices as actions related to the human resource management of IT personnel that are also intentional activities or practices to facilitate voluntary cross-unit problem solving across two or more individuals reporting to different organizational units. Three types of specific practices were identified for this mechanism category. First, a variety of training approaches was mentioned, especially in conjunction with approaches to “growing” IT managers’ soft skills for integrator role positions. Second, redesigned appraisal systems and special rewards for cross-unit collaboration were also reported. For example, one company had established discretionary rewards to recognize contributions to a unit for which the employee had no direct reporting relationship. Third, we also found examples of temporary job rotations for IT personnel––defined as short assignments, typically within a business division, to increase an individual’s business knowledge or sensitivity to special unit needs. For example, a CIO with centralized governance reported temporarily assigning IT personnel to do “real business work” for a few weeks in order to enhance their business knowledge and learn the department’s “hot buttons.” A CIO with federal IT governance reported assigning corporate IT personnel to work for six months in IT units within manufacturing plants in order to increase their understanding about differences in local versus enterprise-wide IT objectives and priorities.

38

Repositioning the IT Organization

Design Challenges The primary challenge in implementing human resource practices as coordination mechanisms is that the implementation of such practices typically requires either formal approval by the corporate HR department or an executive-level agreement about the IT department’s freedom to “work around” institutionalized policies and procedures. Some CIOs reported leveraging corporate HR buy-in to their implementation of a new HR mechanism as a pilot initiative for the overall organization.

Lateral Coordination Capability as an IT Transformation Vector In Chapter 3 we described a firm’s lateral coordination capability for the IT function as one of five IT transformation strategy vectors. Table 4.4 illustrates the portfolios of coordination mechanisms that the six firms in our study created as part of their IT transformation strategy. Details about how and why these mechanisms were implemented are provided in Chapters 5 to 7, in which we describe how each of these firms repositioned their IT organizations to enable their business transformations. Table 4.4: Portfolios of Coordination Mechanisms for New Lateral Coordination Capability at Six Case Firms Coordination Mechanisms Integrator roles

Tran-Integrate

DiverseSynergy

Divisional information officers

Divisional information officers

Client liaisons

MaterialSystem Account managers

Bio-Leverage

Pub-Enabler

Enhanced systems director

Integrator roles for program manager, outsourcing vendor

Compentency center managers

Executive council Executive council Divisional steering teams

Executive council

IT standing teams IT management (expertise centers) council

Client liaisons

IT management council

IT management council

IT management council

IT standing teams

IT standing teams (competency centers)

IT standing teams (competency centers)

IT standing teams (competency centers)

Task forces

New processes for packaged software development and release

IT strategic planning process

Informal relationshipbuilding

Physical co-location

Periodic briefings and conferences

Periodic briefings

One-on-one contacts

Human resource practices

Redesigned practices, including appraisal systems and special rewards

Processes

IT strategic planning process

IT strategic planning process

Account managers Competency center managers

Integrator roles for program manager, outsourcing vendor Groups

Tele-Nimble

New processes to build knowledge asset

New processes to develop and allocate IT resources Periodic briefings

Redesigned practices, including appraisal systems

Chapter 4

Lateral Coordination Capability

39

Endnotes 1 J. C. Henderson, Plugging into strategic partnerships: The critical IT connection, Sloan Management Review, Spring 1990: 7–18; F. J. Mata, W. L. Fuerst, and J. B. Barney, Information technology and sustained competitive advantage: A resource-based analysis, MIS Quarterly, 19 (4), December 1995: 487–506; J. W. Ross, C. M. Beath, and D. L. Goodhue, Develop long-term competitiveness through IT assets, Sloan Management Review 38 (1), 1996: 31–42. 2 J. R. Galbraith, Competing with Flexible Lateral Organizations, Addison-Wesley Publishing Company, Reading, Mass., 1993. 3 R. W. Zmud, Building relationships throughout the corporate entity, in J. Elam, M. Ginzberg, P. Keen, and R. W. Zmud (Eds.), Transforming the IT Organization: The Mission, the Framework, the Transition, Washington, D.C., ICIT Press, 1988. 4 S. A. Mohrman, Integrating roles and structure in the lateral organization, in J. R. Galbraith, E. E. Lawler, and Associates (Eds.), Organizing for the Future: The New Logic for Managing Complex Organizations, Jossey Bass, San Francisco, 1993: 109–140. 5 A complete description of the methodology, including the identification of some of the organizations that participated, can be found in Carol V. Brown and V. Sambamurthy, Guidebook on IT Coordination Mechanisms, SIM International, Chicago, 1996. 6 IT-based systems can also be viewed as a sixth mechanism category. For this study, we have focused on non-IT mechanisms. 7 By this definition, the CIO role is also an integrator role. However, since our study was from the perspective of the CIO as the architect of the lateral capability, the CIO role itself is not included here (see also the vector 1 discussion in Chapter 3). 8 Task forces for specific systems development or acquisition projects (i.e., systems project teams) were considered outside the scope of this study. Instead, the task force classification was used here for ad hoc groups typically chartered by an executive council to develop recommendations rather than develop applications.

CHAPTER 5 REPOSITIONING IT ORGANIZATIONS FOR PROCESS INTEGRATION

Process Integration Building sense-and-respond capabilities through global and enterprise-wide common processes that bind together organizational units This chapter focuses on the repositioning of IT to enable business transformations in which the primary strategic thrust is process integration: business transformations aimed at building sense-and-respond capabilities through enterprise-wide processes that facilitate more intimate relationships with customers and the rapid delivery of solutions to customers’ needs. Three of our case studies were pursuing process integration thrusts: Tran-Integrate, Diverse-Synergy, and Material-System. We begin by discussing how these firms used the five IT transformation vectors presented in Chapter 3. Then we illustrate the transformation journey at Material-System in some detail in order to highlight some specific tactics, including a totally new IT organization structure, as well as some of the challenges of this type of IT repositioning. The chapter closes with a short set of executive guidelines for IT transformations to enable process integration, based on the lessons learned from these three firms.

IT Transformation Strategies Table 5.1 summarizes the IT transformation strategies for enabling process integration that we discuss in detail below. Two of our case studies, Tran-Integrate and Diverse-Synergy, used only three of the transformation vectors––governance redesign, pacing, and lateral organization capability––to reposition their IT organizations. Neither of these firms had IT performance gaps at the time of the transformation. An IT performance gap existed at Material-System and this firm managed its transformation along all five vectors, including the infusion of new talent and the outsourcing of legacy systems. In the following sections we describe in detail the use of all five IT transformation vectors for repositioning the IT function to enable process integration. Talent Infusion

Vector 1: Infusion of New IT Management Talent The existing IT management at Tran-Integrate and Diverse-Synergy possessed a good reputation and credibility because of their partnerships with their senior business executives and a track record of IT innovation success. In fact, the CIOs of both of these companies were also respected by their peers for being innovative and successful leaders. For example, the CIO at Tran-Integrate was a formal member of the top management team and had established relationships with senior business executives that had

40

Chapter 5

Repositioning IT Organizations for Process Integration

41

Table 5.1: IT Transformation Strategies for Enabling Process Integration Transformation Vectors

Tran-Integrate

Diverse-Synergy

Infusion of new IT management talent

Governance redesign

Material-System New CIO New senior IT executives for program management, external alliance management

CIO membership in top management team

CIO’s elevation to membership on the corporate executive team

Recentralization of IT units prior to hiring of first “true” CIO

Matrix reporting for divisional IT heads Pacing

Concurrent

Concurrent

Sourcing Lateral coordination capability Integrator roles

Dynamic balancing Outsourcing of legacy systems (operations and maintenance)

Divisional information officers Client liaisons

Market information officers with matrix reporting to CIO

Business process leaders Account managers Capability leaders

Groups

Processes

Informal relationship-building

Executive council

Executive council

Divisional steering committees enterprise-wide

Expertise centers

IT strategic planning process

IT strategic planning process

Executive council IT management council Competency centers (IT capability centers) New standard processes for business process innovation, software package releases, and other new IT capabilities Physical co-location of business process experts IT community briefings

Human resource practices

Redesigned human resource practices including appraisal process, short-term incentive plans

facilitated IT alignment in the past. Not unexpectedly, the infusion of new IT management talent was not part of these firms’ IT transformation strategies. In contrast, at Material-System, a “string of businesspeople” had been at the helm of the IT organization. The last of these, a career manufacturing executive, assumed the leadership of the IT function in 1993. However, as the firm’s reengineering teams identified significant gaps between the systems needed for new global processes and the current IT organization’s track record, new IT leadership with significant IT management expertise was sought from outside the firm to both enable the business transformation and reposition the IT organization. The new CIO held both strong general management and IT management expertise as well as the leadership skills to forge a new kind of IT organization.

42

Repositioning the IT Organization

In turn, as part of the IT transformation itself, the new CIO also recognized that new IT management talent needed to be brought in from the outside, not just developed from within. Two key directors were hired, both with earlier ties to the current CIO: a program manager and a manager of external alliances. Governance

Vector 2: Governance Redesign Material-System redesigned its IT governance structure just prior to hiring a new CIO as part of an overall corporate recentralization initiative: previously decentralized IT units were recentralized. A recentralized organization was perceived to be the best structure as the firm began to move forward with process integration. Recentralization of IT would enable a consolidated IT effort under the leadership of a corporate function with authority for enterprise-wide process integration. Earlier, the IT organization had significantly decentralized IT decision authority to the business units. In contrast, both Tran-Integrate and Diverse-Synergy had federal governance arrangements in place that enabled the corporate IT function to provide significant oversight and coordination over enterprise-wide IT issues. Given the lack of performance gaps and high level of credibility of these IT organizations, these two firms did not recentralize previously decentralized IT units. However, at Diverse-Synergy a matrix reporting relationship was established for its new market information officers to increase responsibility for enterprise-wide initiatives. At Diverse-Synergy, governance redesign also occurred in the form of the CIO’s reporting relationship being elevated: the CIO now reported to the vice-chair of the firm, instead of the CFO. Further, the CIO was also formally included as a member of the corporate executive team. Pacing

Vector 3: Pacing Both Tran-Integrate and Diverse-Synergy adopted a concurrent pacing strategy. Tran-Integrate and Diverse-Synergy had been quite successful with their use of IT to enable business strategies in the past. As they repositioned their IT organizations, they did not want to destroy the existing IT management competencies that had brought them success to date. A concurrent pace would enable both of these firms to keep the IT transformation in synch with the business transformations under business executive leadership in these organizations. In contrast, the new CIO at Material-System faced deficiencies in current IT performance that needed to be quickly addressed in order for the IT function to facilitate process integration. Therefore, the CIO took some dramatic actions to rapidly transform the IT function ahead of the business itself. For example, a new emphasis on standard processes was a key element of its new competency centers, and new human resource practices were designed and implemented within the IT organization ahead of the rest of the business. This meant that at times the pace of IT transformation would be concurrent with the pace of the business transformation, whereas at other times the IT organization would be ahead––that is, a dynamic balancing pacing strategy. Sourcing

Vector 4: Sourcing The CIO at Material-System recognized early on that the existing burden of legacy applications would constrain both the transformation to a new IT role and the enablement of the process integration thrust within the business. At the same time that the organization was selecting a software package to support

Chapter 5

Repositioning IT Organizations for Process Integration

43

its process integration goals, it was also selecting an outsourcer to operate and maintain its legacy systems. This initiative reduced total legacy systems costs and redirected the cost savings to investments in the process integration project. This outsourcing strategy also allowed Material-System to “fence off” activities that would have dragged the pace of the transformation and inhibited the IT function from focusing on the new capabilities needed for the process integration thrusts. The other two firms, Tran-Integrate and Diverse-Synergy, did not have significantly large numbers of staff burdened with legacy system maintenance, and they did not undertake any significant sourcing decisions as part of their IT transformation strategies. Vector 5: Lateral Coordination Capability As illustrated in Table 5.1, all three firms architected a portfolio of coordination mechanisms to build a new lateral coordination capability across the enterprise. At Tran-Integrate and Diverse-Synergy, specific mechanisms were either introduced for the first time as part of the IT transformation effort, or were modified and combined with other mechanisms in different ways to develop a new lateral capability. Lateral Coordination Capability

Lateral Capability at Tran-Integrate Traditionally, Tran-Integrate had used an executive council to facilitate attention on the linkage between IT initiatives and business strategies. As part of its federal governance design, each business unit also had a divisional information officer (reporting to the business unit head) responsible for the strategic IT actions of their business unit. However, new coordination mechanisms were also implemented at Tran-Integrate as part of the IT transformation. First, the strategic planning process underwent significant changes to facilitate the new thrust toward process integration. Previously, each business unit conducted its own IT planning that was subsequently consolidated into an enterprise plan. The new strategic planning process placed the corporate IT function in a more active role. The corporate IT function reviews plans for each business unit with its divisional information officer and business executives. Further, the corporate IT function identifies the top half-dozen enterprise-wide projects that will enhance process integration and develops plans for their implementation and resource requirements. The planning process therefore became more integrated and enterprise-focused in comparison to the autonomous business unit planning process of the past. Second, Tran-Integrate formalized divisional steering committees within all business units. In the past, some business units had this mechanism in place, while others did not. As a result, the extent to which business executives were active in IT projects varied across the units. The goal of implementing divisional steering committees enterprise-wide was to enhance senior business executives’ appreciation of the role of IT in enabling the development of common enterprise processes. Through these committees, business executives were encouraged to champion their IT projects and work with senior IT executives in generating innovative ideas for business use of IT. Third, Tran-Integrate introduced client liaisons in order to achieve its goal of building customer-oriented common processes that will enable the firm to offer integrated logistics solutions. These individuals were senior managers in business units. Each of these client liaisons was assigned the responsibility for

44

Repositioning the IT Organization

delivering integrated services to specific clients who transacted large business volumes with TranIntegrate. Client liaisons worked with other executives (both business and IT) from different business units to diagnose their clients’ logistics needs, develop solutions, and design processes and applications to deliver those solutions. This new mechanism reflects the firm’s focus on IT-enabled customer-oriented processes that will deliver integrated solutions to customers’ needs. Lateral Capability at Diverse-Synergy Diverse-Synergy also implemented new coordination mechanisms to facilitate process integration. As described in Chapter 2, the firm reorganized its business divisions into five market centers. Therefore, one new mechanism was integrator roles for these market centers––that is, market information officers. These five individuals reported to their respective market center business heads as well as the corporate CIO and were responsible for the strategic IT activities in their respective market centers. The divisional information officers of the individual business divisions within each market center now reported to these new market information officers. The role of the new IT executives was to facilitate IT-enabled integration of customer-oriented processes across the divisions within each market center. They were also expected to work with the CIO in facilitating enterprise-wide synergy across the market centers. While Diverse-Synergy had traditionally used an executive council, significant changes occurred to this council in light of the organizational transformation to market centers. The new executive council included the business heads of five market centers, the head of international operations, and the VPs of logistics, finance, manufacturing, and engineering, in addition to the CIO. It continued to be chaired by the vice-chair of the corporation. The redesigned executive council was expected to reinforce the corporate desire for process integration across the divisions and market centers. Traditionally, the IT strategic planning process at Diverse-Synergy had been driven by the corporate IT function. The process involved interviews with the top 50 executives (corporate officers and heads of key business divisions) to surface the corporate priorities. Strategic IT plans were then developed to respond to these priorities. However, this process was discovered to be ineffective in surfacing specific IT projects from the corporate priorities. Therefore, a new planning process was introduced in which the CIO, the five market information officers, and key corporate IT executives identified key IT projects that would provide a link to the corporate priorities and enable the implementation of common processes across the market centers and the firm. Finally, Diverse-Synergy implemented expertise centers to facilitate the infusion of technical expertise throughout the enterprise. Within corporate IT, groups of experts provided consulting support to business units on topics such as telecommunications, applications development methodologies, and relational and object databases. Lateral Capability at Material-System The introduction of new coordination mechanisms at Material-System was the most radical application of this vector within these three organizations: a completely new portfolio of formal and informal mechanisms was implemented. In the next section we describe in detail these mechanisms as we present Material-System’s IT transformation tactics and the challenges it faced along its IT transformation journey.

Chapter 5

Repositioning IT Organizations for Process Integration

45

The IT Transformation Journey at Material-System1 Table 5.2 summarizes some of the pertinent background charaterisitcs of Material-System presented in Chapter 2. The IT organization was recentralized in 1994 as part of an overall organization recentralization, and a CIO was brought in from the outside to play a new integrative IT leadership role. Table 5.2: Process Integration at Material-System: Background Business characteristics

Factors motivating the business transformation thrust

Vision for transformation

Ranked as world leader in building material systems and advanced composite materials New CEO brought in for financial turnaround Enhanced customer satisfaction through superior solutions that leverage the firm’s product range Sharpened value proposition of customer intimacy Growth that exploits global reach of the business Process Integration Actions Common, simple, global business processes for value chain and corporate support Complementary Transformation Actions Corporate vision that emphasizes core values: global, mobile, paper-free, integrated, team-oriented, learning-based, customerfocused, and technology-enabled New integrative leadership role for IT

The Business Transformation Thrust Material-System’s transformation was initiated by a CEO brought in for a financial turaround. Some of his initial actions were to infuse his top management with new talent, divest some of the firm’s noncore businesses, and invest in new manufacturing plants across the globe. He established new core values and aggressive growth goals for the year 2000, and process integration became part of the vision for achieving them. Setting the Stage for Business Transformation In early 1994 three business process reengineering (BPR) projects were initiated: the reengineering of the logistics processes, customer service processes, and a consolidation of the finance function. A Big 6 consulting group at the time was engaged to work with these BPR teams, and it didn’t take long for the teams to conclude that the company’s existing IT would not be able to support the following BPR objectives: • •

Accessing worldwide information in real time (for inventory, production, pricing, and distribution information) Customizing responses to meet customer needs (for pricing, production and delivery schedules, purchasing forecasts)

46

• •

Repositioning the IT Organization

Communicating paper-free (internal and external in-person communications and business transactions) Making fully informed decisions

In the past, the IT organization had primarily been an “order taker.” Initially, top management’s assumption was that IT would build the applications to support the new business processes being designed by the three separate BPR teams. The danger with this approach was that there was no integration across the reengineering teams and that the requested systems would lead to “silo” solutions rather than the common, integrated processes that the firm was seeking. By mid-1994, a major reorientation of the reengineering efforts was initiated after the new CIO came on board: the three teams were asked to explore whether their separate process redesign efforts could be supported by common, global systems solutions. The result was a refocusing of the teams toward enterprise-level core processes that could be supported by enterprise-level systems solutions. With help from external consultants, a global process model was developed as a template for guiding the enterprise process integration. Once there was management buy-in to the global process model, the organization sought to identify an off-the-shelf enterprise resource planning (ERP) solution that could support common business processes and real-time integrated information demands and other BPR objectives across multinational and multilingual business environments. By September 1994, the feasibility of an enterprise process model and global systems solution for Material-System was established, and a six-month planning process was begun. By December 1994, SAP’s R/3 client-server enterprise system was selected as the foundation package.2 This solution meant buy-in to a new-open systems client-server architecture. The signing of this contract therefore represented a top management commitment to a global initiative that would involve the redesign of most of the company’s supply chain processes as well as replacement of virtually all of its major systems. By early 1995, a two-year implementation schedule (100-week plan) for reengineering the company’s global business processes and implementation of the SAP R/3 was established. An aggressive schedule was viewed as a critical decision: it minimized the likelihood that a key senior executive would jump ship or cease to support the project goals before it was completed. Top management was sure that the pain would be considerable, but the pain to achieve integration would be the same whether an aggressive schedule was followed or not. Multiple SAP releases were planned over the 100-week period. The release concept entailed the “shrink wrapping” of several new processes and new system modules into a single release. This avoided the problem of business units having to contend with multiple implementation dates by multiple project teams. The number of releases was also intentionally small. Release 1 was finance modules only and would build on the original reengineering project. Release 2 would include a full set of supply chain modules for a major business unit outside the United States that needed replacement systems to accommodate recent acquisitions. Release 3 implemented a standard client-server infrastructure in about 100 North American locations, including wide area networks, local area networks, and about 5000 new desktops that would access a centralized Oracle database at headquarters. Release 4 would begin to exploit the multinational and multilingual capabilities of a new R/3 version that would be implemented

Chapter 5

Repositioning IT Organizations for Process Integration

47

in several waves across multiple businesses and multiple continents. The four-release plan was also designed to take advantage of organizational learning from earlier releases. In particular, the Release 4 waves were designed so mistakes made in the first business unit implementation could be corrected before the next wave. To meet the aggressive schedule goals, the plan was that “good enough” reengineering would be its initial focus. Achieving integrated processes was the initial implementation outcome, not achieving bestin-class processes. Variations to the common, simple, global processes would be driven by customer and product differences, not business unit differences. Successive waves of process-driven change would be directed at achieving world-class outcomes by the year 2000. Motivation for IT Transformation When the reengineering projects began in early 1994, Material-System had a complex, incompatible, and highly redundant set of more than 200 legacy systems. Due to different data definitions and years of maintenance, some of these systems now also had reliability problems. The IT organization was saddled with the burden of legacy maintenance: about 75% of the IT budget was directed at legacy systems enhancements and support rather than new development. The IT organization’s “order-taking” mentality fit this type of IT support role for “silo” systems. However, the new IT role as enabler of the business transformation would require a whole new mindset and IT leadership roles. When the new CIO came on board, he arrived with a clear mandate: to help move the company into the next century by strategically aligning the IT organization to the ambitious vision for the year 2000. This would be the first time the IT organization would be partnering with business management on a project that would radically transform the business. Setting the Stage for IT Transformation In mid-1994, when the CIO arrived, he knew that he would need to transform the IT organization from a maintenance and support mindset to a high performance mindset. Although he didn’t yet know how to specifically reposition the IT organization, he did know that they would need to focus on acquiring new sets of skills, including diverse technical skills and methodologies, at the same time as they were beginning to plan for an enterprise-wide systems megaproject. During the second half of 1994 when Material-System was selecting an ERP vendor, they were also evaluating outsourcing alternatives for legacy systems that would be replaced at the end of the ERP implementation schedule. An initial driver was to reduce total legacy systems costs by moving from fixed cost to variable cost funding; as they were generated, these cost savings could then be redirected to systems investments for the new global processes project. In January 1995, more than 200 legacy systems were outsourced to a major vendor for operations and support. The contract included the selling of data center assets and the transfer of over 50 IT personnel to the outsourcer. The “fencing off” of legacy systems support via an outsourcing contract allowed the remaining IT staff to focus on the new IT capabilities needed for the ERP implementation initiative as well as a future IT organization heavily dependent on packaged solutions. Outsourcing the legacy systems also sent a clear signal to the whole firm that the old systems were “ships to be burned”; there would be no turning back.

48

Repositioning the IT Organization

The Transformed IT Function The transformation of the IT organization to a “high performance environment” was in keeping with the thrust toward high performance for the corporation as a whole as it pursued process integration. In consultation with the same consulting firm that worked on the reengineering projects (and would be implementation partners for the ERP project), a graphic design with three primary structures was developed to direct and communicate the IT organization’s transformation (see Figure 5.1): •

• •

Project teams: Multidisciplinary project teams of IT employees and full-time business representatives (and at the outset also implementation partners) responsible for business process redesign and systems integration tasks under global development leaders and for other IT service delivery. Account managers (IT consultants). IT managers with no direct reports who serve as the primary point of contact for a business entity. IT capabilities: councils, roles, and processes. IT employees (and at the outset also implementation partners) responsible for standard IT processes, IT skill development, and project integration. Each member of a project team also belonged to an IT capability. Figure 5.1: New IT Organization at Material-System

IT Capabilities

Project Teams System Delivery

IT Consultants

Business Relationships

Processes, Integration, Skilled Resources

Business Units & Regions

Readers of Chapter 4 will recognize that the design embodies all three types of formal mechanisms introduced in our iceberg metaphor: roles, groups, and processes. The portfolio of mechanisms implemented by Material-System also included mechanisms “below the waterline”: informal relationship-building and human resource (HR) practices. The HR practices in particular proved to be a key part of the IT transformation. Project Teams for Global Development A Global Development Team of IT and business representatives was created for each of the global processes in the business process model (see Figure 5.2). The primary objective of each global team was to develop and deliver process and systems solutions on time. Five teams were given responsibility for the supply chain processes (product development, sourcing, manufacturing, sales, and customer service). Each global development team also had subteams. For example, the Sales Advantage Team had three

Chapter 5

Repositioning IT Organizations for Process Integration

49

subteams: Field Sales Automation, Pricing, and Demand Forecasting. Two additional teams were responsible for enterprise support.

Market Strategy

Develop

Manufacture

Source

Sell

Advantage

Customer

Advantage

Sales

Advantage

Manufacturing

Advantage

Sourcing

Advantage

Product

Figure 5.2: Global Process Model and Project Teams at Material-System

Fulfill

ENTERPRISE SUPPORT

Corporate Services

Advantage

Human Resources

People

Finance

Finance

Information Systems

Advantage

Business Development

Each team had a Global Development Leader (GDL) responsible for project planning and making sure the team was “on course” in terms of both schedule and budget. All GDLs were full-time MaterialSystem employees, although some consultants were assigned to be leaders of subteams. Most of the GDLs had previously been systems development managers reporting to business unit heads a few years earlier. This meant that the typical GDL had already established extensive working relationships with key members of the business community, which came to be recognized as a major IT organization asset. GDLs needed to be comfortable with learning new technologies, as well as leading a cross-functional team with business managers and IT professionals. GDLs also needed excellent interpersonal skills, since they sometimes had to make some unpopular decisions. They also had to get comfortable with and trust the business leaders on their teams, because the success of the project relied heavily on the process knowledge and negotiation skills of these team members. In addition, GDLs needed to be able to help create a work environment based on the new IT organization values in which it was all right to take risks and make some mistakes. The aggressive schedule often meant that they themselves had to believe in the transformation goals, even though they might not yet know how they would achieve them. A few months after the formal ERP project kickoff, it became clear that another integrator role was needed: an IT manager to focus on integration across the supply chain project teams on a daily basis.

50

Repositioning the IT Organization

An external GDL hire (who had worked with the CIO elsewhere) was moved into the new program management position. To plan a new release, multiday, intensive workshops with GDLs and other IT service managers were held. When major issues arose among business executives, the program manager and the CIO helped provide “air cover” for the GDLs and their team members so that they could stay focused on the release deadlines. A co-leadership role with the GDL was played by Business Process Leaders (BPLs), who had primary responsibility for business process reengineering. They were the primary business interface for their team during the life of the project. BPLs were senior managers or other high achievers from a function or business unit who were typically assigned to a project team full time. (Some compromise arrangements were made for European business leaders.) Having a high-level business manager assigned full time to an IT project was new at Material-System, so business commitment to the BPL role was a highly visible sign that this joint IT-business initiative was part of the business transformation. The BPLs were responsible for taking global business process redesign to the point of buy-in from the process owners in each affected business unit and corporate function. The business process owners were typically at the VP level within a function or business unit; in a few cases the BPL on a project team was also a process owner. In the past, business units did not regularly confer with each other; they were “stovepiped.” The BPL’s job thus entailed getting buy-in to common processes across constituencies that had not been required to work together before. The BPL was responsible for ensuring that all process owners endorsed the new common, global processes and enterprise-wide systems products that the project team was preparing to configure and deliver. Since business process redesign was required for every release, this was a critical role. Getting buy-in to common processes often required giving up a former business allegiance or personal loyalty; BPLs needed to be open and candid communicators as well as persuasive negotiators. Business unit heads had to decide whether or not to “backfill” a BPL’s job in the business unit. In most cases, the business units couldn’t afford to leave a business unit position open for the duration of the project and did replace the manager. They also had to resist pulling off one of their prized managers from the project as time went on, although the vast majority of BPLs were expected to return to a business unit assignment after the final (Release 4) rollout. Management also had to figure out ways to keep their key business representatives informed of important business changes. Many BPLs had a highlevel mentor to help them stay current; those from international sites tried to arrange in-person visits to the home unit. Account Managers (IT Consultants) Under the prior IT organization structure, each North American business unit had had its own IT head and systems development teams that serviced its needs with considerable autonomy. In recent years IT developers had often performed heroic systems maintenance efforts for them as their legacy systems became unwieldy. This relationship changed in 1993 when North American IT units were centralized into a corporate IT group as part of the firm’s overall recentralization initiative. According to the CIO: There was a tremendous sense of loss. Business managers were asking “who is my IT guy?” They needed a senior person who was an IT spokesperson, who could help match their systems plan with the business plan.

Chapter 5

Repositioning IT Organizations for Process Integration

51

Under the new CIO, the former IT unit heads were designated as senior IT strategists for their former business units. Like an account manager in a consultant organization, they would sit on the leadership team of their business unit and often were treated as if they continued to report to the business unit head, rather than to the CIO. However, as the IT leadership team began to identify what management skills were needed for the ERP projects during the initial months of planning in 1995, essentially all of these recentralized IT unit heads were tapped for global project team roles, due to their business process knowledge and project management experience. Other IT managers were therefore selected for the new account manager roles and became the business unit’s new primary point of contact and spokesperson for corporate IT. Key attributes were really understanding the business and having an interest in partnering with senior business managers. Two IT consultants also had larger operational roles for nonU.S. regions: one for the United Kingdom and Europe and the other for Asia (including China). Since legacy systems operations and support in North America were now outsourced, a primary IT consultant responsibility was to serve as the business unit’s liaison with the outsourcer to ensure satisfactory service levels. The goal was to decrease legacy spending but to keep the old mainframe systems operational until the new systems were implemented. The IT consultant helped plan the business unit’s budget for any “absolutely necessary” legacy systems maintenance during the transition period. The IT consultants also played key liaison roles for the ERP rollouts. For Release 3, they inventoried existing desktop tools, helped the IT organization understand the business unit’s end-user computing needs, and oversaw the local implementation of the standard networked desktop. For Release 4, they worked with business unit management to get business resources assigned to the local deployment teams. By early 1997 the relatively freestanding IT consultants were assigned to a new corporate IT capability: Sourcing & Alliances (description follows). The intent was to improve the coordination of current and future vendor contracts and relationships. IT Capabilities: Councils, Roles, and Processes The design and implementation of the new IT capabilities represented by the horizontal arrow in Figure 5.1 was an even bigger challenge for the IT management team. It was clear that new IT capabilities were needed to ensure both speed and quality––hallmarks of a high performance work environment. What wasn’t clear was what kind of structure should be developed to provide new standard processes and methods, new supporting tools, and human resources skilled in these methods and tools. Another unknown was the range of IT capabilities that would be needed. As a result, IT capabilities needed for the new IT organization have continued to evolve. For example, Figure 5.3 shows the 11 IT capabilities in place at the time of the Release 3 rollout. The first four capabilities were related to the systems integration life cycle––Planning & Project Management, Process Innovation, Technology Applications (development work, including SAP configuration and scripting), and Release Management. Three other capabilities were related to ongoing IT infrastructure planning and systems support: Architecture, Service Operations, and Sourcing & Alliances. The last four capabilities provide ongoing support to project teams, the IT leadership team, and sometimes the IT organization as a whole: Communications (including the intranet), Resource Development, Finance (an IT Controller), and Administration.

52

Repositioning the IT Organization

Figure 5.3: Eleven IT Capabilities at Material-System

System Integration

Planning & Project Management Process Innovation Technology Applications

Architecture & Alliances

Release Management Architecture Service Operations Sourcing & Alliances

Intranet / Communications Resource Development Finance Administration

Each capability had a capability leader accountable for the processes, methods, and tools of the capability, as well as for the development of the skillsets for the people assigned to the capability. Usually reporting to each leader was one or more capability experts who concentrated on the identification and transfer of best practices for the capability. Further, most IT capabilities also had a council, the “training center” for the capability. Each member of a Global Development Team was assigned to a capability, and each team had at least one representative on each relevant capability council. Subteams within the councils worked on special initiatives. Initially, the capability assignments were made for each project team member based on their current job duties. Eventually, all IT assignment (job) descriptions included not only project team responsibilities, but also capability responsibilities. A key capability leader role, then, was to help an individual negotiate the best balance when project team and individual capability objectives were in conflict. When the new IT organization structure was initialized in 1995, some of the capability leaders for the systems integration life cycle were ERP implementation partners (Big 6 consultants). For example, the initial leader of the Planning & Project Management Capability was a consultant in order to leverage the consultancy’s expertise in managing this type and scope of project. The GDLs were all members of the council for this capability. BPLs were members of the Process Innovation Capability. Another key process-oriented capability was Release Management. Key processes of this capability involved release preparation, including the “cleansing” and converting of data and infrastructure work, and actual deployment and coordination of postinstallation support. Deploying a product release required coordination across multiple project teams, HR personnel responsible for training, and local business unit leaders. Another capability closely tied to the GDLs was the Intranet/Communications Capability. Initially part of the Planning and Project Management Capability, it became a separate capability after communica-

Chapter 5

Repositioning IT Organizations for Process Integration

53

tions and information sharing became recognized as key success factors for the Advantage 2000 project. Each global development team had at least one member assigned to the Communications Capability, which was responsible for communications across global project teams and the rest of the IT community as well as for communications between the IT organization and the rest of the company. Another capability that did not initially exist was the Sourcing & Alliances Capability, responsible for managing vendor relationships for the IT organization. At the start of the project, there was only one major external alliance: the outsourcer for legacy systems operation and support. The management of the outsourcing relationship was initially dispersed across the IT consultants. This plan made sense because in the past systems had been custom developed for the business units. However, under this dispersed structure, the execution of the outsourcing contract turned out to be a very “bumpy ride” and the legacy systems costs continued to be a larger organizational expense than expected. The Sourcing & Alliances Capability set up a superstructure for coordinating contacts across the IT consultants who previously had acted on behalf of their business managers, not on behalf of the enterprise as a whole. An external hire who had previously worked with the CIO was brought in to lead the Sourcing & Alliances Capability. Giving the responsibility for managing this strategic alliance to a highlevel capability manager meant that the rest of the IT leadership team could stay focused on the systems integration goals. The capability leader position was given a dual reporting arrangement––reporting not only to the CIO, but also to the VP of Sourcing––in order to establish high-level accountability to the business. As business units encountered problems with service levels provided by the outsourcing vendor––for example, help desk services––the IT consultants worked with the capability leader to identify the scope of the problem and to provide input to enterprise-level solutions. Informal Relationship-Building Typically, co-location is used to place IT employees in physical proximity with dispersed business management. For the ERP project, the critical co-location mechanism was to physically house all team members at the same location. All business team members were physically co-located with the IT team members at the company headquarters in the same building as Material-System’s top management team. Team members saw each other daily. The close physical proximity helped the business process leaders better understand the trials and tribulations faced by IT managers, while the IT people learned to appreciate how changes in business executives and business processes affected the work of the business process leaders. The IT organization also implemented several workspace changes that reflected the CEO’s vision for the “new way of working” enterprise-wide. Some walls were actually torn down so that the CIO and some of his directors could work with minimal physical obstruction. Before the first wave of Release 4 implementations, the teams moved into the firm’s new world headquarters, which became a physical symbol for its transformation values: the new building had a modular design with work areas designed to be optimal for high performance teams––that is, four-person pods. A special emphasis was placed on “public” communication––in other words, information sharing about the project to the firm’s community at large. The consensus was that keeping the project “public” sets up opportunities for people to come forward rather than keep issues “boiling under the surface.” Regular reporting of the status of the project teams in public forums provided such opportunities. The successful outcomes of the two IT transformation workshops held for the IT community in 1995 persuaded the IT leadership that such a community briefing mechanism should be continued into 1996––regardless of the actual topic.

54

Repositioning the IT Organization

Human Resource Practices The transformation of the IT organization to a high performance environment required a whole new structure for the IT organization as well as a whole new set of HR practices and processes. The CIO originally planned to rely heavily on the corporate HR department, and an HR staff member was assigned to the IT organization. However, after a few months it became apparent that the “care and feeding” of the IT people was receiving inadequate attention and constraining the IT transformation. With the blessing of the new senior vice president of HR, a Resource Development Capability was established within the IT organization in August 1995, and a seasoned IT director was designated the leader. The establishment of this capability was a clear signal to the IT workforce that the new IT organization was committed to the transformation to a new kind of IT organization. Several major HR initiatives were championed under this director. For example, a new six-level broadband compensation scheme that was competency-based was initiated in the first quarter of 1996. Each project team role was assigned a competency level and given an IT capability assignment. Within each level there were three sublevels to ensure that IT employees would help each other: learning, can do, and can teach. Another early initiative was the implementation of an employee-led appraisal process with 360 degree feedback: employees solicit evaluations from up to 10 people of their choice who are in positions below, above, and beside their own, or some other relevant sampling. In addition to these long-term HR initiatives, two special incentive plans were put in place at the outset of the project to help retain “critical” employees who had ERP skills highly valued in the marketplace. The project was highly visible within the firm as a whole, and “being a part of it” was expected to be an intrinsic reward for some managers. However, it was also recognized that marketplace salaries for employees with SAP R/3 experience could be powerful incentives; by early 1996 it appeared to one participant that salaries had “doubled overnight.” The first incentive plan took advantage of a preexisting incentive structure at Material-System: a yearend incentive or bonus plan. For those employees already a part of this plan, there was an opportunity for a bonus equivalent to 15–40% of one year’s salary; for employees not on this plan, a year-end bonus up to 15% was possible. The second incentive plan was unique to the company: an on-time project completion bonus in the form of stock options worth 20% of the employee’s annual salary. In addition, individuals in roles considered “critical” for the project would receive an additional 10–20% (in stock options or cash) for on-time completion of the project. Having a special incentive based on the “criticality” of a role was also unique to the company. Navigating the Transformation Journey at Material-System What were some of the challenges that Material-System faced as it repositioned its IT organization, and what planned solutions and management improvisations3 were devised to address them? Mobilizing Commitment Through Shared Values The transformed IT function was predicated on a totally new view of the workplace and the individual’s role in it. This was reflected in the three core values (customer satisfaction, individual employee dignity,

Chapter 5

Repositioning IT Organizations for Process Integration

55

shareholder value) and eight workplace qualities (including paper-free, team-oriented, technologyenabled) espoused by the CEO. At a mid-1994 retreat with its new CIO, the IT management team also developed a set of six values to communicate what a high performance IT organization really meant (see Figure 5.4). The first three values emphasized work changes critical to the 100-week schedule: invention, fast tracking, partnership. The other three values were slogans that characterized a teambased project environment: IT employees in the new IT organization would be encouraged to challenge the status quo, initiate bold changes, and learn, but to also work fast and be a team player. The “attitude wins” value was intended to help set up an environment in which an individual was free to fail. Figure 5.4: Six Shared Values for the IT Organization at Material-System Invention Fast Tracking Partnership Everything Is a Project We All Contribute Attitude Wins

Invent the future; continuously challenge the status quo Performance: start now, deliver soon, learn quick Collaborate for best results; harness diversity Achieve your goals by aiming high, setting directions, planning milestones World-class organizations are built by world class people; competitive advantage from personal growth Integrity, pride, and enthusiasm count

Evolving the IT Leadership Team Initially, an IT Management Council was utilized by the CIO to communicate and coordinate decision making across all 20 of his direct reports; this IT leadership team initially met together on a weekly basis with the CIO. By March 1996, however, an upper-level IT council or board concept was implemented: its members included the CIO and four IT directors. Four IT “working groups” were set up, one under each director, responsible for the Global Process project (all project management issues), Resource Development (organization structure and HR issues), Business Operations (total IT expenses, including legacy systems projects for business units), and Sourcing & Alliances (including legacy systems issues). The expectation was that other leaders (internal or external to the IT organization) would be invited to meet with the council on issues related to the strategic positioning of the IT organization in the future. Personal networks due to prior job positions were also being leveraged. The CEO’s hires for his new top management team provided an early model: his new VPs for R&D and HR had also worked at his prior company. The CIO, controller, and CFO had worked together for another employer. Similarly, the CIO’s outside hires for two key directorships had prior ties with the CIO: the program manager for the ERP project teams and the capability leader for Sourcing & Alliances. IT managers who had been the heads of decentralized IT units were also recognized as key assets due to their established networks with business managers.

56

Repositioning the IT Organization

Partnering with Human Resource Experts The transformed IT function required a whole new set of HR practices and processes. For example, an early change in the IT organization was to move from the concept of job-based work to project-based assignments, and from the concept of manager-initiated to employee-initiated career development. Beginning in January 1995, after the legacy systems operations and support functions had been outsourced, the remaining IT organization personnel became personally responsible for applying for new work assignments. The underlying assumption here was that the majority of individual learning would occur under new assignments––that is, “learning by doing.” Further, acceptance of an assignment typically meant up to an 18-month commitment. The second assumption was that the opportunity for more frequent assignments would lead to more rapid learning. If an employee decided after nine months in a new assignment that it would be best for him or her to make an assignment change, it was the responsibility of the individual employee to find their replacement. In the new workplace environment, then, project team heads advertised for employees, but individuals marketed their own capabilities (“self-nomination process”). For the individual, the goal was financial reward and marketability based on skills or competencies. For the organization, the goals were to pay for performance (demonstrated skills or competencies) and to have employees who were specialists in more than one area. The initial plan was to rely heavily on HR department personnel to develop and implement new HR practices and processes in consultation with the IT management team. The IT organization’s model and the new HR practices that would evolve with it were viewed as a “pilot” for the CEO’s vision of a new workplace. A new VP of HR, who arrived in early 1995, viewed it as an “incubator” for transforming the company as a whole. However, several months into the 100-week ERP implementation, it became clear to the IT management team that people issues were taking a distant backseat to project issues. To ensure a more balanced approach––and to avoid a personnel crisis situation––HR management became a separate IT capability with its own full-time capability leader beginning in August 1995. In March 1996, the new Resource Capability leader within the IT organization was working on “connecting the dots” between the HR initiatives—for example, linking new IT competency models with the capability component of team project assignments, compensation schemes, and so on. Transferring Knowledge From External Consultants External consultants played a significant role in the repositioning of the IT function at Material-System. Initially, they supplied expertise in business process reengineering and the development of a global process model. Subsequently they were involved in the IT organization redesign and ERP project management expertise. An average of 50 to 75 consultants (including consultants from the software vendor) worked side by side with Material-System’s IT managers. Finding the right mix of consultants and internal employees was an ongoing challenge. Top management knew they needed external expertise for this scope and type of organizational change. However, if the external consultants were relied on to lead project teams, then project management skills and ERP knowledge might not be transferred to their own workforce as quickly. By early 1996, each Big 6

Chapter 5

Repositioning IT Organizations for Process Integration

57

consultant was paired with two Material-System managers—one with a business focus, one with a technology focus—as part of a plan to transition out the consultants. By the fall of 1996 all full-time consultants had been transferred out of the IT organization. Executive Guidelines The experiences of these three case firms suggest some key guidelines for repositioning the IT organization to enable the business transformation thrust of process integration. Guideline 1 Establish a corporate IT organization with an enterprise-wide coordination mandate. Process integration efforts cannot succeed in a context that continues to reward “silos” of individual business units or functions. At all three firms, the process integration thrust required that corporate IT be a prime facilitator. In two of these firms, a corporate IT oversight and coordination role had already been established. At Diverse-Synergy, it was strengthened by the introduction of matrix reporting to the CIO for the new Market Information Officers. At Material-System this oversight role was a new one, and required both an IT governance redesign and new CIO. More important, the new incumbent was regarded as the first true CIO for the business firm in contrast with a string of business executives who had been appointed to the position in the past. Guideline 2 Match the transformation pace to the pace of the business transformation thrust. Process integration thrusts require significant changes to the existing structures, processes, and information flows within an enterprise. Given the magnitude of the changes, they are likely to generate cultural conflicts, concerns about the impacts of these changes on existing business competencies, and some level of power struggles across prior stakeholders. Therefore, the pace of the IT transformation must to some degree mirror the pace of the business transformation—that is, be at a concurrent pace. However, sometimes, the IT organization must also focus on building capabilities in advance of the business transformation. This imperative might exist when there are significant deficiencies in the types of IT capabilities needed to enable the transformation thrust or when the IT organization needs to establish its credibility as a potential strategic enabler. Under such circumstances, it is much more appropriate to use a dynamic balancing strategy that switches the pace of the IT transformation between anticipatory and concurrent. In the anticipatory mode, the CIO can direct attention to some core IT capabilities; in the concurrent mode, the CIO can fine-tune the IT transformation in synchronization with the business transformation thrust. Guideline 3 Use formal mechanisms to quickly align with new business structures.

58

Repositioning the IT Organization

As is evident from all three case sites, significant attention was directed toward the use of formal mechanisms (roles, groups, processes) to link the IT organization with new business structures and roles. In some cases, old mechanisms were modified. In other instances, new mechanisms were designed. Informal relationship-building and HR practices also proved critical to the effectiveness of the new formal mechanisms at the case site with a dynamic balancing strategy (Material-System). Guideline 4 Fence off the legacies to focus on the new capabilities. Legacy applications are associated with a set of IT capabilities and behaviors. When IT performance gaps exist, continuing to support legacy applications is likely to significantly impede transformational progress. This was the situation at Material-System. Fencing off the legacy applications by outsourcing released knowledgeable IT resources and also signaled the IT organization’s commitment to the development of new skills. Guideline 5 Leverage prior relationships and build new partnerships with non-IT units. Process integration thrusts are likely to run into structural, cultural, and political barriers that are a consequence of the traditional organization structures that were designed to promote differentiation. Individual units could well impede the development of enterprise-wide processes because they are focused on their own products, markets, and processes. At each of the three firms, significant attention was devoted to reinforcing old relationships with business leaders by fine-tuning existing coordination mechanisms (for example, the role of Market Information Officers at Diverse-Synergy) or introducing new ones (for instance, Account Managers at Material-System). Further, strong partnerships with the leadership of the HR function was critical to the IT transformation at Material-System: the IT organization’s new high performance model required new job descriptions, career paths, and incentive systems. The IT directors were given the authority by their HR counterparts to move forward in advance of the rest of the organization in order to have the IT capabilities needed to help lead the business transformation.

Endnotes 1 Portions of this story have also been told in a teaching case prepared by one of the researchers. See Case IV-3 in Managing Information Technology: What Managers Need to Know by E. W. Martin, C. V. Brown, D. W. DeHayes, J. A. Hoffer, and W. C. Perkins, Prentice Hall, Upper Saddle River, N.J., 1999. 2 SAP R/3 is an enterprise-level software solution that encompasses the Accounting/Finance, Human Resources, Sales/Distribution, Materials Management, and Operations functions. Material-System retained PeopleSoft for its HR packaged solution but implemented the other SAP R/3 modules. 3 The improvisational metaphor for the management of change and transformation is described in W. J.Orlikowski and J. D. Hofman, An improvisational model for change management: The case of groupware technologies, Sloan Management Review, Winter 1997: 11–22.

CHAPTER 6 REPOSITIONING IT ORGANIZATIONS FOR KNOWLEDGE LEVERAGING

Knowledge Leveraging Building sense-and-respond capabilities through the creation, nurturing, and maintenance of a knowledge asset Knowledge leveraging was a primary thrust in only one of our case studies: Bio-Leverage. The IT transformation at Bio-Leverage occurred at two levels: actions by the CIO to develop an IT organization capable of supporting the new goal of connectedness, and actions under a new IT unit director charged with architecting a knowledge leveraging capability. Bio-Leverage utilized four IT transformation vectors (all but the sourcing vector) to achieve these knowledge leveraging goals. Bio-Leverage had traditionally operated with radically decentralized business units and recognized that it needed to focus on greater “connectedness” among these units. Therefore, for our discussion of vector 5, we emphasize mechanisms directed at achieving enterprisewide connectednesss. However, for our illustration of the transformation journey, we focus on the knowledge management architecture capability being developed under the IT unit director. The chapter closes with some executive guidelines based on the lessons learned from this case.

IT Transformation Strategies Table 6.1 summarizes the IT transformation strategy for enabling knowledge leveraging at Bio-Leverage. Talent Infusion

Vector 1: Infusion of Management Talent Bio-Leverage’s senior management recognized that the prevailing IT performance gaps would hamper the firm’s ability to execute its transformation thrusts. A new CIO who had a good track record of IT leadership knowledge and experience was hired as a direct report to the CFO; some viewed the new CIO as the first “real CIO” the company had had.The CIO was made a member of the Stewardship unit that is the corporate controlling body and focuses on innovation, leadership, and “doing the right things” to achieve the corporate vision. Further, IT managers who had collaborated on a successful knowledge management application at the division level were transferred to corporate IT leadership roles to jump-start an enterprise-wide initiative. Governance

Vector 2: Governance Redesign Previously, individual business units managed made their own independent infrastructure decisions. This governance approach had led to incompatible technologies and the inability to communicate across the

59

60

Repositioning the IT Organization

Table 6.1: IT Transformation Strategies for Enabling Knowledge Leveraging Transformation Vectors

Bio-Leverage

Infusion of new IT management talent

New CIO, a “first real CIO,” reporting directly to the CFO and part of new Stewardship unit Division IT managers with successful pilot transferred to corporate Recentralization through new corporate IT units and matrix reporting of earlier decentralized IT heads Dynamic balancing

Governance redesign Pacing Sourcing Lateral coordination capability For connectedness

For KM architecture

IT management council (including dotted-line reports) Ad hoc task forces IT strategic planning process IT community briefing Enhanced systems director (KMA director) IT standing team (knowledge team) Ad hoc task force (resource coordination) New processes to identify projects and build knowledge base Informal relationship-building (one-on-one contacts, periodic forums) Exploratory incentives for information sharing

enterprise. Consistent with the corporate vision of “small and connected,” the CIO made two major changes to the IT governance structure. First, a dotted-line relationship with the CIO was instituted for all the IT heads reporting to each of the strategic business units. Similarly, the IT heads of worldwide “shared services” were also given a dotted-line relationship to the CIO. These new formal relationships between the IT heads and the CIO symbolized the new corporate emphasis on connectedness to enable knowledge leveraging. Second, a new corporate IT group was created to oversee the delivery of three major enterprise-wide IT initiatives considered to be leading-edge. The Center for Technology Excellence was a part of the CEO’s new Stewardship unit, which was a separate entity from the shared IT services unit (computer operations, telecommunications, and help desk units). Within the Center for Technology Excellence was a special unit created to develop a knowledge management capability: the Knowledge Management Architecture (KMA) unit. The director of this unit was given considerable autonomy to build a new business intelligence capability for Bio-Leverage.

Chapter 6

Repositioning IT Organizations for Knowledge Leveraging

61

Pacing

Vector 3: Pacing Bio-Leverage adopted a dynamic balancing pace for its IT transformation. As defined in Chapter 3, this is an approach in which the IT transformation is driven at a pace that alternates between leading the business transformation and being in synchronization with the business transformation. The CIO’s actions to achieve enterprise-wide connectedness are best described as being in synchronization with the business transformation. However, the KMA unit was given the autonomy to lead the business transformation—that is, to outpace the rest of the organization in the area of knowledge management. This combination resulted in a pace that we define as dynamic balancing. Sourcing

Vector 4: Sourcing No major change in IT sourcing was a part of the IT transformation at Bio-Leverage. Instead, the focus was on developing a knowledge management capability through leveraging existing in-house expertise. Similar to other IT units, the KMA director brought in outside contractors as needed in order to supplement internal IT expertise for specific projects. Vector 5: Lateral Coordination Capability Traditionally, under the highly decentralized structure of the past, Bio-Leverage had developed strong business-IT partnerships. Now it needed to strengthen partnering across its previously decentralized IT leaders and its dispersed IT workforce. To facilitate ongoing two-way communication, establish a collaborative work environment, and leverage IT expertise across the firm, Bio-Leverage created a new portfolio of coordination mechanisms by implementing entirely new mechanisms and modifying previously existing ones. Lateral Coordination Capability

The CIO’s IT leadership group was reconstituted to include about 25 members: not only direct reports but also all the new dotted-line reports located in the business units, worldwide regions, and shared services groups. The CIO’s new mandates for this IT management council included: • • •

coordinated IT infrastructure planning across the enterprise. elimination of duplicate business unit efforts. identification (and transmission) of best IT practices.

Ad hoc task forces were also empowered by the CIO to address issues that were related to the operationalization of the new business vision. The IT management council regularly discussed the progress of these task forces and charter documents helped align the teams. For example, an ad hoc team working on Business Impact and Metrics had three IT management council members as well as other members from IT groups in the business units, external consultancies, and non-IT groups. This team was charged with (1) developing a process for valuing a new IT initiative, and (2) measuring the effectiveness of an ongoing initiative using business metrics. These metrics were expected to help business units determine their own IT priorities and assist the IT organization in articulating its contribution to that business. Other task forces were investigating Portfolio Management, IT Staffing and Succession Planning, Architecture Implementation, and so on. A new IT planning process for IT initiatives was introduced to better support Bio-Leverage’s new organizational and operational models and to apply standard metrics to describe the expected IT benefits

62

Repositioning the IT Organization

at the SBU level. This new process would also identify duplicative efforts across the enterprise at an initial stage. Other synergistic outcomes would include shared IT platform choices and joint IT purchase agreements. After a six-year hiatus, a three-day annual meeting of the global IT community (IT community briefing) was re-initiated by the new CIO. The primary intent was to provide an opportunity for networking with peers across the enterprise. But this event also had a beneficial secondary effect: it offered an opportunity for IT in business units that were geographically dispersed to participate in in-person meetings of these groups. Such interactions had not regularly occurred in the past. In the next section we describe in detail the portfolio of new mechanisms implemented as part of the KMA initiative at Bio-Leverage, as well as some of the challenges faced along this IT transformation journey. The IT Transformation Journey at Bio-Leverage Table 6.2 summarizes the pertinent background characteristics of Bio-Leverage presented earlier in Chapter 2. The IT organization was regarded as an enabler of the business transformation. IT was considered to be critical for eliminating the time and distance barriers to being “small and connected.” IT was also expected to play a strategic differentiator role in developing a knowledge management capability. Table 6.2: Knowledge Leveraging at Bio-Leverage: Background Business characteristics

Factors motivating the business transformation thrust

Vision for transformation

Large global firm competing in chemicals, agricultural products, and pharmaceuticals History of radical decentralization New top leadership focused on biotechnology opportunities Growth heavily dependent on innovations for fast-changing markets Competitive advantage dependent on firm’s collective insights Knowledge Leveraging Actions Connect via global themes: Operational excellence, growth, sustainability, globalization, cultural change New units to focus on learning and growth (balanced scorecard measures) Complementary Transformation Actions Restructuring of leadership and corporate functions IT as key architect of knowledge assets

Chapter 6

Repositioning IT Organizations for Knowledge Leveraging

63

The Business Transformation Thrust Whereas radical decentralization had characterized Bio-Leverage in the past, competing in a hypercompetitive environment would require the ability to leverage knowledge across disparate units. In the future, competitive advantage would depend on the firm’s collective insights and how fast it learned. The CEO’s vision for knowledge leveraging was to keep “small” as in the past, but to also be “connected.” Setting the Stage for Business Transformation A new corporate Stewardship unit was created to focus on innovation, leadership, and “doing the right things” to achieve the corporate vision. A separate shared services unit would continue to focus on operational excellence. The CEO also introduced five high-priority themes (e.g., sustainability) to focus on new ways of doing business in an environment of knowledge leveraging. After a series of global forums were held (with diagonal slices of workers as participants), new councils with global members were created to realize the envisioned new capabilities. One of these was the Global Learning Network (GLN), whose mission would be to achieve the firm’s new Learning and Growth objectives. For example, the GLN helped orchestrate periodic events to increase the probability of interpersonal knowledge sharing, leading to insight creation. Other in-person forums in which people could relate to each other were also implemented as corporate initiatives under the names of Brain Food, Lunch & Learn, Table Talks, and so on. This type of social forum was encouraged because it not only enabled relationship-building but also opportunities for the transfer of tacit knowledge through dialogue.1 Motivation for IT Transformation The business transformation at Bio-Leverage imposed a new demand for cross-organizational communication via IT and enterprise-wide IT standards. The prevailing IT infrastructure at BioLeverage was viewed as a clear impediment to achieving global connectedness: a variety of different e-mail servers (about 90 across the corporation) made it difficult to “talk to each other.” There was a clear need to develop a flexible architecture with low complexity. But this would require a dramatic change in IT capabilities and an investment in an enterprise-level mindset. Prior to the business transformation, about 80% of communications were within an employee’s workgroup, so that the setting of standards at the local level made sense. Now the “soft spots” in the current infrastructure needed to be removed, and global electronic communications needed to be transparent and easy. An earlier multiyear consultant study of the company’s current systems and practices had recommended major significant investments to “overhaul IT” at Bio-Leverage. One of these initiatives was the creation of an independent IT unit to oversee enterprise-wide IT initiatives. The CEO leveraged this idea by implementing a new Center for Technology Excellence that reported to the new CIO. A separate unit within this center, the Knowledge Management Architecture (KMA) unit, was given the mandate to “increase the value of Bio-Leverage’s intellectual capital.”

64

Repositioning the IT Organization

Setting the Stage for IT Transformation The KMA unit within the Center for Technology Excellence included full-time internal personnel with the position titles of technology leaders, project leaders, and technology specialists, as well as contract personnel whose numbers fluctuated according to project needs. The director of the new KMA unit had worked with the center director for more than three years on the development and implementation of a system for a 600-person business unit. This application was viewed as a “best practice” for knowledge management: a competitive intelligence application that enabled the business to view their “competitive horizon” to understand what both the technology and their competitors would “look like and who they will be.” This IT development effort included new transaction processing systems, a reference data model at the business unit level, a data warehouse, the development of a searching/navigation tool, and new people roles for identifying and cataloguing targeted information content. The KMA’s charter was to develop a similar capability, but enterprise-wide; the KMA unit personnel represented the firm’s current core capability for knowledge management at Bio-Leverage. The director of KMA viewed this challenge as how to create a “collection of 100-plus things across the enterprise.” The analogy from nature was a tornado (the KMA unit capability) that would spawn hundreds of twisters. The biggest challenge would be to move beyond information capture (a historical focus) to the knowledge creation—the creation of new insights—that would add value to Bio-Leverage’s products and services. The biggest payoffs were expected to be in product information, market information and “customer intimacy.” The KMA unit enjoyed sponsorship from the highest levels of the organization. The assumption was that there would be desirable long-term results; performing traditional cost-benefit analyses to justify the KMA’s existence and some of its initiatives would be irrelevant. To accomplish these objectives, the KMA staff was involved in developing repositories, delivering new tools to facilitate communication and collaboration, as well as developing and facilitating processes to enable and sustain knowledge creation and usage. Working assumptions for developing the requisite knowledge management capability included the following: •

• • • •

The thrust would be to communicate and share experiences across units and to provide “metadata at the fingertips”; the thrust would not be to control, although some interactions may be provided in a “push” or “tap-on-the-shoulder” mode rather than a self-initiated “pull” mode. “Virtual encounters” of people and people, as well as people and information, could be orchestrated across national boundaries. Processes could be developed to help create organizational insights—that is, an increment in organizational knowledge, not a replication. Multiple presentation options (time-based, person-based, and sometimes “platter”) needed to be available to provide information in a “constant sea” mode. Knowledge management would continue to require a symbiotic relationship between people and IT.

The KMA was expected to bring a collection of autonomous “bits and pieces” together using IT. The goal was to reach a state in which the organization would “know what it knows.” As shown in Figure 6.1, one goal would be to create data warehouses (with quantitative data from internal transaction processing systems and external systems) and repositories of qualitative information (from internal documents as well as external sources such as a newswire report) that could be integrated (via an enterprise reference data model) in order to cross-link internal and external sources of both qualitative and quantitative data.

Chapter 6

Repositioning IT Organizations for Knowledge Leveraging

65

Figure 6.1: Four Quadrants of Data Sources at Bio-Leverage Quantitative/ Structured

Internal

External

Qualitative/ Unstructured

Inventory Financials Sales

Best Practices Standard Operating Procedures People Directory

Market Demand Supplier Technical Specs Raw Material Prices

Competitor Information Industry Best Practices Benchmarking Data

The Transformed IT Function The new KMA unit needed to be aligned with other IT and business units to enable the business transformation. This repositioning was accomplished via four types of lateral organization mechanisms: integrator roles, new groups and processes, informal relationship-building, and new HR incentives.2 Integrator Roles The director of the KMA was in a key integrator role position for the IT organization. Although the director’s formal report was to the IT head of the Center for Technology Excellence and he had systems development staff responsible to him, he also had a dotted-line report to the CIO. In addition, the KMA director was given a high degree of latitude to create linkages with the GLN, council leaders working on the five global themes, and other IT Stewardship groups (see Figure 6.2). Figure 6.2: The KMA’s Linking Pin Role at Bio-Leverage IT Stewardship and Global Themes

Knowledge Management Architecture

Global Learning Network

IT Organization (Center for Technology Excellence)

66

Repositioning the IT Organization

Other integrator roles identified as important for knowledge leveraging included people roles throughout the organization, such as topic experts and shepherds. Topic experts are subject matter experts who make sense of external competitive intelligence information and infuse their subjective judgments into discussions––including electronic discussion threads. Shepherds focus on the group dynamics of a team and how to infuse expertise through interpersonal interactions. Both of these roles were fostered at BioLeverage as part of the KMA initiative in order to connect people with information and with each other. Groups and Processes A knowledge team (standing team) of two IT specialists and six information scientists (librarians) from different corporate and business units was created to develop new processes to (1) catalog, find, and organize data sources, and (2) link quantitative and qualitative data from internal and external sources. The KMA director sought out team leaders with librarian backgrounds because they had expertise in analyzing information requests, knowing where to go and who to ask for information, in cataloging new sources, in filtering and cutting information “down to size,” and in making information accessible to others. The team had two high-level sponsors: an International VP and a VP of corporate research. The KMA director played a “champion” role for the team, helping the team leader connect with the appropriate organizational leaders and knowledge experts. A resource coordination task force was also being designed in order to coordinate the smaller, ad hoc requests for IT services related to the knowledge leveraging thrust with existing IT projects. In the new corporate environment, IT projects could be initiated by different councils and initiatives (such as those focused on global themes) across the enterprise, outside of any annual IT planning process. This mechanism was expected to help the organization respond to the two opposing forces: (1) a “sense of urgency” and (2) a need to “be aligned.” It would be the funnel for requests for an IT-related capability—from any council or initiative associated with a global theme or an operational unit such as the Help Desk. The team members included representatives from the Center for Technology Excellence and the business units. The team was expected to decide what requests would become a new IT project versus what was “highly related” to another current IT project. The outcome of the new review process could be one of three actions: (1) expand the scope of a current project to absorb the request, (2) identify the request as an unnecessary duplicate effort, or (3) initiate a new project to produce a pilot or proof-ofconcept. Informal Relationship-Building Key to the success of the separate KMA structure were unit leaders skilled in informal relationshipbuilding via one-to-one contacts and the use of electronic media. The KMA director was noted for his ability to be “plugged in” to what was going on in the organization. His ability to work across hierarchical, functional, and geographic boundaries in order to stimulate creative solutions and develop linkages with potential experts and other integrators was critical to the success of this initiative. Moving the KMA initiatives forward also involved capturing the attention and time from high level people to gain their sponsorship and personal participation in the usage of IT for knowledge sharing. Periodic events that would involve interpersonal contacts were also heavily relied on, including community events and new kinds of social forums jointly sponsored with the GLN or other human resource units.

Chapter 6

Repositioning IT Organizations for Knowledge Leveraging

67

Print media internal and external to the organization were also used to increase credibility for the KMA initiatives. For example, the following “war story” had already been widely disseminated in the firm and was used as a catalyst for investments in a knowledge asset: after the loss of a major business customer, a postmortem analysis revealed that the knowledge that could have helped the firm avoid the loss did exist in the organization, but the information was inaccessible to those who could have taken action to prevent the loss. More recently, a knowledge management article that mentioned Bio-Leverage in an issue of Fortune proved to be useful in helping to persuade internal managers and resident experts that the KMA was “not just hype.” Human Resource Practices Since Bio-Leverage had previously operated in an environment characterized as autonomous “bits and pieces,” one of the key challenges was how to ensure that individuals would share their knowledge. One view was that the “right people” needed to be early participants in knowledge capturing efforts so that others will participate. The “first wave” was expected to include R&D and IT “type folks” for whom no other incentives were needed. Yet the expectation was that, to be successful, the knowledge management initiative would require “lots of time from lots of people” to capture individual knowledge. Bio-Leverage began with assuming that intrinsic rewards for knowledge sharing would be sufficient: personal pride in being a participant in a corporate initiative, or the belief of contributing to a “greater cause.” Access to collaborative tools not available to all units (e.g., a Lotus Notes license) was also used as an incentive. Extrinsic rewards included recognition beyond the workgroup—for example, electronic recognition for broadcasting a good idea or in-person recognition at IT community meetings. Navigating the Transformation Journey at Bio-Leverage What were some of the challenges that Bio-Leverage faced as it repositioned its IT organization, and what planned solutions and management improvisations were devised to address them? Empowering the IT Roles The new “connectedness” goals required enterprise-wide standards-setting and a new spirit of collaboration across radically decentralized business units. The CIO was empowered to accomplish this part of the knowledge leveraging goals, and quickly established formal mechanisms to gain business unit buy-in to this part of the transformation. However, the key knowledge management role was given to the director of a unit that was formally structured two levels down from the CIO: the KMA. Unlike other organizations, Bio-Leverage did not create an integrator role among its top management team—typically a chief knowledge officer—who would have the positional status and budget authority to influence, topdown.3 The other challenges discussed below involved enterprise-wide cultural changes and could not have been accomplished by IT leadership alone. Even though the interpersonal and IT skillsets of the KMA director were considerable, and the knowledge management activities of the firm reached a high level of awareness, the continued effectiveness of a separate KMA unit was continually being evaluated. Promoting a Culture of Sharing and Trust Though the KMA had promoted some intrinsic and extrinsic rewards for initially motivating the sharing of knowledge, sustained sharing over the long run required the development of a culture that valued openness, trust, and honesty. Business units focused on bottom-line results and in the past the culture

68

Repositioning the IT Organization

had been one of SBU competition, not sharing. For example, when the KMA director had worked in a different business unit, information sharing using IT had become part of the culture of that business unit. However, when he moved on, people reportedly “quit doing it”; electronic sharing was no longer perceived to be a rewarded behavior. For the KMA unit to be effective, these values needed to be continually articulated as part of the vision of Bio-Leverage and embraced by the business unit leadership. The sharing of failures was just as important as the sharing of good ideas, but the sharing of failures requires high levels of trust. The IT organization increased awareness of the importance of sharing failures by referring to the company’s recent “war story” (described earlier). It also pursued ways to use IT to initially develop trust and to refresh it as needed. For example, the GLN became a sponsor of an IT project to develop electronic repositories of vitas and other personal information (e.g., electronic yellow pages). Instituting Measurable Results for Rewarding Knowledge Sharing Concerns arose about the KMA’s specific deliverables and how they tied into the competencies needed for the corporation in the future. However, measures outside of the KMA unit were not yet in place to help justify the continuation of the KMA unit as a separate entity. For example, at the time the KMA was initiated, only corporate employees and top-level SBU managers had incentive systems that were based on organization-level performance, not just business unit performance. This meant that those working in business units that were successful would “roar on without internal sharing,” while those battling for their survival might be the only ones that wanted to share. Bio-Leverage’s initiative to measure the Growth and Learning with the Balanced Scorecard approach was being pursued but was not yet in place.4 Rewards for experience sharing also were not being captured as part of an individual’s performance appraisal system, but the KM director was working with business champions of an Assets Program initiative in which the skills and knowledge of the company’s people were viewed as corporate assets to be managed. This initiative was expected to be the umbrella project for the development of new performance appraisal systems to incent behaviors for knowledge leveraging.

Executive Guidelines Bio-Leverage’s experiences with repositioning the IT organization to enable knowledge leveraging suggest some key guidelines. Guideline 1 Deploy the IT infrastructure standards as quickly as possible. Knowledge cannot be leveraged if a firm does not have a seamless IT infrastructure across the enterprise. At the same time, such an infrastructure must be flexible enough to respect differences in regions, nations, and cultures. The CIO of Bio-Leverage quickly focused his attention on building relationships among the previously decentralized IT heads and the deployment of new IT architectural standards.

Chapter 6

Repositioning IT Organizations for Knowledge Leveraging

69

Until this was achieved, IT would continue to be viewed as an impediment to the business transformation. Guideline 2 Use mechanisms to link independent structures. The hiring of a new CIO and the establishment of a new KMA unit established the IT organization as a key enabler of the knowledge leveraging thrust. However, these new roles and structures needed to be quickly linked with the decentralized IT heads in the business units and other knowledge management initiatives spawned by the CEO. The CIO established an IT management council and an IT planning process to create new lines of accountability and communication across corporate and decentralized IT heads. The KMA director used formal role and group mechanisms, including his own integrator role position, to identify and create shared initiatives with non-IT units and the leaders of new global teams. For example, a new single-point-of-contact and new process were created to learn about and respond to IT needs being generated by the sponsors and champions of the new cross-enterprise councils and initiatives. In some cases, these requests could be matched with existing IT projects. Informal relationship-building mechanisms were also heavily relied on by the KMA director to develop key working relationships and to respond to new IT-related needs. Guideline 3 Motivate through a culture that values sharing. Don’t assume that providing new structures and tools for information sharing—a “Field of Dreams”5 approach—is all that is needed to build a knowledge asset. Instead, assume that some encounters may need to be orchestrated and that step-wise processes help lead to the creation of collective knowledge. Experience sharing—including failures—must also become a part of the culture and the rewards system. Core values that support knowledge sharing and incentive systems that explicitly reward knowledge sharing need to be developed and communicated enterprise-wide.6 Guideline 4 Exploit partnerships with information scientists and human resources. A hallmark of the knowledge leveraging approach at Bio-Leverage was to exploit the strengths of existing information science and HR expertise within the organization. Information scientists are experts in locating, cataloging, and presenting information in digital, sharable form as well as linking people to electronic resources. Organizational scientists often found in HR departments can improve the organization’s understanding of how best to use IT to leverage existing tacit and explicit knowledge, based on knowledge of group dynamics and individual learning. Partnering with HR specialists is also critical for the development of appropriate incentive systems at the individual employee level to ensure grassroots buy-in to the building, nurturing, and maintenance of a knowledge asset.

70

Repositioning the IT Organization

Endnotes 1 Based on the work of Polanyi, tacit knowledge is undocumented individual know-how, whereas explicit knowledge is externally visible and documented. (See M. Polanyi, Tacit Dimension, Doubleday, New York, 1966.) 2 Several of the ideas in this section of the chapter have also been reported in a paper co-authored by one of the researchers. See B. Junnarkar and C. V. Brown, Reassessing the enabling role of IT, Knowledge Management Journal 1(2), December 1997: 142–148. 3 M. J. Earl, and I. A. Scott, What is a Chief Knowledge Officer? Sloan Management Review 40 (2), Winter 1999: 29–38. 4 See the reference to GLN and note 7 in Chapter 2. 5 Refers to the philosophy of “if we build it, they will come” in a recent movie of the same name. 6 P. S. Goodman, Exchanging best practices through computer-aided systems, Academy of Management Executive 10 (2), May 1996: 7–19.

CHAPTER 7 REPOSITIONING IT ORGANIZATIONS FOR COMPETITIVE AGILITY

Competitive Agility Building sense-and respond capabilities through the ability to sense trends and rapidly offer a stream of innovative solutions without the inertia of existing commitments Two of our case studies were pursuing a competitive agility thrust: Pub-Enabler and Tele-Nimble. Both of these companies were competing in established industries with entrenched workforces and were in the throes of responding to major paradigm shifts within their industries. We begin by discussing how these two firms used the five IT transformation vectors to achieve agility, which required significant culture changes in order to develop a new entrepreneurial orientation among their workforces. For the illustration of a transformation journey to achieve agility we selected Tele-Nimble: within the IT organization at Tele-Nimble a “grand experiment” in developing change-readiness capabilities took place in one of its large systems development units. The chapter closes with a succinct set of executive guidelines for IT transformations to enable agility, based on the lessons learned from both of these firms.

IT Transformation Strategies Table 7.1 summarizes the IT transformation strategies for enabling agility that we discuss in detail later. Tele-Nimble was the only one of our six cases to pursue an anticipatory pacing strategy. As introduced in Chapter 3, this was because the new hypercompetitive environment anticipated for the telecommunications industry had not yet been realized: Tele-Nimble’s IT transformation was in anticipation of the landmark telecommunications legislation in 1996 that unleashed major competitive forces still reshaping this industry today. Talent Infusion

Vector 1: Infusion of Management Talent Both companies brought in new IT executive talent from outside the firm in order to refocus their organization’s IT efforts in new industries. Tele-Nimble intended to be ready for its new competitive terrain and hired a new CIO to reposition the IT organization. In his words: As a company, we need to be agile, dynamic; we have to be able to move quick enough. . . . First, I had to have the best team available. I needed people who had been there before . . . winners elsewhere. Second, we needed to create the environment for a rapid-moving company, with acquisitions, divestitures, and alliances overnight.

71

72

Repositioning the IT Organization

Table 7.1: IT Transformation Strategies for Enabling Competitive Agility Transformation Vectors Infusion of new IT management talent Governance redesign

Pacing Sourcing

Lateral coordination capability Integrator roles

Groups

Processes

Informal relationship-building Human resource practices

Pub-Enabler New CIO CIO’s membership on key executive committees Recentralization through new Program Office and matrix reporting for divisional IT heads Dynamic balancing Outsourcing of legacy system maintenance

Integrator roles for program manager, outsourcing vendor Client liaisons IT management council Competency centers

Tele-Nimble New CIO and other senior IT executives Recentralization of IT units

Anticipatory Reduced dependence on and new use of contractors for skill infusion Account managers Competency center managers IT management council Competency centers (centers of of excellence) Statement of work, resource planning, competency center life cycle IT community briefings Redesigned practices, including appraisal system

As part of his transformation agenda, the CIO created a new IT leadership team by hiring a large number of senior IT executives from the outside—“proven winners” from other user firms and consultancies. One of his new senior IT leaders was a divisional information officer with some pioneering ideas. He had spent several years thinking about how to organize IT activities in order to build strategic IT applications within a short time cycle to exploit the fleeting “windows of market opportunity.” Rapidly absorbing emerging technologies and development practices was a key capability in his model. At Pub-Enabler, the traditional business model was already being threatened: print media were already losing market share to electronic media, although the explosion of opportunities via the Internet was still to be exploited by new and old competitors. At Pub-Enabler the technology of the business and use of systems to support business processes were closely intertwined, and the IT organization had been the stepchild. Dissatisfaction with the prevailing performance of the IT function as well as the desire for a new IT role that would enable the business transformation spurred the hiring of a new CIO from outside the firm.

Chapter 7

Repositioning IT Organizations for Competitive Agility

73

Governance

Vector 2: Governance Redesign Both of the CIOs viewed some recentralization as a necessary step to transforming their IT organizations. At Pub-Enabler, recentralization was accomplished in two ways. First, a matrix reporting relationship was established for all divisional IT heads who previously reported only to the business managers of their respective divisions. Now they were accountable to the CIO as well. Second, a new Program Office was created to manage new multi-divisional projects. The intent was to leverage not only IT development expertise but also deployment expertise. The new CIO at Pub-Enabler also became a member of the firm’s corporate operating committee and strategic planning committee for the first time, ensuring face-to-face contact with the firm’s top managers at least once a week. The CIO also became a member of the corporate acquisition committee; membership in this group was considered critical for developing the organizational capability to merge acquired units more quickly. At Tele-Nimble, the IT organization in the past had played a “neutral” role, rather than a strategic role. The recentralization of dispersed IT managers signaled a fundamental change in the role of the IT organization: from a reactive, cost-control enabler to a proactive, strategic differentiator of the business. Pacing

Vector 3: Pacing Pub-Enabler adopted a dynamic balancing pacing strategy for its IT transformation: it was already in the throes of industry turmoil and had to rapidly respond to growing competition in its core products and services. The business had already embarked on the agility transformation path and the IT organization was being repositioned as part of this overall transformation thrust. Synchronizing the pace of IT transformation with the business transformation thrust allowed the new CIO to be in tune with the senior business leadership of the firm as well as to orchestrate improvisations to the IT transformation as the business transformation was taking shape. However, the IT function also had performance gaps: most of the existing skills were confined to legacy applications and the cycle times for applications development were excessive. Therefore, some IT initiatives anticipated the business transformation in order to develop entrepreneurial IT capabilities that could enable the business transformation. By switching between anticipatory and concurrent pacing, the dynamic balancing strategy enabled the CIO to reposition the IT organization for the new competitive environment. In contrast, Tele-Nimble adopted an anticipatory pacing strategy. Although it was clear that the telecommunications industry was soon going to be in the throes of dramatic change, the new deregulated industry landscape had not yet emerged. As an organization, Tele-Nimble wished to be ready for this new competitive reality and the hiring of a new CIO with responsibilities for IT and business reengineering placed IT as a fundamental differentiator in achieving its transformation toward agility. The new CIO faced a history of legacy applications and an entitlement mindset that entrenched the IT organization with structures, processes, and skillsets that would no longer be appropriate. The building of a new change-ready IT organization was required. Since the expected winds of deregulation were more than a year away, the CIO used this as a window of opportunity to “experiment” with innovative organizational designs within the IT organization. An anticipatory pacing strategy allowed the IT organization to reposition itself in advance of the business transformation anticipated under a still undetermined regulatory environment.

74

Repositioning the IT Organization

Sourcing

Vector 4: Sourcing On his arrival, the new CIO at Pub-Enabler recognized the IT workforce had been “doing the same jobs” at the firm for a long time. Most of the corporate IT workforce was engaged in legacy applications support and had programming experience only in old tools (e.g., Adabase). One of the CIO’s top priorities was to refocus the IT organization toward new technologies and applications that would yield significant value to a business striving to become competitively agile. The outsourcing of legacy applications therefore became a key tactic for refocusing the corporate IT organization. An outsourcing agreement was developed in the form of a three-year “break fix” contract: only mandatory fixes were to be maintained. If a business client requested changes in the functionality of an old system, there would be a direct chargeback to that client. A postmortem review of the outsourcing program demonstrated its effectiveness: (1) all former IT personnel for the legacy system had been relocated inside or outside the organization, (2) the annual cost savings were significant, and (3) customer satisfaction had doubled. At Tele-Nimble, the new sourcing thrust was to reduce the dependence on outside vendors. In the past, the IT organization had regularly contracted outside resources for their expertise with new technologies and used these resources to do project work—sometimes for extended time periods. In order to reposition the company for the future, the new thrust was to build the expertise in-house, and this sourcing practice meant lost opportunities for internal employees to develop new skillsets. Beginning in January 1995, contractor engagements were used in new ways: to accelerate internal growth of skillsets and other capabilities associated with change-readiness. Reducing contract personnel therefore became a key indicator of progress toward agility. Vector 5: Lateral Coordination Capability Both firms deployed new portfolios of lateral coordination mechanisms to reposition the IT organizations toward agility. For our discussion below we focus on the new corporate IT mechanisms implemented by the new CIO at Pub-Enabler. The presentation of the full set of mechanisms that were part of the radical redesign of a large IT unit at Tele-Nimble is saved for our detailed discussion on the transformation journey at Tele-Nimble that follows. Lateral Coordination Capability

Lateral Capability at Pub-Enabler The CIO at Pub-Enabler relied heavily on new formal mechanisms to quickly develop linkages across the new corporate and business division IT heads. To develop a “cross-functional,” enterprise-level view, the CIO established an IT management council with IT heads from each of the six major business units, plus an international IT head. The team’s mandate was to “govern the digital architecture” of the firm and approve all systems projects using a new process that enabled an assessment of redundant efforts across divisions. The IT management council held monthly, two-day meetings at different locations “to learn about that part of the business.” The CIO used his own newness to the firm to gain buy-in to this approach by the IT heads and sensitize them to the need to increase their responsiveness to the corporate transformational pressures. A new integrator role position, as a direct report to the CIO with no staff, was established to manage its new outsourcing relationship. The manager who filled this position previously supervised all of the corporate IT specialists who had been transferred to the outsourcing organization. He viewed his role as a process integrator and facilitator; he served as a “translator” for the business client user and helped to

Chapter 7

Repositioning IT Organizations for Competitive Agility

75

tear down any third-party walls. Physical presence (co-location) was viewed as important: he had one office in corporate IT and one at the outsourcer’s site. The head of the new corporate IT Program Office (see Vector 2) was also expected to play a new integrator role: influencing development and deployment methods across divisions. To reinforce business ownership of IT projects and increase the likelihood of systems adoption of purchased packages client liaisons were implemented within corporate departments. During the initial implementation, these liaison managers served as team leaders of projects. IT specialists reported directly to them to increase IT responsiveness and accountability. Competency centers in which corporate IT specialists were organized by technology expertise—for example, client-server, UNIX administration, electronic mail—were also introduced. The managers of these competency centers were responsible for the development of the IT specialists assigned to them: their assignments to projects, training and development, and mentoring. To emphasize the dual importance of building responsiveness to the business as well as new IT capabilities, an IT specialist assigned to a business project had a solid-line report to the project leader in the business function, and a dotted-line report back to the competency center. Tele-Nimble The IT transformation at Tele-Nimble included the development of a totally new portfolio of mechanisms for one of the four systems development units (LB&IT) under its visionary new Divisional Information Officer. In the next section we describe in detail these mechanisms as part of our description of the IT transformation journey at Tele-Nimble. The IT Transformation Journey at Tele-Nimble1 Table 7.2 summarizes the pertinent background characteristics presented in Chapter 2. Information technology was recognized as a key player in facilitating the transformation to a new, as yet uncharted, industry environment. In 1993, a new CIO was hired to reposition the IT organization in its new role as an enabler of a business transformation thrust toward competitive agility. Table 7.2: Competitive Agility at Tele-Nimble: Background Business characteristics

Factors motivating the business transformation thrust Vision for transformation

Large telecommunications firm competing in local markets, anticipating major industry change New CIO brought in to transform IT from back-office function Impending deregulation in the industry Cycle time pressures Competitive Agility Actions Cultural change to an entrepreneurial mindset Complementary Transformation Actions New set of core values Business process redesign New IT leadership role

76

Repositioning the IT Organization

The Business Transformation Thrust In 1996, Tele-Nimble competed in a telecommunications industry that had traditionally operated as an oligopoly, with markets and activities governed by regulatory bodies. However, since the early nineties, the industry had begun to experience hypercompetitive pressures in the form of increased rivalry. Landmark federal legislation deregulating the industry passed in February 1996, allowing competition between the phone companies, long distance carriers, and cable companies. This legislation was expected to fuel an industry consolidation and shakeout in which only a handful of major national and international providers were expected to survive. Tele-Nimble faced the prospect of a world where “market windows of opportunity” would open and close very rapidly. Therefore, sustained success would require mastering the ability to anticipate customer needs through intimate relationships and satisfy them through novel streams of products and services. According to the CEO: The winners in this era of open markets will be those who are organized around the requirements of the market and ready to take advantage of emerging opportunities.

Since this emerging environment is a discontinuity from the past, Tele-Nimble faced a transformational imperative: move from a protected, regulated, and oligopolistic market environment to a hypercompetitive market environment, characterized by a focus on speed, surprise, customer intimacy, and operational excellence. The business needed to become more agile in order to quickly seize emerging opportunities faster than their rivals. Setting the Stage for the Business Transformation In anticipation of the paradigm shift in its industry, Tele-Nimble’s CEO launched several significant initiatives, including a major cultural change. One of the key challenges was to move its workforce from an “entitlement” mindset––in which employees expected to be taken care of by their organization––to an entrepreneurial workforce, primed for change. The new Tele-Nimble emphasized core values and behaviors that focused on teamwork, quality, diversity management, and employee accountability. Motivation for the IT Transformation When the new CIO took over the reins of the IT function at Tele-Nimble, he found an IT workforce whose expertise was concentrated primarily in large mainframe applications that were appropriate for a regulated communications industry. IT had done a fairly good job of staying ahead of the demand curve and reducing unit costs. However, its resources were primarily devoted to the support of legacy systems that would soon outlive their usefulness. The existing managerial focus worked well in a structured and stable legacy environment, in which the applications were at least five to ten years old and the workforce was rewarded for subject matter expertise and consistent, repetitive performance. Further, most of the employees had an entitlement mindset. These values and capabilities would not be appropriate for an IT organization expected to be proactive in building strategic applications that would enable IT-based differentiation of the firm’s strategies, products, and services. Thus, it was clear to the new CIO that the IT organization needed to transform itself in anticipation of the business transformation. In the words of the CIO: We needed to create the environment for a rapid-moving company with acquisitions, divestitures, and alliances overnight.

Chapter 7

Repositioning IT Organizations for Competitive Agility

77

Acknowledging the prevailing performance gaps and the expectations that the agility transformation thrust would impose on the IT organization, the CIO sought to develop a change-ready IT organization in order to: •

•

enhance competitive agility by delivering IT-based products, services, and business applications within short development cycle times. Many of these IT-based applications could be of the firstmover type that surprise competition and potentially alter industry practices. build a highly skilled, empowered, and energized IT workforce with an entrepreneurial orientation toward leveraging technological knowledge into business applications.

Setting the Stage for the IT transformation Four key transformational goals were identified for the IT organization: 1. Move from a legacy, mainframe applications development environment, characterized by long development cycle times and excessive maintenance activities, to a more business responsive environment, characterized by short development cycle times, a philosophy of continuous product innovation, and delighted user clients. 2. Infuse strategic thinking within the IT organization to conceptualize and execute novel business applications that sustain the firm’s competitive agility and customer satisfaction. 3. Build a solid internal pool of skilled IT professionals, trained in current skills (client-server, objectoriented, networking), customer relationship management, and project management. Further, create a process for the rapid absorption of new skills and retirement of obsolete skills. 4. Build an IT workforce whose values change from an entitlement mentality (“the company is responsible for my career progression”) to an entrepreneurial mentality (“I am responsible for enhancing my skill and career opportunities”). The CIO’s first order of business was to build a team of senior IT executives who would be capable of leading the transformation of the IT function. Some of these new hires were proven winners from other firms and consultant organizations. At the end of 1993, the IT organization was restructured to better align with a new business structure: five of the CIO’s direct reports served as divisional information officers with single-point-of-contact as well as systems development responsibilities for business clients in the restructured lines of business. The CIO also deliberately encouraged his management to “experiment” with innovative organizational designs. The most significant of these initiatives was a radical redesign of one IT unit (LB&IT) within corporate IT, first implemented in July 1994 under the visionary leadership of its Divisional Information Officer (DIO). This unit of about 250 employees was responsible for new applications development and maintenance for three LOBs located within three major geographic clusters. The remaining sections describe the totally new IT organization for LB&IT that became a focal point for corporate IT’s anticipatory repositioning strategy. The Transformed IT Organization The vision for the transformation of the LB&IT unit within the corporate IT organization at Tele-Nimble was a skills-based “centers of excellence” (CoE) approach. An underlying assumption of the model was separating project delivery work from customer relationship management on the one hand, and

78

Repositioning the IT Organization

separating project delivery work from people development on the other. Further, skilled IT personnel were viewed as strategic IT assets to be managed.2 Similar to the implementation of a totally new model for the IT organization at Material-System (see Chapter 5), the DIO at Tele-Nimble developed a design that embodies all three types of formal mechanisms in our iceberg metaphor: roles, groups, and processes. Here, too, changes in HR practices proved to be a key part of the IT transformation. Our own graphic design of the key groups and roles in this model is shown in Figure 7.1. The entire portfolio of coordination mechanisms is described in the following sections. Figure 7.1: Key Groups and Roles for IT Organization Design at Tele-Nimble LB&IT Management Team

Centers of Excellence

Delivery Engagement Teams

CM

AM

DM

Group Role

CM = CoE Manager DM = Delivery Manager AM = Account Manager

Integrator Roles Three new types of integrator roles were implemented: account managers, delivery managers, and centers of excellence (competency) managers. The account managers were responsible for partnering with their business clients in anticipating strategic opportunities for IT applications and by serving as the client’s primary point-of-contact for the corporate IT organization. They worked without direct staff support. According to the CFO of one LOB, “the account manager is my window into IS. Now I have a clear face and clear interface into IS.” Although the account managers formally reported to the IT group, their partnerships with clients led them to “feel” a dotted-line reporting relationship with business management. The account manager (AM) was responsible for initiating a “statement of work” with the business client, and using this document to monitor and communicate the project status to clients and IT directors on a regular basis. The AM was also responsible for getting signoffs for each project phase, working out any client relationship problems encountered during the project, and capturing formal client feedback at the close of a project. The AMs also contributed biweekly “radar reports” to communicate the current and

Chapter 7

Repositioning IT Organizations for Competitive Agility

79

future needs of their clients to other key managers within the LB&IT management team. These reports were important for anticipating the human resource skillsets needed for future projects. Delivery managers were responsible for managing projects for new applications or providing support for existing applications. Their responsibilities included: (1) identify skills needed for delivery engagement management teams based on the statement of work, (2) manage the team of IT resources assigned to the project, and (3) deliver a quality project on-time within budget under a new time-box constraint: maximum of six months. These managers primarily focused upon the rapid delivery of applications, whereas the account managers were accountable for customer relationships. Competency (CoE) Center managers were individuals responsible for managing one or more competency centers. They had three primary responsibilities: (1) assign their competency center personnel to specific application projects, (2) coach, groom, and counsel members to achieve high skill levels through training and development, performance appraisal, and career management advice, and (3) develop rules, tools, and processes for the application of their competencies. Competency managers had the sole resourcing authority for all IT personnel below the level of the director. They received requests for skilled IT staff from the delivery managers and assigned specific members from their competency center to the projects. In making sourcing decisions, they weighed an individual’s needs for training and development against a project’s needs for expertise. Since the project teams were temporary assignments, the competency managers were also the “permanent report” for an employee and provided continuity to the counseling role. The competency manager position was a clear signal of commitment to a separation of people development work from project management and delivery. The competency managers were exclusively responsible for development of the IT human resources for LB&IT. They also played a key role in maintaining a state of IT workforce readiness: they were responsible for anticipating changes in demand for current skillsets and planning for the acquisition of new skillsets. Groups As seen in Figure 7.1, three different groups were part of the design: IT management council (LB&IT management team), centers of excellence, and delivery engagement teams. The IT management council consisted of the divisional information officer and his direct reports. This council served as the steering committee responsible for achieving the functional strategy of the LB&IT unit and its ongoing conduct. It also acted as the planning team for the IT transformation, and the decision body for interface issues involving other corporate IT units. The centers of excellence (competency centers) were standing teams of technical specialists, or people trained in specific IT skills under the center managers. Each skill center was a “virtual homeroom” of IT personnel who strived for a high level of expertise in the specific skillset. The initial 12 skill centers were defined using 3 overarching guidelines: (1) avoid skillsets that are too fine-grained, (2) keep the total number of members at or below 30, and (3) create skillsets needed for the future, even if there are no IT personnel to populate them currently. Grouping employees by skills was a major philosophical change: based on their current skillsets, all IT personnel below the rank of director selected a skill center to be initially assigned to and one that they would like to belong to in the future.

80

Repositioning the IT Organization

Twelve competencies were initially identified and implemented as a separate center of excellence (CoE). Most of the CoEs were for technology and methodology skillsets (e.g., mainframe software engineering, client-server software engineering, data modeling, documentation and training). Three of the centers were for competencies needed by the new integrator roles (i.e., account management, delivery management, and CoE management). Some of the centers were of critical importance during the transition but were expected to be significantly reduced (e.g., mainframe software engineering); other centers were for desired skillsets (e.g., client-server software engineering) for which the IT unit had virtually no IT expertise at the startup. Delivery engagement teams were temporary project teams created for each new approved development (or support) project. These teams were formed by drawing a delivery manager from the delivery management CoE and individuals from other competency centers based on the project’s skill requirements. The ideal team was appropriately skilled and tightly focused on delivering the application on time, within cost, and according to client expectations. The teams were disbanded at the conclusion of a new development project. Most members were assigned to a different project, or a training and development stint; a small subset was assigned to an application support team to ensure knowledge transfer. Processes Three new processes were developed for the new CoE design: statement of work, resource planning, and competency center life cycle management. The statement of work process was utilized by account managers for conceptualizing value-creating applications for their business clients. The process involved collaborating with managers in their LOBs in order to identify innovative ways in which IT could facilitate new products and services, reengineered work processes, or reconfigured relationships with external customers and other stakeholders. As managers of customer relationships, the account managers were not only heavily involved in the conceptualization of innovative IT applications, but also in defining business requirements, scheduling prototype evaluations, and planning roll-outs. The outcomes of this process were documented in a Statement of Work (SOW), which became a critical mechanism for linking the activities of the account manager and the delivery manager responsible for developing the application. Resource planning was an integration process for aligning the account management, delivery management, and CoE management activities. For example, the account and delivery managers worked interdependently to ensure client satisfaction with the delivery of an application. Similarly, the CoE and delivery managers worked together to ensure the availability and appropriate use of skilled IT staff on projects. Finally, the account and CoE managers worked together to cultivate skillsets in anticipation of the future application needs for the business. The resource planning process involved biweekly meetings of all senior IT executives and all account and CoE managers. These meetings monitored progress on current projects, availability of IT staff with appropriate skills, and the staffing needs of future projects. They drew on three inputs: project status reports (submitted by the delivery managers), “radar reports” on client projects in early planning stages (by each account manager), and “resource movement” analyses and projections of future skillset demands (by each CoE manager). The resource planning process was a critical integration mechanism for achieving agility.

Chapter 7

Repositioning IT Organizations for Competitive Agility

81

The CoE life cycle management process viewed each competency center as having a life cycle—moving from birth (creation), to growth and expansion, and then to retirement (decline) and eventually phase out (disbandment). The life cycle process was a renewal process for IT competencies: identification of desired skills, creation and growth of a competency center through reskilling, and retirement of competency centers when the skillsets are no longer required for either current or future projects. The pace at which a center traveled through its life cycle depended on the business demand for the IT competency. Information gathered from the Resource Planning process was a key input to the life cycle management process. Informal Relationship-Building Additional mechanisms were needed to create more opportunities for geographically dispersed IT managers to communicate with key LB&IT leaders, especially as anxieties about career path issues arose. IT community briefings in the form of brown-bag sessions were held at different geographic sites, and IT employees were encouraged to express their concerns in person or via telecommunications channels. Human Resource Practices The IT professionals within LB&IT were expected to begin to manage their own careers in an environment that was less paternalistic, less entitlement-oriented, and more skill- and performance-oriented. An appraisal process that placed high value on customer satisfaction, as well as successful project teaming, was considered to be a key element of moving to a change-ready environment. For example, the new appraisal process that was implemented for IT specialists was based on input from business clients as well as multiple IT bosses: the CoE manager(s) and all project managers during the prior 12-month period. These multi-input appraisals were to be used for annual raises and bonuses, as well as for personnel development planning. Navigating the Transformation Journey What were some of the challenges that Tele-Nimble faced as it repositioned the LB&IT unit, and what planned solutions and management improvisations were devised to address them? Jumping in with Both Feet The IT transformation within the LB&IT unit at Tele-Nimble was a radical reconfiguration of structures, processes, and incentive systems. Early on, the CIO decided not to overplan the implementation but to make adjustments in response to emerging challenges during the transformation journey. Only a few months were devoted to establishing the new structure and “selling it.” He was convinced that an incremental approach would not be an effective implementation tactic for an as-yet “unproven” design. Instead, a “jump-in” approach was taken, with the expectation that new mechanisms would be developed as needed along the way. Gaining Buy-In of Key Stakeholders Since this transformation was initiated in anticipation of the new business transformation, no crisis was currently at hand. This presented a unique challenge not faced by the other five cases in our study: how to create a sense of felt-need and urgency in order to mobilize commitment among the key business partners and the IT unit itself.

82

Repositioning the IT Organization

The buy-in of the corporate IT organization was achieved in two ways. First, the CIO himself encouraged organization design experiments in the different IT units. This provided the LB&IT DIO with the autonomy to innovate. Second, the DIO’s knowledge about the proposed organizational model, gained while working at another organization, was recognized as an IT management asset during his own hiring process. Soon after his arrival at Tele-Nimble, he presented his ideas to the corporate IT management team. He argued that the new LB&IT unit (created in January 1994 as part of the restructuring of the corporate IT organization) was large enough in personnel and range of responsibilities to be a “microcosm” of an IT organization. In March 1994, he received peer approval for moving forward with his vision of the CoE model. The challenge relative to the business clients was to convince them that the new structure would not disrupt their existing services, but instead deliver greater business value. Business clients within LB&IT had traditionally worked with their IT development staff for long periods, so that their subject matter expertise and working relationships were highly valued. This was a “comfort factor” for the clients, and some business managers had come to expect “a lot of handholding.” Therefore, these clients were considerably skeptical about the proposed organizational changes. Since all the IT staff below the level of the director were reassigned to specific competency centers, clients were anxious about losing “their” IT people. The six-month time box for applications delivery also turned out to be a major mindset change for both LB&IT clients and developers: they perceived it as too severe a change. Special efforts were needed to educate the IT staff and clients about the role of six-month delivery goals in facilitating agility and the need to modularize requirements for larger projects to meet this time box. Some “early wins” with rapid delivery of applications that delivered strategic value helped them overcome early concerns. The LB&IT management team persisted with their vision and continued to sell the transformation as a way to bring in business value by positioning IT as an enabler of change. A determination to not waiver from this new principle was critical for the transformation journey. Evolving Formal Coordination Mechanisms The new IT organization structure had new roles for account, delivery, and competency center management. Therefore, an important challenge was to ensure coordination across those who played these different roles. Initially, traditional monthly meetings of the LB&IT management team were relied on to achieve alignment and integration. However, a few months into the implementation, symptoms of misalignment problems began to surface. For example, IT staff were not being freed up fast enough for other projects, a lot of time (e-mails, phone calls, and so on) was being spent tracking the status of particular IT staff members, and the CoE managers were experiencing difficulties in anticipating demand for current and future skills. Monthly meetings were insufficient for this new change-ready environment; new mechanisms were needed. The new resource planning process (described earlier) was established at this time. Additional biweekly meetings were set up to focus on current and future skillset needs and people training, and new formal vehicles were developed for input to the process. Other formal mechanisms also evolved to improve alignment across the three new sets of IT managers. First, the Statement of Work process (previously described) was formalized in order to improve communication and hand-offs between these manager

Chapter 7

Repositioning IT Organizations for Competitive Agility

83

roles. Meetings between just account and delivery manager CoEs were also initiated. Both formal mechanisms helped build new interpersonal networks among specific managers that were needed for problem solving on an ad hoc basis. Managing Employee Anxieties About half of the LB&IT workforce was skilled only in mainframe application tools at the outset of the IT transformation. Some of these IT professionals had been “heroes” in the old environment. But in the new IT organization, they faced the prospect of their skills becoming obsolete. Further, some individuals who had legacy skills were not being freed up for new training or other assignments as quickly as they wanted since their delivery managers were afraid that the old systems would fall apart if individuals with specialized subject matter expertise were moved to other assignments. This group of employees was disgruntled at having to wait their turn for training. To soothe these anxieties, transition plans for specific individuals became a priority. Customized plans were developed by the CoE managers responsible for the IT professionals in the legacy skill CoEs. The plans were first reviewed with the delivery managers responsible for the support of the legacy applications and then communicated to the affected individuals. As IT staff began to be transitioned out of their legacy roles without the initial fears of their delivery managers being realized, the concept of customized transition planning for individuals took hold, and these morale problems subsided. An informal mechanism, IT community briefings (described earlier), was also implemented at multiple sites to help control rumors and allay fears. These brown-bag sessions with senior LB&IT leaders provided information “straight from the horse’s mouth” and enabled the staff to voice their individual concerns and receive personal advice/counseling in one-on-one discussions. Finally, not all employees were uniformly receptive to the transformation from an “entitlement” to an entrepreneurial mindset in which employees take more responsibility for their career development. Some employees expected their supervisor to still create opportunities for them. A variety of human resource programs (newsletters, training, and so on) were developed in partnership with the HR department to help the competency managers in moving more reluctant LB&IT employees toward an entrepreneurial set of values. Fine-Tuning New Appraisal Systems The new appraisal process was based on assessments by multiple IT managers as well as business clients. The concept of client evaluation was totally new for the IT organization and led to some implementation problems. In particular, IT staff who received less-than-satisfactory team ratings from clients expressed tremendous anxiety relative to their job security and promotion prospects within not just LB&IT, but also the IT organization as a whole. Rather than motivating all team members to be more customer-oriented, the unintended result for some IT staff was a perception of having little personal control over their own performance ratings. Two factors contributed to these anxieties: (1) The business client ratings were at the project team level, not the individual employee level; therefore, individual employees often felt frustrated about being penalized for lack of performance by their peers. (2) The client ratings were collected at year-end; therefore, there were concerns about unfair client biases due to recent events that might be unrelated to the project team being rated.

84

Repositioning the IT Organization

At Tele-Nimble, performance ratings were traditionally used not only to determine annual raises, but also to establish the “organizational worth” of an individual—including identification of prospects for promotions as well as candidates for career counseling or layoffs. Given the increasingly turbulent business environment and the organization’s move away from an “entitlement” workforce, a reward system that differed from the rest of the IT organization became too threatening for too many of the LB&IT personnel, and forced a retrenchment on this issue. Effective January 1996, the LB&IT management team was forced to make a major adjustment to the use of the client evaluations to respond to these anxieties: client ratings began to be used only for determining annual bonuses.

Executive Guidelines The experiences of these two case firms as they repositioned their IT organizations to enable the business transformation thrust of agility suggest some key guidelines. Guideline 1 Create an environment of experimentation along with strategic partnerships. Agility requires the ability to develop a deep understanding of the undercurrents in the business environment and the prospective forces associated with the “fleeting windows of opportunity” in the markets. Further, as IT becomes the key element in the firms’ ability to be agile, the IT organization must build strategic partnership relations with the business clients. These partnerships are vital for the IT organization to learn about the business drivers and risks and raise awareness about how the existing IT infrastructure could be deployed for winning products and services. Without partnership relations, the IT and business executives are less likely to be able to capitalize upon the emerging market opportunities. Guideline 2 Manage IT human resources as strategic assets. Competitive agility requires the ability to rapidly assimilate information technologies and IT skills into the organization and leverage these skills across a stream of applications. Further, this transformation thrust requires an entrepreneurial workforce that is primed to recognize opportunities for market advantage and seize these opportunities through rapid deployment of IT applications. The experiences of both firms in our study reveal the importance that they placed on grooming their human resources as strategic assets. These two firms implemented competency centers and explicitly assigned the managers of these competency centers with responsibility for coaching the IT staff and nurturing their IT skills, attitudes, and values. The development of IT human resources as strategic assets requires this type of explicit focus. Guideline 3 Exploit external contractors for developing internal IT personnel.

Chapter 7

Repositioning IT Organizations for Competitive Agility

85

The development of IT human resources as strategic assets also requires an organizational commitment to valuing these resources and sustaining opportunities to deploy their expertise within the organization. Many firms have traditionally used external contractors for gaining quick access to new IT skills or expertise not available internally. However, such a strategy is likely to demoralize the internal IT staff and contribute to turnover. Therefore, the role of external contractors must be redefined. First, most applications projects requiring valued new IT skills must draw on internal expertise. Second, if the internal expertise does not exist, contractors can be used to diffuse the valued expertise to the internal staff. Contractual arrangements must explicitly include mechanisms and measures for developing them during the course of the project. Guideline 4 Institutionalize change-readiness as a necessary IT capability by building on corporate values. Change-readiness is more than skill acquisition; it is a mindset. The development of change-readiness capabilities requires instilling a new set of values into the institutional fabric of the organization. This type of cultural transformation therefore needs to build on corporate values—right from the top. Guideline 5 Find the right balance between “jolt” and “nurture” for those that are more entrenched. IT transformations such as these that radically alter an employee’s reporting arrangements, processes, and incentive systems are likely to elicit a variety of reactions from the employees undergoing the change. Some are likely to embrace the change enthusiastically, others are likely to be willing to be persuaded, and some others are likely to be apprehensive and require significant handholding along the transformation journey. At both case sites, the CIOs leveraged their newness to initiate a new way of working and an abandonment of the old order. The LB&IT unit at Tele-Nimble implemented competency centers and relocated all IT professionals into these centers as part of a radical reorganization. Pub-Enabler outsourced all legacy applications work and implemented competency centers for valued IT skills. These actions quickly shifted attention toward the skills, values, and attitudes associated with the transformed IT function. However, as specific groups of employees experienced anxieties about the implications of the new organization for their own career prospects, senior IT executives devoted significant efforts toward “nurturing” them: leveraging the new competency center managers, sponsoring special information sessions in which their concerns could be voiced, and fine-tuning change efforts as needed to allay fears. Guideline 6 Approach changes to appraisal systems as long-term strategies, not quick fixes.

86

Repositioning the IT Organization

Modifications in appraisal systems are a key part of transformation efforts, but such systems are typically under the purview of a corporate human resources department. Since standard procedures and measures facilitate cross-unit moves and a sense of equity, it’s not always possible to move the IT organization ahead of the rest of the business. Although short-term changes may be possible, the longterm nature of this part of the IT transformation effort needs to be taken into account.

Endnotes 1 Significant portions of this story have also been told in a paper that received a SIM Paper Award in 1996 and was subsequently published in a revised form. See C. E. Clark, N. C. Cavanaugh, C. V Brown, and V. Sambamurthy, Building change-readiness capabilities in the IT organization: Insights from the Bell Atlantic experience, MIS Quarterly, December 1997, 425–455. 2 Ross et al. advocate that IT human resources be viewed as one of three strategic IT assets. See J. W. Ross, C. M. Beath, and D. L. Goodhue, Develop long-term competitiveness through IT assets, Sloan Management Review 38 (1), 1996: 31–42.

CHAPTER 8 REPOSITIONING IT ORGANIZATIONS: THE NAVIGATION MAP For our concluding chapter, we highlight our findings in the form of recommendations for how to reposition the IT function to play a heightened role in today’s hypercompetitive environments. We found three systemic thrusts for the development of sense-and-respond capabilities: process integration, knowledge leveraging, and competitive agility. Each of these business thrusts required a heightened role for the IT function as a strategic differentiator of competitive strategy and value chain activities.1 While we cannot claim that our six case studies represent all of the ways that IT organizations are being transformed, we do contend that several common themes can be found across them. Our learnings for how to navigate an IT transformation are therefore presented below by common theme. First we describe the new IT role as a strategic differentiator. Then we describe our recommendations for navigating the IT transformation journey under four themes: IT capabilities, high performance designs, five IT transformation vectors, and the CIO as a transformational leader. IT As a Strategic Differentiator The first step is recognizing the critical new role that IT plays as a strategic differentiator and enabler of these business transformations. The three strategic differentiator roles of IT can be summarized as follows. Glue for Connectedness IT enables the implementation of common, global processes as a means for sensing emerging market opportunities and responding to them in winning ways. IT-enabled enterprise-wide processes facilitate the development of more intimate customer relationships and integrated solutions to customers’ needs. Therefore, IT acts as the glue for binding enterprise-wide activities across business units and geographical regions. Links for Knowledge Leveraging IT architecture standards are critical for building an organizational intelligence capability. Once these are in place, IT also enables the capturing of relevant internal and external information, the cross-linking of different sources to facilitate innovative solutions to emerging market needs, and the creation and renewal of a knowledge asset used for responding to customers, markets, and competitors. Platform for Competitive Agility An IT function whose workforce is poised to be entrepreneurial, and to continually reskill, can respond quickly with innovative IT applications. These, in turn, enable the firm to deliver a stream of innovative solutions to exploit fleeting windows of market opportunity.

87

88

Repositioning the IT Organization

IT Capabilities Based on Hamel and Prahalad,2 we define capabilities as the distinctive organizational skills for combining available resources and sustaining superior performance. What IT capabilities are critical for sustaining the new strategic differentiator roles of IT? We found five types of IT capabilities to be critical. As illustrated in Table 8.1, the first two— strategic thinking and partnering orientation—appear to be primary skills for all three strategic differentiator roles. Table 8.1: IT Capabilities and the Three Strategic Differentiator Roles IT Capabilities

Strategic Differentiator Roles of IT Glue for connectedness

Links for knowledge leveraging

Platform for competitive agility

Strategic thinking

Primary

Primary

Primary

Partnering orientation

Primary

Primary

Primary

Seamless IT infrastructure—Process

Primary

Secondary

Secondary

Seamless IT infrastructure—Knowledge

Secondary

Primary

Secondary

Change-Readiness

Secondary

Secondary

Primary

Strategic Thinking Strategic thinking refers to the ability to envision the value-added business structures, processes, and business capabilities enabled by IT.3 Strategic thinking therefore raises the prospects for IT applications that produce high impacts.4 As strategic thinkers, IT managers must be able to interact with their business unit peers and “seed” them with innovative ideas for IT use. A strategic thinking capability is attained when IT professionals are able to apply systems logic to devise ways in which the IT infrastructure can be deployed to create new business applications for process integration, knowledge leverage, or competitive agility. Partnering Orientation A partnering orientation refers to the willingness and ability of IT professionals to work collaboratively with their business clients as well as with each other in rapidly developing innovative IT solutions. Two

Chapter 8

Repositioning IT Organizations: The Navigation Map

89

specific types of partnering are important: (1) IT-business partnering and (2) IT-IT partnering. IT-business partnering enables IT professionals and their business clients to collaboratively assess opportunities for the strategic use of IT and share in the risks and leadership of the development of their solutions.5 IT-IT partnering is needed for the CIO and other senior IT executives who may be reporting to business unit heads to work together to manage the “IT business of the business.” The experiences of Bio-Leverage and Pub-Enabler demonstrate how such councils can quickly link previously dispersed IT heads. The experiences of Bio-Leverage, Material-System, and Tele-Nimble provide evidence of how a partnering capability with business leaders and human resource specialists proved critical to performing new IT leadership roles. Seamless IT Infrastructures Seamless IT infrastructures enable the movement of data, information, and explicit knowledge across the enterprise, regardless of geographic, technological, organizational, and cultural barriers. The delivery of such infrastructure capabilities requires top-level support for the business value associated with these IT investments and a workforce skilled in managing mainstream and emerging IT.6 Two types of seamless infrastructures were sought: •

•

IT-enabled process infrastructures that are built through the implementation of global ERP packages to deploy common global processes for key value-stream activities (such as customer order fulfillment). IT-enabled knowledge infrastructures that are built through the implementation of collaborative (e.g., Lotus Notes, intranets) and data warehousing technologies (e.g., data storage, data mining).

An IT-enabled process infrastructure is a primary skill for the pursuit of process integration. An ITenabled knowledge infrastructure is a primary skill for the pursuit of knowledge leveraging. Change-Readiness Change-readiness implies the ability of the IT function to: • • •

deliver a stream of strategic applications with rapid cycle times. absorb emerging technology skills into the existing base of IT knowledge. nurture an entrepreneurial workforce that actively embraces the values of innovation, risk taking, knowledge and skills renewal, and customer orientation.

The soft skills associated with managing customer interactions and delivery of projects on a tight cycle time are as important as the technical skills, such as client-server technologies, object-oriented development, or relational databases. The experiences of Pub-Enabler and Tele-Nimble suggest that investments in a change-ready IT function can quickly bring strategic value to a firm facing considerable industry turmoil. Change-readiness capabilities are of primary importance for firms pursuing competitive agility.

90

Repositioning the IT Organization

High Performance Designs How can IT organizations nurture the IT capabilities that are fundamental to their strategic role? Several of our case firms developed high performance designs that recognized the need to balance the demands for IT product and service delivery and IT capability development. Three principles that characterize these high performance designs are as follows. Design the IT Organization Around Customers, Products, and Skills The strategic value of IT organizations is closely linked to how well they manage attention to customers (business clients), products (development projects), and skills (IT human resources). Account management facilitates attention to the business clients. Account managers are an important element of IT organization design because they facilitate intimate relationships with business clients. As IT becomes an important ingredient in enabling the “sense-and-respond” competitive strategies, it is crucial that the IT organization facilitate attention toward development of an intimate understanding of the strategic drivers and value-streams of the business. Further, it is equally imperative that IT organization enable its business clients to develop an appreciation of the reach and range of the IT infrastructure and “seed” them with innovative ideas for the strategic use of IT. Effective account managers understand the markets, strategies, and competencies of their business units, adopt systems thinking approaches to identify ways of coupling the IT infrastructure with business drivers and processes, and collaborate with their business clients in evolving innovative IT applications. Delivery and services management facilitates attention to the rapid delivery of applications to business clients. Delivery engagement teams are assembled by pooling professionals who possess the required IT skills for delivery of the specific application or service solution. A delivery manager skilled in project management leads each team. Development teams are focused on delivering IT applications on time and according to the specifications developed by the account manager. At the end of the project, the team is disbanded so that the members can be assigned to teams for other applications projects. Skills management facilitates attention toward the currency of the IT knowledge and the development of an appropriate portfolio of skills in the IT function. Skills management is best facilitated through the development of competency centers, in which the goal of each competency center is twofold: (1) develop a corps of IT professionals who are competent in the specific skillset and are able to apply those skills consistently across development projects, and (2) develop processes and methodologies for the application of those skillsets in projects. Each competency center is managed by a coach who is responsible for the human resource development of the IT professionals in that competency center. Institutionalize the Human Resource Development Capability Within the IT Function The rapid pace of change in IT skills and the extraordinary shortages of skilled IT professionals has placed significant strains on the ability of business firms to absorb emerging IT skills and leverage them for competitive advantage. Some of the firms in our study explicitly incorporated the HR activities into the IT organization and developed skill-based employment relationships. New contractual relationships between the organization and the new breed of IT professional who possesses valued organizational skills have emerged: the organization is expected to provide stimulating

Chapter 8

Repositioning IT Organizations: The Navigation Map

91

opportunities for the deployment of their skills, reward the market value of their skills, and facilitate opportunities for the employee to periodically revitalize and renew their skills and knowledge. An internal HR capability is needed to develop effective HR strategies and tactics to manage these new contractual relationships. Redefine the Role of External Consultants Traditionally, IT organizations have relied on external consultants for supplementing their knowledge gaps: consultants have been hired to lead projects that require knowledge and skills not available inside the firm. Underlying this strategy was the assumption that the firm would develop a stable set of skills and hire consultants for the state-of-the-art skills and knowledge needed for specific projects. This traditional role for external consultants is not viable in IT organizations that need to compete on IT capabilities. One way to internalize emerging IT skills and knowledge is to redefine the role of external consultant from project expert to facilitator of knowledge transfer. Consultant engagements must explicitly define expectations for knowledge transfer to internal IT personnel within specific timeframes. Some of the firms in our study paired external consultants with key IT professionals to ensure knowledge transfer during the consultants’ engagement with the firm. Five IT Transformation Vectors As introduced in Chapter 3, we found five vectors to be key to repositioning an IT organization. Vector 1: Infuse IT Management Talent The senior IT executives must be visionaries who are willing to undertake high levels of career risk, fabricate innovative organizational architectures, and persist in pushing major organizational transformations to their successful completion. Leaders with well-honed business and IT skills and experiences will be required. If leaders with these profiles do not currently exist in the organization, infusing talent from the outside will be requisite for the IT transformation effort. Talent Infusion

Governance

Vector 2: Redesign Governance for Enterprise-wide IT Capabilities Some degree of centralization appears to be essential if the IT function is to enable the development of enterprise-wide capabilities for sense-and-respond strategies. For example, instituting seamless IT infrastructures for process integration or knowledge leveraging requires enterprise-wide authority. Five of the six firms in our study that had previously had significant levels of local business unit authority for decisions related to IT use and innovation also recentralized these responsibilities to some degree. Two firms recentralized formerly decentralized units and three others introduced matrix reporting of divisional IT heads (to the CIO) to increase accountability for enterprise-wide concerns. Vector 3: Choose a Pacing Strategy for the IT Transformation That Matches the Business Context Three alternative pacing strategies are feasible for guiding IT transformations relative to the business transformation thrust. The choice of the pacing strategy appears to depend on conditions surrounding the business transformation and the nature of the IT transformation imperatives, as described here: Pacing

•

Concurrent pacing. The IT transformation occurs gradually and in alignment and synchronization with the business transformation thrust. Concurrent pacing is appropriate when the business transformation thrust is already underway and the IT function is expected to evolve along with other key

92

•

•

Repositioning the IT Organization

business functions as part of the overall transformation thrust. This strategy allows the changes to the IT function to be legitimized since the transformation is packaged as part of the overall business transformation thrust. The strategy’s value lies in reassuring business clients that the IT function will not change dramatically and potentially disrupt existing services. Obviously, IT executives must consider this strategy when no significant gaps exist in the performance of the prevailing IT function. The risk associated with this strategy is that the pace of change might be so gradual that it fails to mobilize enough commitment and energy across the firm. Anticipatory pacing. The IT transformation occurs at a faster pace and in advance of the business transformation thrust. The most significant reason for selecting this strategy is if there are significant concerns about the performance of the prevailing IT function and a realization that this prevailing IT function will not be able to sustain the impending business transformation thrust. An anticipatory pacing strategy is appropriate when the IT executives recognize that a new set of IT capabilities are required and they must be instituted before the business transformation thrust can meaningfully take shape. Such a strategy is also appropriate when senior IT executives have a strong vision of the ideal IT function that their business would need in light of the emerging competitive, industry, and technological forces. The risks associated with the pacing strategy are that not everyone might buy-in to or understand the IT transformation vision; therefore, a lot more energy and effort is required to sell the vision and persist with it in face of initial skepticism about the change. Dynamic balancing. The pace of IT transformation switches between concurrent and anticipatory. This strategy is appropriate when senior IT executives recognize a competing set of concerns surrounding their transformation actions. On one hand, significant gaps exist in the performance of the IT function and it is clear that a new IT organization and capabilities are vital for sustaining the business transformation thrust. At the same time, the business transformation thrust is underway and an expectation exists that the IT function should evolve in synchronization with the business. A dynamic balancing strategy allows the IT function to quickly acquire some of the needed capabilities in advance of the business transformation and then evolve concurrent with the business transformation. However, the risk associated with this strategy is its cost and complexity. IT executives must carefully monitor their pacing to determine when to switch between the anticipatory and concurrent modes. Further, the dual clocks impose greater burden on the IT staff and key managers guiding the change. Sourcing

Vector 4: Utilize Sourcing Strategies to Release Resources and Redirect Energies Business firms have traditionally utilized outsourcing for the procurement of expertise not available inside the firm or for locating assets with external partners who can manage those assets more costeffectively than the internal IT function. In our study, we observed another crucial role for outsourcing: as a vector of IT transformation. In particular, the outsourcing of legacy systems helps to “fence off” this work in order to release IT workers to develop the new skills and knowledge required for guiding “sense-and-respond” business transformations. Vector 5: Use Formal and Informal Mechanisms to Evolve a Lateral Coordination Capability Each one of the firms in our study recognized the importance of developing a new lateral coordination capability as a part of their repositioning strategy. Their portfolios included new formal (integrator roles, groups, processes) and informal (informal relationship-building, human resource practices) mechanisms. Lateral Coordination Capability

Chapter 8

Repositioning IT Organizations: The Navigation Map

93

In Chapter 4 we presented a framework for mechanism benchmarking. Formal mechanisms that appeared especially important for IT repositioning included the following: •

•

•

New integrator roles. High performance designs require new IT linking roles such as account managers and competency center managers. Integrators are also needed to link division initiatives with enterprise-wide solutions and to manage external alliances that have enterprise-wide impacts. IT management council. Composed of the CIO, senior IT managers who are direct reports, as well senior IT managers who are also IT heads with business units under a federal design, this type of group mechanism plays a critical role in overseeing the development of appropriate IT capabilities, assessing the appropriateness of the prevailing organization designs, and tracking the effectiveness of the transformation actions along the five vectors of transformation. Processes for lateral linkage. New processes are needed to integrate the actions of IT managers responsible for account management, delivery management, and competency development. At both Material-System and Tele-Nimble, these lateral processes for resource coordination ensured that the account and delivery managers were aware of the current and anticipated skills in the IT competency centers; competency center coaches were aware of the stream of projects emerging from the business; and delivery managers were aware of the HR issues impacting the performance of IT professionals assigned to their project teams.

The CIO As Transformational Leader To be successful in a transformational context, CIOs need to be able to effectively play four transformation roles. Business Strategist CIOs must be able to understand and visualize their business transformation thrust and the allied competitive, economic, and industry forces impacting their business. They must be capable of plotting strategy with their executive peers, including the CEO, COO, and other senior business executives. Being an effective business strategist also requires being a member of the firm’s executive leadership teams. Infrastructure Visionary CIOs must be able to envision the appropriate infrastructure for their business and sell this infrastructure to the executive leadership. Seamless IT infrastructures for integrating processes and leveraging knowledge are large investments for which senior management may find it difficult to assess their business value and ongoing operational costs. Therefore, CIOs must be capable of articulating the business value of infrastructure investments and harnessing the skills and resources for implementing them. Organizational Architect CIOs must be competent organizational architects who are able to envision and design the appropriate building blocks for a transformed IT function: governance arrangements, sourcing arrangements, and lateral coordination mechanisms. They should be able to develop the logic guiding the new IT organizational architecture and devise metrics for assessing its proposed value.

94

Repositioning the IT Organization

Transformation Champion CIOs must be high-energy champions of the business transformation and skilled navigators of the IT transformation. Guiding organizational transformations requires persistence and commitment, as well as the willingness to improvise in the face of emerging challenges. They must assemble an appropriate team of senior IT leaders to execute the transformation process, advocate the compelling logic of change to key stakeholders, and pilot the change process through the maze of organizational politics and unanticipated dilemmas.

Closing Thoughts IT has finally entered center stage in a business world characterized by hypercompetitive environments and pressures for a new sense-and-respond paradigm. Our study has provided several frameworks for strategizing IT transformations. The specific recommendations for repositioning the IT function are based on insights from six successful exemplars, honed by two scholars with a keen interest in uncovering best practices. This is clearly the time for enlightened IT leadership. We thank the visionary CIOs of these transformed IT organizations who shared their stories with us so that others might learn from them and effectively rise to the formidable challenges that lie ahead.

1 2

3 4 5

6

Endnotes S. P. Bradley, and R. L. Nolan, (Ed.), Sense and Respond: Capturing Value in the Network Era, Harvard Business School Press, Boston, Maine, 1998. G. Hamel, and C. K. Prahalad, Competing for the Future: Breakthrough Strategies for Seizing Control of Your Industry and Creating the Markets of Tomorrow, Harvard Business School Press, Boston, 1994. D. F. Feeny and L. P. Willcocks, Core IS capabilities for exploiting information technology, Sloan Management Review 39 (3), 1998: 9–22. V. Sambamurthy and R. W. Zmud, Information Technology and Innovation: Strategies for Success, Morristown, N.J., Financial Executives Research Foundation, 1996. J. W. Ross, C. M. Beath, and D. L. Goodhue, Develop long-term competitiveness through IT assets, Sloan Management Review 38 (1), 1996: 31–42; J. C. Henderson, Plugging into strategic partnerships: The critical IS connection, Sloan Management Review 31 (3), Spring 1990: 7–18. P. Weill and M. Broadbent, Leveraging the New Infrastructure: How Market Leaders Capitalize on Information Technology, Harvard Business School Press, Boston, 1998.

APPENDIX: RESEARCH METHODOLOGY This book is based on findings from a research study sponsored by the Advanced Practices Council of the Society for Information Management (SIM International) between January 1995 and October 1996. Our research design consisted of two separate phases, as described below. Phase II is the primary source for this book; the results of Phase I were used for the identification and analysis of one of the IT transformation vectors (vector 5: lateral coordination capability) and to identify potentially interesting case studies.

Phase I: Field Survey The primary goal of this phase of the project was to develop a detailed understanding of the horizontal mechanisms implemented by senior IT executives in order to develop a lateral coordination capability for the IT function. After synthesizing the literature on this topic, we identified about 75 companies that had recently been highlighted in the trade press for their exemplary IT management or IT use (e.g., Computerworld and CIO listings) or had been recommended to us via professional colleagues or our sponsors. A one-page prospectus was mailed with a cover letter to the senior IS executive (CIO) in each of the targeted companies. About 44 executives indicated their willingness to participate in the research via a follow-up telephone call, and a phone interview was scheduled with one of the researchers. All interviews took place during the first six months of 1995 and lasted approximately one hour. Most of the participants were CIOs at Fortune 500 companies. Each interview began with a reaffirmation of the purpose of the study and our interest in mechanisms that linked corporate (central) IT and business units, as well as mechanisms that linked corporate IT and dispersed IT units. A semistructured interview guide with open-ended questions was used to elicit the “three to five most important mechanisms” for achieving a cooperative IT management climate, as well as the mechanism intent and implementation challenges. To help ensure shared meaning, the participants were referred to mechanism categories and definitions that were provided in the one-page prospectus. After completing the interviews, we mapped the responses from each firm into our a priori framework, including the five categories described in Chapter 4: integrator roles, groups, processes, informal relationship-building, and human resource practices. After receiving feedback from our sponsors on our initial presentation of the survey findings, finer-grained analyses were conducted and reported in a 104page guidebook (as cited in endnote 5 of Chapter 4).

Phase II: In-Depth Case Studies The goal of Phase II was to develop insights about strategies and tactics for repositioning the IT function within firms that had significant business transformations underway. Six case studies were selected for this phase. Three of the case studies were identified during Phase I of the project; the remaining three

95

96

Repositioning the IT Organization

cases were identified via personal contacts after preliminary indicators about the success of the transformational efforts had been obtained. Once an agreement to participate had been achieved, one or both researchers conducted on-site interviews over multiple days at one or more locations of each case firm. A minimum of 8 and maximum of 22 IT and business managers were interviewed for each case study using semistructured interview guides in order to learn about: • • •

The nature of the business transformation and the motivating factors The nature of the IT transformation and the motivating factors The specific strategies, tactics, and “lessons learned” associated with each IT transformation, including the building of a new lateral coordination capability (as defined in Phase I).

The researchers were also given access to relevant archival documents. Following the completion of the interviews at each case site, a confidential descriptive report that aggregated the findings for that firm was prepared for validation by the primary IT contact. Anonymous case summaries for each of the six sites were then prepared for our sponsors and the participating organizations. Cross-case analyses were performed after the preparation of the case summaries in order to identify the primary business transformation thrusts and to analyze the IT transformations associated with each business transformation thrust. The narrative case descriptions and cross-case analyses presented here are primarily based on our Phase II results. The descriptions for Material-System, Bio-Leverage, and Tele-Nimble also reflect some insights gained from subsequent contacts with the key IT executives at these organizations for the purposes of preparing published reports (as footnoted in the text) after the conclusion of the APC-sponsored study. Our analyses based on the five IT transformation vectors and the conclusions in the final chapter of this book are presented here for the first time, and therefore benefit from the opportunity for further reflection

ABOUT THE AUTHORS Carol V. Brown (Ph.D., Indiana University, 1989) is Associate Professor of Information Systems at the Kelley School of Business of Indiana University. She has been conducting field research on IT organization and management issues for more than a decade, including projects sponsored by the Center for Information Systems Research (CISR) at the Sloan School of Management at Massachusetts Institute of Technology, the Advanced Practices Council of the Society for Information Management (SIM), the Lattanze Center, and IBM. Her current research addresses topics such as the design of IT process-based organizations, the adoption and implementation of ERP systems, and the recruitment and retention of IT professionals. Professor Brown has been an invited speaker on IT organization issues at several forums for senior IS managers, including the SIM Interchange. Her research results on IT organization design alternatives and IT business partnering have been published in major journals such as MIS Quarterly, Organization Science, Information Systems Research, Journal of Management Information Systems, and Information Systems Management. She is a coauthor of the third edition of the MBA textbook Managing Information Technology published by Prentice Hall in 1999 and is the editor of The IS Management Handbook 2000 to be published by Auerbach. She is currently serving as the Vice President for Academic Community Affairs of the executive board of SIM International. V. Sambamurthy (Ph.D., University of Minnesota, 1989) is Associate Professor of Decision and Information Technologies at the Robert H. Smith School of Business at the University of Maryland at College Park. He has conducted extensive research on the capabilities and organization design logics of firms that are able to continuously sustain IT-based innovation. Some of the specific areas of his expertise include the design of IT governance arrangements, the architecture of coordination mechanisms for IT innovation, IT capabilities for innovation success, and the roles of the CIO and top management teams in promoting effective IT use. He has worked with the Advanced Practices Council of SIM International and the Financial Executives Research Foundation on several of these projects. Professor Sambamurthy is a frequent speaker in executive forums of senior IT and business executives on ideas related to leveraging business value from IT investments. His work has been published in a variety of journals, including the MIS Quarterly, Information Systems Research, and Decision Sciences. Currently, he is an associate editor on the board of MIS Quarterly.

97