Saturday, December 01, 2007

IT: Better to be effective or aligned?


In my last blog entry promised to discuss a second piece from the MIT Sloan Review. In many ways I find Avoiding the IT Alignment piece more interesting than the Rettig piece I discussed last time. The Rettig piece was a good argument but it wasn’t clear what you did next, it was insightful without being immediately useful. The second is piece is insightful and has some immediate application - the authors suggest some but I’ll add some of my own below.

Perhaps one reason why this piece is more immediately useful is that the authors (David Shpilberg, Steve Berez, Rudy Puryear and Sachin Shah) are all consultants with Bain therefore they have something to sell, consultancy. Rush out now and hire your Bain consultant! Sorry, I shouldn’t be so negative. Let me give yo a run down of the article and then draw some conclusions of my own.

The article is based on the authors’ experience and a large(ish) survey. You can argue with the underpinnings of the article but I’m quite happy to give it credibility. Like the Rettig piece they are concerned with internal IT projects rather than products for sale (my main area of interest and experience.)

From this survey they are able to divide companies into four categories - a nice 2x2 matrix based on whether a company has effective (or ineffective) IT and whether the IT is aligned with business strategy (or pursuing its own.) These four categories are:

IT Enabled Growth: These companies have highly effective IT groups who are closely aligned to the business. This is what we all want. These guys are doing it. Unfortunately only 7% of companies fall into this category. The benefit to these companies is 35% sales growth over 3 years. Pretty impressive. Perhaps surprisingly these companies spend 6% less on IT than average. So, going it right also means doing it more cheaply.

Maintenance zone: These the basket cases, IT is not aligned with the business and it is not effective. Unfortunately this accounts for 74% of all companies, really depressing. Because this is the bulk of all companies it is perhaps unsurprising that the IT spend in these companies is the average, and their 3 year sales is just slightly below average at -2%.

They are the two opposite, and perhaps we expect that. A few companies maximise value from IT but most don’t. The next two are more interesting:

Alignment trap: this is the combination the authors find most interesting. This occurs when IT operations are aligned to the business (i.e. they are doing what the business wants) but they are not effective. Only 11% of companies fall into this zone - together with the first category this means only 18% of companies actually have IT and the business aligned, quite shocking. These companies spend 13% more than average on IT but the annual growth in sales is 14% below average, a pretty poor showing really.

Such companies are doing the right thing but they are doing it badly. From the figures given this seems to be the worst category to be in, highest costs and lowest sales growth compared to average. Think about that for a minute. These companies have it half right, IT is aligned with the business but they are not effective. These companies would be return better results if they gave up on business alignment and joined the 74% in the maintenance zone.

I would suspect these companies actually make it difficult for IT people to do the right thing. They probably have plenty of processes in place to make sure they don’t do the wrong thing but doing stop people from doing very much at all. My guess is that managers in these companies don’t understand IT and are trying to run IT the same way they would run any other department. Consequently the IT people can’t do their job.

Finally we come to Well Oiled IT: this is the category I find most interesting. These companies are doing IT well, they spend 15% less than average on IT but see 11% higher sales. Only 8% of all companies fall into this group, if we add that to the 7% of companies in the IT enabled growth category we see that only 15% of companies, less than 1 in 7 actually have effective IT.

Statistically, well oiled IT companies are similar to the growth companies but less so, they have significantly lower sales growth but spend even less on IT. Possibly these companies are focusing too much on cost - my bet is they don’t have effective business analysts and product managers in place.

Now for the authors’ advice: they tell companies to focus first on operations not alignment. If companies (and remember most start in the basket case maintenance zone) focus first on alignment they are likely to end up in the alignment trap, where things are worse. Therefore, seek first to make your IT effective then to make it aligned.

I like this advice, but like so man things in the IT world the devil is in the detail. So what do the writers recommend?

Keep it simple - we all agree in principle but we all get caught out; trouble is IT tends to get more and more complicated, battling complexity is a constant fight
‘Right size’ - which is a bit vague but basically they say outsource somethings, keep some things in house but do it consciously and intelligently
End-to-end accountability - IT managers need the resources to do the job but they have to keep talking to the business, and the business needs to talk to IT

All this advice is sound and it makes for a good starting point.

So now some thoughts of my own.

First this survey supports what I’ve found in practice: most IT operations are basket cases. Few companies can do IT well. In product companies there is natural selection by market forces. If the company is too bad they will (eventually) fail and go out of business. Where IT is a service to the business failure can continue almost indefinitely. Unfortunately this means that at least 85% of people in corporate IT departments will work in failing teams.

Second I now understand why Agile development works so well in many organizations even though it is not aligned with the business. Simply it doesn’t have too. If adopting Agile development moves an organization from maintenance zone a little toward well oiled then it doesn’t matter that it is not aligned with the business. Just improving effectiveness will deliver benefits.

Third, business must take more of an interest in IT. IT can make itself more effective but to become aligned the business needs to understand and get involved with IT - back to the point I was making about the Rettig article and last year about companies that understand IT.

On the whole I find this article good news, it helps me chart a cause for improvement. I see a three stage plan for any failing IT department:
1. Apply well known techniques from the Agile toolkit: this will boost your effectiveness immediately
2. Learn what is special about your environment so you can tailor the Agile techniques and find some of your own. This will further enhance your effectiveness.
3. Continue you learning to bring about business alignment. Often this is going to be a case of removing the old perceptions about how IT departments operate (e.g. Requirements: a dialogue not a document). It also means educating managers and IT staff, and it means creating the roles of product manager and business analyst to facilitate it all.

With 93% of companies failing one way or another there is plenty of work to do.

Now if we loop back to the Rettig article on ERP. Is it any surprise that ERP deployment fails? Only 15% of companies are capable of implementing it effectively, and of these less than half will align it to the business. Of all ERP deployments we can only expect 7% to come close to fulfilling their promises.

An often heard dictum in management concerns the difference between ‘doing the right thing’ and ‘doing it right’. If this article is right, when it comes to IT then it is better to ‘do it right’ than ‘do the right thing.’ Only if you can ‘do it right’ should you even start to think about ‘doing the right thing.’ Operations over strategy. Implementation over design.