3.1 Can We All Just Align?
In the world of corporate information technology, no word makes me chuckle more than “alignment.”
One of Merriam-Webster’s definitions of “alignment” is “an arrangement of groups or forces in relation to one another – new alignments within the political party.”
Wikipedia provides the following definition “Business-IT alignment is a dynamic state in which a business organization is able to use information technology (IT) to achieve business objectives - typically improved financial performance or marketplace competitiveness.”
Let’s boil it down to its simplest terms: “IT should work on the things most important to the business.” Wow! How complicated is that?
Judging by the thousands of articles written on the subject, it seems to be quite elusive.
Let’s expound on that with another story. One company I worked with was incredibly dynamic. So dynamic, in fact, they eschewed the creation of a business strategy. Also, the company did not produce a cohesive set of enterprise operating plans for each year. Now before people pass judgment and think this company had to be in dire straits, this was not the case at all. The company used its knowledge of the customer and changing fashion to quickly pivot product and promotion decisions to go after profitable business. However, those decisions often occurred during the year and generally had to work within the boundaries of system and process constraints.
When I joined the company, requests for IT services arrived in a myriad of ways. Prioritizing which efforts to work on was based on which business unit had the funding and yelled the loudest. In fact, in my first year, we saw more than 50% of the projects deemed “must do” on the business portfolio change.
We knew this was unsustainable and needed to change. Thus, absent a strategy or an annual operating plan, we developed a process to collect demand and work with a group of senior executives to assist in prioritization. While not perfect by any means, it did allow IT to build a portfolio of projects for consideration, develop high-level resource estimates, and prepare a capital and expense budget.
Now, anyone that has worked in IT knows if you operate exclusively on a one-year horizon on a consistent basis, you are always going to be behind. Significant IT architecture changes don’t occur overnight. In other words, you can’t just say: “go build a mobile application” if you don’t have the knowledge, talent, infrastructure, and processes to do so.
With this in mind, our IT group developed a set of roadmaps that guided the longer-term vision for application and infrastructure investments. Without a long-range business plan (and associated objectives) or strategy to “align” with, we relied on our relationships within the various business units to understand where their minds were regarding future capabilities. Again, not perfect, but it provided some moniker of guidance for making short and mid-term decisions.
A few years into this process we were told the company wanted to “significantly increase its investment in IT.” This pronouncement came literally out of the blue. “We want to build new technology capabilities to “leapfrog” our competition and drive the next level of growth for the company.”
CIOs generally love hearing stuff like that. IT was finally going to get its moment in the spotlight. I admittedly was somewhat skeptical having heard similar words at various times in my career. Often this type of proclamation results in “dumping” of every business request, regardless of value, into IT.
Our portfolio had some projects in the out years (beyond the one-year planning horizon), but none of them provided capabilities that would catapult us ahead of our competition. As the budget had been somewhat constrained and the planning horizon was limited, the business had not been thinking about game-changing capabilities. To revamp the portfolio, IT had to ascertain what capabilities were actually the game changers and what would be the appropriate sequencing to maximize the company’s return on investment.
I became a bit more concerned when I was approached by our finance organization only two days after the announcement of increased spending and was asked: “what do you expect to spend over the next three years on IT given the new direction.”
I can’t print my reply as it was laced with a few colorful words. But the gist of the reply was “A proclamation of increased technology spending isn’t a direction. We don’t have anything to plan on other than an announcement that we would increase spending. How about we talk about the business capabilities we want to build before we try to associate a number to it?”
In a meeting, a couple of weeks later our CFO again asked what we thought the capital number would be for the next year. My politically correct response was “we have had three weeks since the word came down that we wanted to ramp up. We are working across all the business units to coordinate plans, determine resource needs, and sequence based on priorities and dependencies.” But then I added, “We are working without the benefit of a business strategy. It would be extremely helpful if the senior executives could align on the three or four top business priorities.”
The reply was something along the lines of “yes, we will try to do that. But when do you think we can have your number for next year?”
Hence the name of this chapter; were we “aligned” or simply seeking to find “a line” for the budget?
I would love to say this is an isolated incident and I didn’t see similar issues throughout my career. Unfortunately, this isn’t the case. Making IT prioritize business initiatives is admittedly a pet peeve of mine. The business MUST own prioritization of technology efforts that provide business capabilities. IT should be tasked with executing in order of priority.
When IT is asked to prioritize we are saying IT, and IT alone, knows what is best for the business. This isn’t fair to the other business units, and it is not fair to IT. Let’s review a couple of other examples.
As I was preparing to leave a previous CIO role I met with the CEO as part of the turnover process. The CEO was in the midst of a massive change effort for the company and was extremely interested in how technology could further the change process. He stated, “we are going to replace the XYZ store system in the next couple of years as part of this change process.”
I listened and replied, “While I would agree the store system needs upgrading, there are a lot of things to consider. For one, the store system includes an accounting method quite unique to our company. Changing it would necessitate major changes in the distribution systems and the accounting systems. Besides, the current system was built to ensure consistent execution across the stores. In fact, the store procedure manual reads like a system manual. You won’t find a packaged application that handles our accounting practice or enables the business processes in this type of rigid manner. I would recommend upgrading only the POS component of the store application in the short-term and save the other changes until you complete other aspects of your larger change effort.”
These words weren’t what the CEO wanted to hear. “The store system is our bottleneck for so many of our initiatives. We have to change it now.”
I remember my reply because I still use the gist of it today: “You have a choice to make. If you want store execution to be largely systemically controlled, the system will be rigid. It will never be as flexible as you want. If you want stores to be more nimble, you have to trust the stores to make and execute decisions within a process framework. The more systemic controls, the less flexible the solution.”
I learned that the CEO brought in one of the large consulting organizations to do a study on the store systems after I left the company. After spending over 12 million dollars, the conclusion was that changing the store system would be too disruptive and they should focus only on upgrading the POS component. Nearly eight years later, the store system remains relatively unchanged.
This story illustrates a common problem. IT executives and business executives see problems in different ways. IT and the business are only truly “aligned” when they are able to get on the same page concerning language and vision.
I don’t mean to imply this is a case of someone being right or wrong. The CEO was seeking ways to gain speed on critical business initiatives. The CIO, in this case, was pointing out that decades of business decisions and rules would need to be unwound to achieve what the CEO was requesting.
It struck me as a very odd conversation to have the week I was leaving. Clearly, it was something that had been on the CEO’s mind, yet we had not discussed it before. I could tell he was looking for ways to increase speed. However, I knew the old adage “go slow to go fast” was at play. To get the speed he desired would require massive technology and business process change. It is difficult to explain that to replace a store system would require changing your 25 plus year accounting practices.
Nevertheless, it is precisely the conversation I should have been having with the CEO months or even years before. Having this type of discussion is not easy. CIOs often flinch at the idea of telling business executives things they don’t want to hear. CIOs don’t like to be perceived as Scott Adam’s Dilbert character “Mordac the preventer of information services.” Or put another way, CIO’s don’t want to be perceived as naysayers.
In retrospect, I believe I should have used a different approach to educate our CEO. While we had discussed architecture and system changes in the context of our steering committee, I am not sure the business executives fully understood it. A one-page picture showing the health and dependencies of the major systems as an anchor point would have been smart. When faced with complexity, a CIO must find ways to simplify and compartmentalize to facilitate understanding.
Let’s take one final example. One of my former companies was in the process of opening new stores in a foreign country. As our IT group worked with the business, we uncovered some interesting facts. The stores were being built assuming a cost of $x dollars per square foot to be able to reach profitability within a set period. However, the real estate group was building the stores at a cost between one to two times higher than the operating assumption. As we talked more with real estate, we discovered that in our thousands of stores, we had never built one to the operating assumption needed to reach the operating group’s articulated profitability goals. This information forced the operating group to seek new revenue options, such as e-commerce, to make up the shortfall. The only issue was the company had stated e-commerce was off the table in the short-term. Talk about putting IT in an awkward position!
A senior IT leader stepped in to bring together the members of the operating group and real estate to facilitate alignment of performance metrics and refine the go-forward operating assumptions.
As these stories illustrate, the goals of the business are not always well articulated, well understood, well integrated, or well timed. When this occurs obtaining the desired alignment is elusive at best. But let’s not entirely rely on stories.
We have facts showing the elusiveness of alignment. The Planview Project and Portfolio Management Landscape report for 2017 notes 59% of surveyed organizations have a transformation initiative in place. In the same vein, 55% of these same companies reported their projects and resources are not well aligned to business goals (Planview, 2017).
“Everything in IT takes too long and cost too much.”
“We could build it if they could just say what it is they want.”
“We could do this if we just had the systems in place.”
“They just don’t understand how complex this is.”
Yes, the old “us versus them” is still alive and well in companies today. Now take these stories and the lack of alignment and apply it to our definition of digital transformation. Do you think you can be successful in changing company culture, developing extensible technology platforms, implementing new business models, and making significant changes in business processes and roles when we can’t agree on the goals? The answer is obviously no.
Transformation requires everyone to be on the same page. It requires each group to understand their role and how it impacts others. But, more importantly, it needs the proper context set at the top of the organization to be successful. Transformation is not a grassroots occurrence. It changes organization culture, and culture change requires enterprise-wide focus.
Think about what a change in culture will likely require. Some potential change elements would be the mission statement, company values, business models, hiring, on-boarding, incentive compensation, performance metrics/reviews, and workflow processes.
We also must be clear as to why we want to transform and who/what is driving it. Sources of change can be internally driven (current processes are not cost or time effective) or emanate from external sources. The most common external sources would be our customers, and our competitors. Understanding the source of the need to change helps us better articulate what we need regarding outcomes.
Also, it must be stressed; digital transformation can‘t succeed in silos. The interconnectivity required to build a platform for change is immense. There is no room for silos in our thinking, our communication, our models, our processes, or our technology. Everyone must be on the same team and communicate on a regular basis.
Finally, setting the tone for digital transformation includes establishing clear goals with well defined, expected outcomes. We all know the SMART principle when it comes to creating goals (specific, measurable, achievable, results-focused, and time-bound). This principle applies here as well. The one caveat is time. Transformation is a journey, not a project. As we are on the journey, we will make course corrections. Course corrections are fine. Nothing states we can’t refine goals as we go through the process. The key is to communicate, communicate, and communicate.
With all of this in mind, we need to clearly, emphatically state digital transformation is a corporate-wide initiative, sponsored from the very top of the organization with clearly defined goals and outcomes. These outcomes must be clearly and consistently communicated to manage expectations for all employees.
We have spent a good deal of time discussing the importance of getting the organization on the same page with regards to digital transformation. There is a reason for this. Enterprise alignment is the number one reason why digital transformation efforts fail in companies. In the 2017 Wipro study, 25% of executives noted lack of understanding of what digital transformation actually means as an obstacle to success. In the same study, 35% of executives noted lack of a clear transformation strategy as a critical barrier to success (Wipro Digital, 2017).
Deaf Diagnostic
Effective communication is essential to the success of digital transformation. Transformation communication must describe the desired end-state, the impact to the organization, frequency of communication updates, and the role associates will play. Effective communication will make digital transformation a widely discussed topic in the halls and meeting rooms of your organization.
Let’s assume that you succeed in appropriately setting the table. You have a clear vision for what you want to accomplish with digital transformation. You have established clear goals and timelines. You have leaders in the organization all on the same page and ready to go. What’s next?
The simple answer is to find a way to keep it that way. That is where governance becomes critical in your journey.
3.2 The Role of Governance in Alignment
“Governance,” like “alignment” is another one of those words often bantered about in senior executive circles but is often misunderstood. Quite simply, governance defines “how” you will proceed on your journey. It defines the rules you will follow.
A sound definition of corporate governance is found on the website businessdictionary.com. It states that governance is “a framework of rules and practices … to ensure accountability, fairness, and transparency … to all stakeholders” (Corporate Governance, 2017).
A good governance structure for digital transformation will consist of a few elements. First, it needs a strong central group that makes decisions that may not be possible at lower levels of the organization. Call it a “Steering Committee,” “Transformation Oversight Board,” or whatever name fits your needs. However, the composition must, at a minimum, include the following key decision makers: Company head (CEO , Chairman, etc.), head of operations, head of HR, head of Finance, head of corporate communications, and head of technology.
The role of this group is threefold. First, it should approve and drive all communications about the transformation effort to the rest of the organization. Second, it is the final arbitrator in the decision-making process. Thirdly, it owns the prioritization process for the transformation effort.
I have watched the manifestation of “steering committees” throughout my career. Admittedly, it is difficult for a business executive, who is not technically savvy and who is not interested in technology projects, to sit through the three-to-four hour-long meetings and enjoy it. However, it is crucial to have the direction of transformation efforts driven by the business.
I recall the technology steering committee in one of my previous companies well. It was comprised of the CEO/Chairman and his direct reports. I chaired this committee as CIO. We met on a quarterly basis for anywhere from two to four hours. We would cover millions of dollars of technology efforts and ask the group for concurrence on prioritization and investment. Sounds perfect, right? Unfortunately, it is hard for me to recall a single meeting where someone didn’t walk up afterward and say, “Good meeting, but can’t we find a way to shorten this?”
My lessons learned from this process were (1) you must find a way to keep the details to the minimum needed to facilitate decision making, (2) certain decisions are better made at a lower (sub-committee) level, (3) certain personalities just aren’t good steering committee members.
There should be a clear leader(s) at the top of the transformation steering committee. Ideally, there would be a single leader, the CEO/Chairman. However, in some cases, this isn’t possible due to time constraints. If the company has anointed someone as a “Chief Digital Officer” (we will talk more about this role in Chap. 5), this would be a natural leader for the committee. Otherwise, leadership will likely be either a senior business executive, the leader of the technology function, or both.
After forming the leadership of the transformation effort, the leadership must clearly communicate goals and objectives to the balance of the organization. The transformation committee should control the frequency and depth of communications. The communications should provide information in a manner that makes it “real” to the recipient. In some cases, this may require more extensive thought, especially when a company spans multiple countries and cultures. The communication should also act as a “call to action” and encourage participation at all levels.
There may be other committees formed based on the size and scope of the effort. The roles and responsibilities of these committees must be explicitly clear. The same holds true for the employees and contractors participating in the projects to enable the transformation. Role clarity drives accountability. No transformation effort will be successful without strong accountability across the participants.
Governance should also tackle changes and adjustments. The process to request or make a change to the effort should be well understood. Acceptance and exception processes should also be well documented and available to all participants.
At this juncture, we should have a transformation vision, complete with specific goals and objectives. We should have a governance structure and defined processes, roles, and responsibilities. What’s next?
3.3 Fundamentals of Funding
Funding. Not to be a Debbie Downer, but funding the effort is not one of those things that anyone ever seems to be excited about doing. Why is that? Part of the reason stems from having to build business cases with less than perfect (or even adequate) information. Part of it stems from a project-oriented process for funding that is pervasive in many companies today.
IT organizations are routinely asked to estimate resources and costs without fully understanding what the business needs. Often you may have only a meeting or two with the business on a particular technology need before you hear “how much do you think this will cost, and how long will it take.”
Think about applying this same concept to more physical engineering requests. For example, if you went to a builder and asked them to give you a quote on building a 5000 square foot house, what do you think they would do? Understandably, they would ask a number of questions around the location of the structure, the preferred materials, the level of finish, the timeline, etc. to give a very high level “cost per foot” estimate. However, the builder would not commit to the cost of the house until they have a full blueprint.
This same concept holds true for technology efforts. IT groups can ask questions on the relative scope of the efforts and try to come up with ballpark estimates. But without going through the design processes, they will find it nearly impossible to provide a solid, reliable estimate.
Perhaps a better way to look at funding efforts, especially transformation journeys, is through tranches. Tranche is a French word meaning: slice, section, series, or portion. Tranches are commonly used in finance as a means to separate investments into a series, grouped by risks, maturities, and rewards.
Applying this concept to technology efforts works well, especially in those cases where the journey is not well known. This approach also works well with the use of Agile or “story-based” methods that group work efforts based on the delivery of business capabilities.
Financial tranche example
In this case, we create a tranche for the first three sprints of an Order Management Automation Program. These three sprints had an estimated cost of $750,000 and were targeted to develop five key outcomes. Notice we still have estimates for the entire initiative (Digital Transformation) and our Order Management Automation Program. We need these high-level estimates for annual operating budgets. But we execute using the tranches. In the example, the team would request funding for Tranche One. At the end of Tranche One, we will evaluate the team against the expected outcomes. If the team remains on track, they would receive the second Tranche and would continue in this manner until completing the project. If Tranche One were off track, the team would have to develop new plans to deliver the capabilities and perhaps even rebase-line the total cost of the program.
By using tranches we keep funding to more discernible chunks of scope, we reduce the threat of scope creep, and we make the team accountable to show the progress we expect in a shorter time horizon. As the example shows, we captured the expected value at a higher level than the individual tranche. As we become more adept at understanding the elements of scope and value we should link the incremental value created to each tranche.
For more technical readers, this concept is very similar to the Agile Release Train (ART) defined within the Scaled Agile Framework (SAFe). In the Agile Release Train, a group of agile teams delivers incremental value through a continuous set of releases, with funding flowing with the delivery of new capabilities.
Deaf Diagnostic
A well-structured governance model for digital transformation will clearly define roles, responsibilities, authorization, approval, and funding processes. Lack of clarity in governance will add complexity, cost, and time to all of the components of the transformation.
3.4 Aligned, Governed, Funded and Ready to Go
Now would probably be a good time to recap. First, we must be on the same page regarding strategy, vision, expectations, timelines, and level of commitment. Second, we must have a governance model that ensures the aligned message is delivered and executed as envisioned. And finally, we need to think about finances differently and build a structure that enables agility and accountability.
These items are the prerequisites to begin a digital transformation journey. Absent these essential items no digital transformation effort will be successful. As an organization progresses through these processes, executive leadership and the board of directors will need to be involved. We can now move to the next chapter in our journey as we cover the board of director’s role in enabling transformation.