The Strategy to Bottom Line Value Chain 

 

(Click on a Value Chain element for more detail)

The following is an excerpt from "From Business Strategy to IT Action"

"What does it take to control IT costs and produce higher bottom-line impact?  Simply, we need effective planning processes, appropriate resource decisions, and workable budgets and plans.  We need them to work together consistently.

But companies already do this, managers may say.  They work to improve the bottom-line performance of their company.  From year to year, they set budgets on-going operations, and invest in projects or initiatives to change or add to the business.  Managers then expect that new budgets will support better bottom-line performance than prior-year budgets, and that investments in projects or initiatives will produce better bottom-line performance. 

The practical problem is that most companies do planning, prioritization / resource decisions, budgets, performance measurement, and so forth, in silos or stovepipes.  We mean this in two ways.  First, in management process terms, business planning, IT planning, prioritization, budgets, and performance measurement are poorly connected.  For example, a company may have strategies, but their management performance measurement is not consistent with those strategies.  Similarly, business and IT planning may not be coordinated.  These management processes operate, but not consistently or from a common base of information, and are disconnected.   Second, many companies are organized in silos or stovepipes, and the various management act ivies like planning, prioritization, budgets, etc., do not take an enterprise perspective nor do they coordinate across the barriers between silos or stovepipes.  The business units are disconnected.

Yet IT has many aspects that, to control costs and assure IT’s bottom-line impact, have to operate across silos or stovepipes.  IT’s infrastructure is a simple example, but the idea extends to the coordination / integration of information systems across silos, and to the exchange and integration of information across silos.  Certainly, planning, prioritization, budgeting, etc., have to connect across these silos to be effective.

Although we simply need effective planning, appropriate resource decisions, and workable budgets …. to get them depends on how well the management processes work across silos, both process silos and organizational silos.  For operational budgets and future projects result in improved bottom-line only when the managers and staff perform budget-setting and project selection well. Budgets and projects themselves are only as good as the planning that produces them.  Budgets and projects produce results only when managers and organizations perform effectively, without silos and disconnects getting in the way.

Disconnects prevent the Right Decisions and the Right Results. Most companies and organizations have a loose collection of disconnected management processes around IT.  For example, in a large consumer products company, business planning does not directly connect to IT planning, which does not connect to company budget processes and management performance assessments.  The consequence is that the company’s IT investments and on-going expenditures do not clearly support business strategies; the CEO cannot tell what he is getting for his investment; and IT managers are frustrated at their inability to communicate what IT is up to and why, to business managers and the CEO.  These disconnects are the problems we intend to solve in order to put the necessary management practices into action.

Considering that it has been more than thirty years since these problems first became apparent, there must be more to it than simple management process disconnects.  We often find:

  • Business plans do not drive IT plans

  • IT plans focus on technology rather than directly addressing business strategies

  • Business managers do not see IT as supporting their strategies

  • IT projects do not support business strategies. IT spending on infrastructure and application maintenance does not support strategy

  • Company budgets do not reflect the results of IT planning

  • IT plans are shelfware, that do not guide management decisions, projects, or budgets

  • IT governance practices do not direct IT from a business perspective

These are characteristic of companies with disconnects.  What gets in the way, fundamentally, is different views among business and IT managers about the role IT plays in the business, the value that IT can bring, and the management practices needed to effectively bring IT to bear on business strategies.  These different views result from, and in, the failure to plan, align, prioritize, innovate, and measure performance for IT, consistently, from a business strategy perspective.  The failure results from management cultures in business and IT that are incompatible with taking the business perspective in managing IT.

Companies need their own version of a Strategy-to-Bottom-Line Value Chain.  Readers may recall Michael Porter’s work on competitive analysis.  He proposed that enterprises have a value chain of connected, coordinated activities that individually and in concert add value to the products and services an enterprise produces.  We take that basic idea and apply it to the management processes that connect the company’s planning and strategies to IT planning,  budgets, and actions, and to performance management that tracks the results.  This is a Strategy-to-Bottom-Line Value Chain where, like in Porters model, each individual management process both adds value and, working consistently with the other processes, works in concert to reduce or control IT costs and at the same time improve IT’s contributions to the company’s bottom line.  By examining each management process, and by applying the tools and practices contained in this book in those processes, a company can “connect the dots” in terms of its processes and optimize its Strategy-to-Bottom-Line Value Chain."

Excerpt from "From Business Strategy to IT Action"