Managing Technology

Fifteen best practices can accelerate learning and make outsourcing worthwhile.

Although IT portfolio management has been a best practice for some time, many companies still generate substandard returns from their IT investments. The authors note that investing the right amounts in the right IT asset classes is only the first step -- IT portfolio management techniques must be complemented by a suite of interlocking business practices and processes collectively labeled "IT savvy." The benefits of establishing such practices add up to a tangible IT savvy premium: The authors point to higher net profits and other performance gains for IT-savvy companies in the year following their investments in key IT asset categories. The article cites a range of organizations -- from 7-Eleven Japan and Amazon.com to Raytheon and Carlson Companies -- in which IT savvy is ingrained, informing many of the companies' business decisions and sharply focusing their IT investments. Starting with a refresher on the IT portfolio approach -- and noting best-practices portfolio players such as UPS, Eli Lilly and Mohegan Sun -- the authors draw on the findings of a multiyear survey to review the different IT assets in which companies invest before discussing the gap in IT investment returns that separates those with IT savvy from those without. They present five hallmarks of IT savvy and offer a series of practical suggestions for how managers can start to match IT savvy with the IT asset mix.

Futurists have long anticipated the day when computers would relieve managers and professionals of the need to make certain types of decisions. But for a variety of reasons -- including management skepticism and concerns about solution complexity -- automated decision making has been slow to materialize. Automated decision making is finally coming of age, the authors argue, and the new generation of applications differs substantially from prior decision-support systems. Today's applications are easier to create and manage than earlier systems. Rather than require people to identify the problems or to initiate the analysis, companies typically embed decision-making capabilities in the normal flow of work. Those systems then sense online data, apply codified knowledge or logic, and make decisions -- all with minimal amounts of human intervention. They can help businesses generate decisions that are more consistent than those made by people, and they can help managers move quickly from insight to decision to action. This can help companies reduce labor costs, leverage scarce expertise, improve quality, enforce policies and respond to customers. As automating decisions becomes more feasible, organizations need to think about which decisions have to be made by people and which can be computerized.

We can no longer envision the future by extrapolating the present.

Information technology is undergoing an inexorable shift from being an asset that companies own -- in the form of computers, software and myriad related components -- to being a service that they purchase from utility providers. Three technological advances are enabling this change: virtualization, grid computing and Web services. Virtualization erases the differences between proprietary computing platforms, enabling applications designed to run on one operating system to be deployed elsewhere. Grid computing allows large numbers of hardware components, such as servers or disk drives, to effectively act as a single device, pooling their capacity and allocating it automatically to different jobs. Web services standardize the interfaces between applications, turning them into modules that can be assembled and disassembled easily. The resulting industry will likely have three major components. At the center will be the IT utilities themselves -- big companies that will maintain core computing resources in central plants and distribute them to end users. Serving the utilities will be a diverse array of component suppliers -- the makers of computers, storage units, networking gear, operating and utility software, and applications. And finally, large network operators will maintain the ultrahigh-capacity data communication lines needed for the system to work. IT's shift from an in-house capital asset to a centralized utility service will overturn strategic and operating assumptions, alter industrial economics, upset markets and pose daunting challenges to every user and vendor. The history of the commercial application of IT has been characterized by astounding leaps, but nothing that has come before -- not even the introduction of the personal computer or the opening of the Internet -- will match the upheaval that lies just over the horizon.

On the basis of two different studies -- a survey of CIOs at 256 enterprises in the Americas, Europe and the Asia/Pacific region and a set of 40 interview-based case studies at large companies such as Johnson & Johnson, Carlson Companies, UPS, Delta Air Lines and ING DIRECT -- the authors conclude that when senior managers take the time to design, implement and communicate IT governance processes, companies get more value from IT. Toward that end, they offer a single- page framework for designing effective IT: a matrix that juxtaposes the five decision areas (principles, architecture, infrastructure, business-application needs, and prioritization and investment decisions) against six archetypal approaches (business monarchy, IT monarchy, federal, duopoly, feudal and anarchy). The authors illustrate how successful companies use different approaches for different decisions to maximize efficiency and value for both IT and the overall enterprise. They then offer recommendations to guide effective IT governance design.

Business leaders often believe their organizations are swamped with business process information, but that information is a relative trickle, say the authors, compared with the wealth of physical-world, biological, public and personal-preference data that is being made accessible by powerful technologies. The sheer quantity of all this information is unprecedented, but so is the complexity of working with it. Yet, despite its volume and disparate nature, this data is potentially useful to business because the computing power necessary to merge, manage and make sense of it also has been advancing and becoming more affordable. On the basis of working sessions with hundreds of global organizations such as Best Buy, the European Aeronautic Defence and Space Co., Ford Motor Co., the Irish government, Payless ShoeSource, UPS and Walgreens, the authors illustrate how forward-looking companies are positioning themselves ahead of this information curve by moving quickly and down two parallel tracks: increasing the company's ability to gather and access new forms of data while simultaneously building organizational capability to use that data for insight.

To conduct business with customers, suppliers, partners and other external parties, companies have three options: arm's-length, socially embedded and virtually embedded ties. Arm's-length ties are connections that exist solely for a particular business transaction. The problem with arm's-length ties is that they have difficulty handling transactions that are uncertain, complex or opportunistic. Embedded ties are connections that overcome the weaknesses of arm's-length ties by inserting the transaction in a supportive context, either social or virtual. With a socially embedded tie, trust, sharing of proprietary information and joint problem solving form the foundation for an economic relationship to minimize the risk of transactions. In a virtually embedded tie, an economic relationship is facilitated and maintained through the use of electronic technologies that help minimize the risk of transactions through increased transparency, widespread information sharing and community-based problem solving. Companies in different environments are likely to benefit from the use of different combinations of those types of connections.

The technical, organizational and strategic challenges of the shift to on-demand computing power.

The reason most organizations struggle to demonstrate business gains from information-technology investments is that their IT portfolio management (ITPM) is inadequate. Research at 130 companies, including Harrah's Entertainment, Waste Management and Blue Cross Blue Shield, shows that only 17% are at the advanced, or synchronized, stage of ITPM. Scrutiny of that 17% reveals best practices for successfully aligning IT with strategic goals. The key to bridging the business-technology divide and improving results is early communication. Not only must senior business managers understand more about how IT affects both strategy and the bottom line, CIOs need to learn to communicate the vision, strategies and goals of the IT organization in terms non-IT executives can understand. The most effective partnerships studied were those in which the CIO took initiative in discussing ITPM with business leaders and eventually transferred accountability to them. The most successful practitioners obtained cost savings of up to 40% of pre-ITPM budgets, better alignment between IT spending and business objectives, and greater central coordination of IT investments across the organization. By following certain specific steps to establish or upgrade ITPM and by benchmarking against synchronized companies, large organizations can make IT an integral part of their competitive advantage.