May 01, 2004
Source: Link
Running IT Like a Business Defined
Running IT like a business means managing the department and its activities using the disciplines and practices that make any business effective, efficient and accountable: sound project management, financial audits, customer satisfaction surveys and internal IT marketing, to name a few. These practices must be institutionalized, mutually reinforcing and compatible with the overall enterprise culture.
Survey Overview
Our recent survey findings identified the most prevalent and the most effective practices for running IT like a business. From this study, we’ve learned that some practices are more effective than others for achieving different goals, and that some business practices that were difficult to implement had the least benefit, while other tasks were relatively easy to implement and produced a greater return for the effort. This summary present highlights of the study, including the payoffs and pitfalls, the key drivers, the goals and concerns, and the most effective and essential practices for achieving IT’s goals.
Our survey provided a long list of business practices and activities (47 tasks) in seven areas—financial controls, leadership/governance, human resource management, customer service, IT marketing, supplier management and operations management. CIOs were asked to check off which practices they implemented. For each practice or task that they implemented, we asked the respondent to rate the effectiveness of the practice toward achieving IT’s goals and rate the level of difficulty to implement this practice or task.
Key Findings
This Is a Relatively New Practice for Some
This is not a recent fad, with more than half (52%) of CIOs doing this for two to five years and more. However, the 48 percent that have been practicing this for less than two years indicated that an economic recession was a key motivator for implementing business practices.
Key Drivers and Objectives
RITLAB is being driven by a need to restore IT credibility and to change the perception of IT from a cost-center to an aligned business partner. Survey respondents listed the most important drivers for putting business disciplines in place as a lack of IT credibility (58%), operational ineffectiveness (55%), backlog/demand for IT services (53%) and inconsistent IT quality (50%).
When asked about their specific goals for running IT like a business, CIOs reiterated a need for alignment and restoring credibility. The top goals sought included closer alignment with the business (72%), increased credibility with the business (55%) and improved internal customer service/loyalty (36%).
Hurdles and Drawbacks
The hurdles to running IT like a business were largely staffing issues. IT executives listed a lack of resources and time (97%), a lack of business skills within IT (95%) and resistance from the IT staff (85%) as the greatest hurdles to overcome in putting business practices in place.
The greatest drawbacks included the time it takes to manage business processes, cultural issues and additional corporate politics. CIOs explained that implementing business practices in IT created changes that affected how people across the companies perform their jobs on a daily basis. Additionally, these practices placed requirements on business unit heads to develop business cases and share control of investment as well as accountability with IT.
Results Exceed Expectations CIOs included in the survey listed closer alignment with the business (82%), increased IT credibility (77%), improved customer service/loyalty (64%) and IT quality improvements (55%) most frequently when asked which benefits they achieved as a result of running IT like a business.
Interestingly, the results of running IT like a business exceeded expectations. For each goal listed—closer alignment, achieving transparency, improving quality and reducing expenses—a greater percentage of CIOs actually achieved the goal than the percent of CIOs that specified this was an objective. Which indicates that putting these business practices in place had additional and unexpected benefits.
Effective Practices
The most effective practices for running IT like a business included:
- Regularly use portfolio management or other project prioritization methodology
- Employ an IT-dedicated financial officer
- Position the CIO as a member of the corporate board or executive committee
- Win and showcase IT awards
- Regularly use project management methodologies
- Employ internal relationship managers/account executives to work with the business
- Conduct regular strategic planning meetings to achieve alignment
- Perform audits
- Use leadership development programs
- Use a charge back model
Greatest Return for Least Effort
The practices that were the easiest to implement and that were highly effective included:
- Employ an IT-dedicated financial officer
- CIO is member of corporate board or executive committee
- Issue regular P&L statements
- Regularly use portfolio management or other project prioritization methodology
- Win and showcase IT awards
Least Return for the Effort
Those tasks that were relatively difficult to implement and weren’t very effective included:
- Price IT services based on value (versus cost)
- Implementing quality improvement methodologies
- Create risk and reward-sharing arrangements with vendors
- Forecast demand for IT services based on metrics
- Benchmark operations against best practice IT shops
Key Practices for Achieving Specific IT Goals
When we viewed the results based on specific goals of the CIO, we identified a core set of practices common for all IT goals that included:
- Employ an IT-dedicated financial officer
- Regularly use portfolio management or other project prioritization methodology
- CIO is member of the corporate board or executive committee
- Win and showcase IT awards
- Regularly use project management methodologies
Key Practices for Achieving Closer Alignment with the Business
Beyond the core set of practices, we found that the effective practices varied depending on the goal or objective for running IT like a business. While some of the same practices appear for different goals, they shift in importance or effectiveness. For example, the key practices for achieving closer alignment with the business included:
- Employ internal relationship managers
- Consolidate vendors
- Issue P&L statements
- Conduct regular strategic planning meetings
- Perform audits
- Compensate IT staff based performance of the IT organization overall
- Use a charge back model
Key Practices for Achieving Quality Improvement
In contrast to the key tasks for alignment, these are the most effective practices for improving IT quality:
- Use a charge back model
- Perform audits
- Formally manage risk
- Employ internal relationship managers
- Create and use performance metrics
- Consolidate vendors
- Establish a project management office
To view the most effective practices for achieving other IT goals, go to our Profiler at: Running IT a Business Profiler
Methodology
CIO magazine’s Running IT Like a Business survey was conducted online from November 1 through December 15, 2003. A select group of CIOs recognized by CIO editors and industry leaders for their reputations of excellence in effectively managing IT were invited to take the survey. Results shown here are based on the responses of 103 IT executives.
Survey Questions
How long has IT been successfully run like a business in your organization?
5% Less than six months
11% Six months to one year
32% One to two years
33% Two to five years
19% Five years or more
What was the impetus for running IT like a business? (Check all that apply.)
58% Lack of IT credibility
41% Reduction in available resources
50% Inconsistent IT quality
53% Overwhelming back-log/demand for IT services
19% Mandate from corporate leadership
45% Mandate from the CIO
20% Competition from external service providers
55% Operational ineffectiveness
5% Other
What were your most important goals or objectives for running IT like a business?
72% Closer alignment with the business
55% Increased IT credibility with the business
36% Transparency of costs and benefits of IT
32% Improved customer service/loyalty
27% IT quality improvements
24% Increased IT staff productivity
19% Expense reduction
17% Better ability to make IT staffing and outsourcing decisions
5% Other
Which of these goals or objectives have you achieved as a result of running IT like a business?
82% Closer alignment with the business
77% Increased IT credibility with the business
64% Improved customer service/loyalty
55% IT quality improvements
54% Increased IT staff productivity
47% Expense reduction
46% Better ability to make IT staffing and outsourcing decisions
43% Transparency of costs and benefits of IT
6% Other
What were the biggest hurdles to overcome in attempting to run IT like a business?
97% Lack of resources/time
95% Lack of business skills within the IT department
85% IT staff resistance
83% End user resistance
68% Lack of a plan/model
67% Lack of corporate backing/commitment
21% Other