In depth: Ensuring that business goals and IT processes work together

Dec 19, 2000
Auerbach Analysis

Summary prepared by TechRepublic

How well does your IT staff understand your organization's strategic objectives? How does each job in your business contribute to company objectives? If your company's objective necessitates change in the organization, how do you address employees' fear of change?

In "Creating the perfect merger: Business goals and IT process management," authors Ann R. Roberts and John M. Smith profile the progress of a CEO trying to align his business processes with IT strategy.

Their article, taken from the Fall 2000 edition of Information Strategy: The Executive's Journal, addresses four questions:

What are the company's strategic objectives and issues?
How do its internal processes help the company reach its strategic objectives?
Can the company measure what it does?
Is the company managing change?

To read this Auerbach article, continue to page 2.

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Creating the perfect merger: Business goals and IT process management
Ann R. Roberts and John M. Smith

Companies committed to competing effectively ensure the total integration of their strategic objectives with process management and measurement. The keys to aligning IT processes with business strategy are focusing on strategic objectives, understanding processes, establishing an integrated measurement program, and managing change.

"I've been with the company for three years, and I've had 11 managers. That's almost one manager per quarter."

"After only a few months, I realized that the company had been defining requirements for my project for six years and still had not completely identified them. The project still is not complete."

Readers are invited to take a look around the IT organizations they know. Does this sound familiar?

"Stephen" (not his real name), the CEO of a software company that employs 5,000, was frustrated and annoyed. The firm's profits were growing at an astronomical rate, yet all was not well. Product development costs were also rapidly increasing. Stephen could not predict when products would be ready for delivery, what they would cost, or whether they would meet customer needs, and he knew that situation needed to change. Although Stephen did not know it yet, these symptoms indicated an even larger underlying problem—Stephen's inability to predict whether the company could meet its strategic objectives.

U.S. Federal Reserve Chairman Alan Greenspan regularly gives information technology (IT) most of the credit for our booming, low-inflation economy. IT helps everyone be more productive and is widely credited (or blamed) for the increasing speed of business and life. More than any other industry group, IT companies should be best suited to exploit the strategic business advantages IT offers.

Why, then, do so many IT companies and organizations struggle to reach their strategic objectives? How can they do better? These are the challenges many organizations face. Companies committed to competing effectively are ensuring total integration of strategic objectives with process management and measurement. The keys to aligning IT processes with business strategy are focusing on strategic objectives, understanding processes, establishing an integrated measurement program, and managing change.

Four key questions about the business should be asked up front:

What are the company's strategic objectives and issues?
How do its internal processes help the company reach its strategic objectives?
Can the company measure what it does?
Is the company managing change?

What are the company's strategic objectives and issues?
Many organizations try to achieve cost reductions but wind up reaching them only on paper because they fail to integrate their strategic objectives. A few years ago, Stephen initiated a corporate-wide reengineering effort by forming an internal team staffed by three company directors.

Unfortunately, few employees actually dealt with the reengineering team. Instead, the directors and a few managers periodically disappeared for a few days of off-site meetings, but no one outside the team seemed to know the results.

Stephen understood his strategy, but he had not ensured that his management team was on the same wavelength. What Stephen and his management team needed was a systematic approach to strategy development that includes three key steps:

Select a value discipline that will focus the organization. This can include product preference, customer intimacy, or operational excellence. This must be done to ensure the consistency of the company's strategy and market approach.
Based on the company's value discipline and strategy, identify specific strategic objectives from multiple perspectives, including the customer's, financial, internal process, and growth and innovation.
Understand the cause-and-effect relationships among the four strategic perspectives. This ensures proper balance among the four perspectives and requires that management understand the company's internal business processes well enough to accurately model the cause-and-effect relationships.

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This article first appeared in the Fall 2000 issue of Information Strategy: The Executive's Journal. It appears here under agreement with Auerbach Publications. For information on subscribing to this journal or to see a list of previously published topics, click here. To find out about other Auerbach publications, click here.

Here is how things went differently for Stephen once that approach was implemented. In place of the internal reengineering team, Stephen and his key executives decided that product preference was their best value discipline, given their products and markets. The executives reviewed company financials, customers, products, and processes to understand how each could help establish customer preference for company products. This integrated view was used to communicate the overall corporate strategy to the next layer of management before moving to the next step.

One key to successfully addressing the strategic objectives and issues is to focus on process. Without an understanding of internal processes, management cannot establish the company-unique cause-and-effect relationships among the four strategic perspectives (customer, financial, internal process, and growth and innovation). This makes it impossible to translate the overall strategic objective into specific actions required by employees.

How do internal processes help reach strategic objectives?
Too often, companies do not have defined processes; they literally do not know what they are doing internally, so they do not know whether internal processes are helping them achieve the company's strategic objectives. Many organizations also run into trouble when they fail to integrate strategies and processes throughout the organization.

For example, when IT processes fail to integrate with sales and billing processes, customers may routinely complain of billing errors, which triggers finger-pointing among sales, accounts payable, and IT. Often, IT developers do not understand how overall corporate strategies affect their work and how their work leads to strategic success or failure for the corporation.

Stephen's reengineering team did not have enough information about internal processes to know which jobs really could be eliminated. Processes were understood only superficially—the key process details were invisible and undocumented. Because the reengineering team did not go beyond its superficial understanding of internal processes, linkages between strategic objectives and key process details were never established. Included in these lower-level process details were hidden undocumented linkages with other parts of the organization, so the team missed opportunities to effectively integrate the organization. The reengineering effort failed to grasp how broadly and deeply the company's processes affected strategy.

As a result, staff cuts were made based on seniority, organizational position, and personal relationships—not the strategic needs of the business. Value-added processes were damaged because key knowledge was lost through indiscriminate staff cuts. Wasteful processes persisted because they were not visible and therefore were not eliminated by the staffing cuts. Within their internal processes, the management team must find the cause-and-effect links that connect financial results to internal operations, growth and innovation, and customer relations. Here are some keys:

Understand internal processes before trying to change them.
Understand that defining processes will cause fear and resistance in the organization.
Focus on managing the change.
Establish a commitment to process. Individual people cannot solve the organization's problems, nor are there any technological silver bullets.
Ask questions until the internal process is completely understood. Settling for a superficial understanding of the process creates problems and wastes opportunities.
Ensure that all internal processes are understood and documented for use throughout the organization. A documented process establishes expectations, responsibility, and accountability. Complete processes document inputs, activities, responsibilities, interactions, and outputs.
Make sure that all employees understand the strategic objective of the process engineering effort. They must understand what management is doing and why. If they do not, fear could cripple the change effort.

Whether external consultants or internal people are used for process development, senior management must lead the effort. In either case, it is essential to set up checkpoints along the way to ensure that the whole organization stays focused.

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When Stephen's team implemented this approach, business transformation began. Instead of identifying staff cuts, the management team worked with employee teams at all levels to document existing processes.

Now employees knew how each part of the process affected the strategic objectives in each of the four perspectives (financial, customer, internal process, and growth and innovation). Working with individual key employees, the team discovered many internal processes that did not support some of the strategic objectives. As a result, the management team worked with key employees to launch focused process improvement efforts. The resulting internal processes implemented the integrated strategy, and it was clear to everyone that they did. Everyone understood the process—what it was and why it was. Processes that did not support the strategy were eliminated, resulting in real and permanent cost savings.

Simply put: "If you understand the process relationships and you understand your process costs and the benefits that come from that process, you can make effective changes that will get the results that you want," said client George Meinke, vice president of Information Systems, Lexis-Nexis Group, a division of Reed Elsevier, Inc. "For example, if you parachuted into a company and were uninformed, but observed that cost was a major factor in the business, you might start looking at those departments that cost the most to maintain or operate. It might turn out that those large cost generators also happen to be the areas of the company that are generating the most growth and the most revenue or are of some strategic importance. So just cutting costs without understanding the process basis for that cost is ill-advised."

One key to aligning IT processes with strategy is to effectively measure processes and progress toward strategic objectives. Companies that have successfully implemented measurements are realizing calculable results. Studies show they are better able to meet strategic objectives and reduce costs, improve product quality, reduce rework, speed up time to market, predict time to market, and increase workforce retention.

Can the company measure what it does? While mediocre companies may be content to push poor-quality products out the door and do not manage based on quantitative data, others are implementing IT measurement programs as a necessary step in business success. Successful IT measurement programs correlate the organization's strategic objectives to strategic measurements and internal process measures. The leader must not only establish and communicate the vision, but must also understand how that vision will be implemented and measured. Today's business leaders demand predictable results and measurable progress through both strategic and internal process measures.

Stephen had some significant measurement problems. First, his engineering team could not tell him how much time or money it needed to develop a new product. Second, his sales and marketing staff was unable to predict product sales. Because he lacked sales or cost data for his products, he was unsure how to prioritize his product development investments. It soon became evident to Stephen that he did not have a quantitative understanding of his business process—all this despite the fact he had access to volumes of data every day. Still, that data proved useless in helping him track his strategic objectives.

Studies indicate that within the next three years, 33 percent of all business organizations will have some formal measurement program, and by the year 2005, performance measurement and value management will be a foundation of IT performance within businesses and strategic partnerships.

At the present time, fewer than 20 percent of current measurement programs actually meet objectives. Stephen's measurement program was headed in the same direction until he took corrective action. Here are the results:

Managers at all levels can actually measure what they need to track and control the business.
Managers, especially senior managers responsible for strategy, know that subordinates and workers have a clear understanding of the strategy and its associated measurements.
Management measures what is actually happening in the business. Unless management understands the internal processes, the measurements will not show how the business actually works. As they see the data reflect reality, management and workers trust and rely on the data for decision making.
One often-overlooked critical factor is the need to tie strategic measures to the relevant internal process measures.

As Stephen continues to apply the key success factors, his organization is changing. Thanks to an integrated, strategy-driven approach, Stephen now knows how internal processes affect company strategic objectives. In addition, all employees know how and why their work is measured and how their work affects each strategic objective. Everyone knows how the strategic objectives themselves are measured. All levels of management understand their roles in managing internal processes, customers, financials, and innovation—and they understand how to measure their organizations from each perspective.

Companies that implement successful measurement programs have employees who understand what they should do, how their work applies to company objectives, and how they can help improve the bottom line. They have a blueprint. Identifying and measuring strategic objectives, establishing and aligning internal processes, and establishing rational measurements are all hard work. The effort is wasted, however, without equal attention to change management.

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Is the company managing change?
Change creates fear. In most companies, change affects company culture, so fear is widespread. A key factor is the clear action management takes to eliminate fear. Successful change programs acknowledge fear and take early, intensive action to reduce or eliminate it. Success also breeds success. Once everyone sees measurable improvement, culture change accelerates. (With the right measurements, everyone will see the improvement.)

As soon as Stephen's first reengineering team started its work, fear became an issue. One employee described the situation this way: "Now that management has announced the reengineering team, work has slowed to a crawl while we wait to see what happens. People who've been through this before are speculating about the 'separation packages' that'll be offered. Most everyone I know is lobbying their manager to be on the layoff list." To many employees, strategic objectives are abstract concepts that do not affect their day-to-day work. In this case, the reengineering team failed to go beyond its superficial understanding of internal processes. Employees and lower-level managers were not involved. Because the team did not involve all necessary parts of the organization, it did not perceive all the cultural change issues and fear. Resistance built up undetected.

Stephen and the reengineering team could not understand why change was moving so slowly. Wasn't everyone on board? As the change effort began to stagnate and even run in reverse, Stephen wondered what had gone wrong. Here is what Stephen discovered about management's role in culture change and change management:

Focus on getting all the facts about how it does business. Without succumbing to "analysis paralysis," management has to commit to getting all the facts before acting.
Make the strategic intent of the change visible to everyone. The focus must be on changing internal processes, not punishing people.
Involve all levels of the organization; do not just provide occasional status reports or exhortations.
Commit to a culture of continuing process improvement as a way of doing business.
Understand internal processes before predicting the effects of process and cultural changes.
Pay special attention to the culture, change management, and fear within the organization.

Stephen implemented an integrated approach based on these key factors. Because employees are involved in the effort to establish, document, and analyze the processes, they can see what is happening and why. Because they helped establish the connections among strategic objectives and internal processes, employees know how their work helps achieve company objectives. This involvement helps drive fear out of the organization, improves buy-in, and focuses employees on production, not cynical speculation.

"Rumors are always much worse than the reality or the outcome," said Meinke. "If there is a climate of honesty, then the fear does not get out of control. There may be painful things that are happening within the company, but people can deal with that if they are aware of what will change and have some information about when the change will take place."

Experience change successfully
Too often, companies like Stephen's approach the problem from only one perspective. It is not enough to implement only value disciplines, balanced scorecards, process improvement, or measurement—they are all key aspects of an integrated management approach. By using an integrated approach, organizations drive out fear and focus employees on their contributions (not their speculations about the future). Management needs to work with employee teams at all levels to understand and improve existing processes, instead of merely identifying staff cuts. Then, processes and employees align with strategic objectives.

Management can take the first steps toward aligning IT process management with the company's strategy by following these guidelines:

Orient key people within the organization to the objectives and understand the issues from their perspectives.
Document current processes so they can be analyzed systematically and connected to organizational strategy.
Work with the key people to gain buy-in to the change.
Convince employees that the change is feasible and will help the business.
Define the new processes and related measurements of effectiveness.
Document a plan for implementing the new processes.
Manage and track the implementation as if it were the most important project in the company—it probably is.

Effective process management requires strategic focus and commitment from all levels. The process starts at the executive level and moves throughout the organization, gaining everyone's buy-in to ensure that the organization has a solid strategic foundation. If the leadership commits to process-based management and data-driven decision making, the organization can move forward without fear.

When approaches such as these are implemented throughout the company, employees no longer talk about "11 managers in three years" or "six-year requirement processes." Instead, they talk about real change and real progress toward business objectives.

Ann R. Roberts and John M. Smith are managing consultants for Noumena Consulting Group, Inc., located in Beavercreek, OH. Noumena Consulting Group helps businesses worldwide take control of IT projects through predictable project and process management.

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