Aligning IT to Organizational Strategy

1 91 Chapter 4 Aligning IT to Organizational Strategy Seven deadly sins of the IT scorecard:1. An IT-centric view of IT performance2. Measures that don t matter3. Lack of standard metrics definitions4. Over-reliance on tools5. Lack of drill-down capability hindering interpretation6. Too many metrics7. No individual impact Working Council for ChiefInformation Officers (2003) In the late 1980s, the deficiency in measuring IT using purely financialmeasures was addressed by Parker, Benson, and Trainor (1988) in theirbook on information economics assigns numerical scores to value and riskcategories by a joint committee of end users and IT staff. For example,a value category of 0 would signify no positive contribution while a 5 would indicate a large positive contribution. In the same vein, inthe risk category, a 0 would mean no risk and a 5 would indicate a large risk.

2 Each of the categories is assigned a weight. By summing theweighted scores of the value categories and subtracting the weighted Page 91 Wednesday, January 12, 2005 2:44 PMCopyright 2005 by Taylor & Francis Group 92 Implementing the IT Balanced Scorecard scores of the risk categories, one can calculate the total score of eachproject. Value linking incorporates the benefits and cost in other functionalareas, while value restructuring refers to the efficiency and effectivenessof employees ( , does the new system free up employee time so thatthey can do their own jobs more effectively?). The balanced scorecard(BSC) extends the information economics theory into a set of constructsunderstandable and immediately usable throughout the chapter discusses how the balanced scorecard can be used withinthe IT department to assess its own performance as well as to integrateitself to the organization as a whole.

3 One quickly discovers that there area variety of approaches to implementing an IT scorecard. The IT Balanced Scorecard Over the past decade, many CIOs have realized that it is not sufficient tomanage merely the IT end of the business. The integration of IT strategyto business Strategy must be managed as well. The tool chosen for thistask is the balanced Working Council for Chief Information Officers (2003) did anextensive review of IT scorecards and found that the most advancedscorecards shared the following six structural attributes:1. Simplicity of presentation. The very best scorecards are limited toa single page of from 10 to 20 metrics written in Explicit links to IT Strategy . The scorecard should be tightly coupledto the IT strategic planning process and assist in tracking progressagainst IT s key goals and Broad executive commitment. Both senior IT as well as seniorbusiness managers should be involved in the scorecard process both creation and Enterprise-standard metrics definitions.

4 Consensus should bequickly achieved on metrics definitions. The review meetingsshould focus on decisions rather than debate over Drill-down capability and available context. The high-level ITscorecard should allow for detailed review of trends or varianceby providing more granularity on component Individual manager compensation should be linked to scorecard practitioners track metrics in five key categories: Page 92 Wednesday, January 12, 2005 2:44 PMCopyright 2005 by Taylor & Francis Group Aligning IT to Organizational Strategy 93 1. Financial performance. IT spending in the content of service levels,project progress, etc. Sample metrics include cost of data commu-nications per seat and relative spending per portfolio Project performance. Sample metrics include percentage of newdevelopment investment resulting in new revenue streams and per-centage of IT R&D investment leading to IT service Operational performance.

5 Instead of concentrating measurementefforts on day-to-day measures, best-in-class practitioners seek toprovide an aggregate, customer-focused view of IT metrics include peak time availability and critical Talent management. This category of metrics seeks to manage IThuman capital. Measures include staff satisfaction and retention aswell as attractiveness of the IT department to external job include retention of high-potential staff and external cita-tions of IT User satisfaction. Sample metrics include focused executive feed-back and user Working Council also found that best-of-breed practitionersincluded two additional metric categories:1. Information security. These metrics monitor remediation efforts forknown vulnerabilities and track proactive policy and certificationefforts. (Also see Appendix K for a discussion of E-business audit-ing.) Sample metrics include percentage of staff receiving securitytraining and percentage of external partners in compliance withsecurity Enterprise initiatives.

6 Best-of-breed practitioners also use the score-card to highlight IT s contributions to initiatives of corporate stra-tegic importance. Sample metrics include percentage of acquiredcompany systems integrated in the Merger and Acquisition categoryand the number of business process steps enabled by technologyin the Process Reengineering & Co. ( ), a New York City-based documentsmanagement company, initiated an IT balanced scorecard in 1997. Theirprocess consisted of seven steps:1. Kick-off training for IT Ongoing Strategy mapping. The annual IT Strategy , like most com-panies, is derived from the corporate Strategy . Page 93 Wednesday, January 12, 2005 2:44 PMCopyright 2005 by Taylor & Francis Group 94 Implementing the IT Balanced Scorecard 3. Metrics selection. A team, including the chief technology officer,created a list of metrics. The list was refined using analysis of eachpotential metric s strengths and weaknesses.

7 The CIO approvedthe final Metrics definition. A set of standard definitions is created for eachmetric. It defines the measurement technique as well as the datacollection process. It outlines initiatives that must be completed toallow tracking of the Assigning metric ownership. Owners are assigned to each person is responsible for scorecard completion. Their bonusesare related to their scorecard-related Data collection and quality assurance. Data frequency varies bymetric, based on cost of collection, the corporate financial reportingcycle, and the volatility of the business CIO, CTO, and corporate officers review scorecard every sixmonths; metrics are revisited & Co. is a good example of a departmentwide IT scorecardbut this process can also be used to develop a scorecard for a particularsystem. The Central Intelligence Agency (Hagood and Friedman, 2002)did just this for a human resource information system (HRIS).

8 The programdirector developed six criteria for success that would drive the balancedscorecard development effort:1. Deliver each new program segment on time and within budget2. Deliver each functionality as promised3. Maintain high system performance standards4. Reduce reliance on legacy systems5. Increase customer satisfaction6. Employee satisfactionThe resulting scorecard can be seen in Table Altering the Balanced Scorecard for IT Martinsons, Davison, and Tse (1999) suggest that the four balanced score-card perspectives might require some modification to be effective as anIT scorecard. Their reasoning is that the IT department is typically aninternal rather than external service supplier, and projects are commonlycarried out for the benefit of both the end users and the organization asa whole rather than individual customers within a large market. Page 94 Wednesday, January 12, 2005 2:44 PMCopyright 2005 by Taylor & Francis Group Aligning IT to Organizational Strategy 95 TABLE The CIA s HRIS Balanced Scorecard GoalsObjectivesMeasuresSources Customer Perspective Provide HR information systems that meet agency needsIncorporate stakeholder feedback into strategic planningProvide timely and accurate responses to customer service requestsComponent HR officer surveyHRIS help desk performanceLevel of participation in CIA IT forums percent with collaboration HR front officeHelp desk personnelDeliver all projects for customers in conformance with an acceptable planAll projects have plans negotiated with customers and are baselinedPercent of baselined projects with a planChief of operationsManage HRIS work in conformity with published strategic and tactical plansMaintain HR roadmap as basis for resource allocationCommunicate HRIS strategic direction to stakeholdersRoadmap reviewed every two weeks and updatedNumber of

9 Projects performed for direct customersLevel of participation in CIA IT forums with collaborationsPersonnelChief of operations Internal Process Perspective HRIS data is available for users to conduct their businessImprove accuracy of data entryMaintain data accurately within the HRISMake HRIS available to users for input 97 percent of the timeEnsure retrievable data is no older than 24 hoursData entry error ratesHRIS hourly availability dataPayroll processing timeAge of dataCompensation groupSystem engineer Page 95 Wednesday, January 12, 2005 2:44 PMCopyright 2005 by Taylor & Francis Group 96 Implementing the IT Balanced Scorecard TABLE (continued) The CIA s HRIS Balanced Scorecard GoalsObjectivesMeasuresSources Achieve the optimal balance between technical and strategic activitiesMaintain balance between repair and new workReduce demand for customer service needing interventionRework cost/unit of servicePercent of time devoted to ad hoc workBudget officerAchieve the minimum architecture effective for HRISI mplement an HRIS integration strategyMaintain alignment with CIA IS direction/initiativesNumber of non-Lawson apps in HRIST otal number of interfacesSystem architect Resource Perspective (Financial)

10 Maximize the cost efficiency of operating and evolving the HRISE xecute the budget consistent with strategic planUnderstand and manage the cost drivers of HRISP ercent of employees who have up-to-date informationCost/unit of serviceHRIS overhead as percent of totalTotal number of direct labor hoursBudget officerEach project delivers its product as advertisedScope, budget, and schedule are baselined at Project Initial Review for 100 percent of projectsProject performance meets or exceeds baseline expectationsSchedule dataBudget dataScope performance dataChief of operations Learning and Growth Perspective Maintain a skilled and productive workforce to operate and evolve the HRISI mplement an effective strategic workforce planRecruit skilled workers who have initiative, innovation, and flexibilityNumber of employees with COTR certificationProject management training levelsPercent of technical training goals metPersonnel Page 96 Wednesday, January 12, 2005 2:44 PMCopyright 2005 by Taylor & Francis Group Aligning IT to Organizational Strategy 97 Martinsons et al.