Using the 4 Zone Model to Build an IT Investment Portfolio

“How much value is IT adding to the business?”  

Value

 

 

 

 

 

This is the one question that most CIOs I talk with struggle to answer. For many organizations, IT’s value is only measured by its ability to reduce costs and optimize the capital expense depreciation of large hardware and software licenses. For others, it’s based on their ability to provide applications and services that enable employees to be more productive. In some cases, IT is seen as valuable resource and contributor to enabling business units to meet or exceed their revenue and profit targets.

Regardless of where your IT group falls across this spectrum of business value there is one unifying theme – IT is not very good at telling its business value story. Part of the problem is that much of today’s story was built on the old Plan, Build, Run model complete with its time consuming requirements process and waterfall development cycles which are now completely out of cadence with the fast-cycle marketplace. This approach has resulted in a large percentage of the annual IT budget being allocated to run the business activities, with a much smaller percentage allocated to change the business activities. This imbalance is only exacerbated by the typical 2% annual budget increases.

 

How to change the narrative about IT business value

Change the narrative

CIOs and their senior leadership teams must make creating and communicating IT’s business value story a mission critical priority. It all starts with a solid framework that defines the multiple ways IT contributes value to any organization. The framework should be realistic, but also simple and capable of being expressed in language that business leaders will recognize and support. The new 4 Zone IT Investment Portfolio is one framework that meets these criteria.

Ent IT Org Mod

The 4 Zone model enables CIOs to construct an IT Investment Portfolio that apportions the business value of IT in four investment categories. It depicts IT’s spending allocations and provides a clear visual aid for discussing changes to those allocations. For example, based on your organization’s 2016 strategic and operating goals and deliverables, is the weighting of the IT investment allocation aligned with those goals? In this context, most if not all business executives will not only understand the type of value IT investments are targeting, but they will appreciate the challenge and imperative of making smart IT investment choices going forward.

 

A four zone business value story

Not unlike a personal investment portfolio where risk and return are spread across multiple investment options, the IT investment portfolio is designed to deliver value and returns in four different categories.

Productivity Zone value is created by providing secure and stable operations and maintenance of the company’s systems of record. While most of the ROI from investments in these SORs has been realized, they are still an important and necessary component to the successful operation of any organization. CIOs can deploy our trapped value audit tool to periodically review and identify opportunities to optimize the costs of maintaining and modernizing SORs while also reducing the amount of technical debt. These resources can then be redeployed against new value creation opportunities in the performance and transformation zones.

Performance Zone value is created by delivering a series of user-centric tools, services and solutions e.g. Social, Mobile, Cloud and Data Analytics that enable the company’s businesses to better engage with customers, supply chain partners and other key constituents. CIOs can use our Collaborative IT Governance model to better align future IT investment priorities with critical business outcomes. By contributing directly to creating valuable and enduring customer experiences, IT can demonstrate its ability to help accelerate customer adoption and utilization resulting in new revenues and profits.

Incubation Zone value is created by IT’s help in identifying, testing and validating next generation product, service and business ideas and leveraging technology enabled innovation to deploy them. This zone also acts as a staging area for all IT projects and provides a prioritization process to determine which of the other three zones would benefit the most from the ultimate value of the project. A rapid agile development approach will enable IT to significantly increase its speed to market and throughput for all IT investments.

Transformation Zone value comes from ITs ability deploy new disruptive technologies to enable the company to launch and scale a material net new line of business. An organization’s ability to leverage technology enabled innovation is becoming a critical source of competitive advantage with the emergence of digital enterprises.

This 4 Zone investment portfolio approach provides a structure and common vocabulary to resolve risk reward discussions between IT and its internal business partners across multiple investment options. It also enables the CIO to characterize and justify IT’s investment recommendations, whether at the C-Suite or Board level, augmented by specific business cases that highlight the ROI from each one.

 

An investment approach that is aligned with the new consumption economy

Contributions

In today’s subscription-based consumption economy, the value of IT’s products and services are measured by customer/end-user adoption and utilization. To deliver the maximum business value of IT, CIOs need to effectively articulate how each investment will directly contribute to the successful deployment and utilization of each product or service its supports. As such, IT investments must be able to generate immediate returns which accelerate with increased usage. This means that IT has to significantly increase its speed to market and throughput.

The fast cycle cadence of the consumption economy will require IT to replace the old Plan, Build, Run development process with a new Co-Develop, Assemble and Consume process. This new process puts a premium on making a series of investments and getting market feedback on them quickly so leaders can make the needed changes that will drive further adoption and utilization.

 

Get started with a current state investment assessment

As a first step, CIOs can use the 4 Zone model to do an assessment of how their budget and resources are allocated across their current pipeline of projects and deliverables. This assessment would allocate each project into one of the four zones and create a baseline of where you are making your IT investments today. You can then ask questions like:

  • Is the current weighting of investments by zone aligned with our corporate strategy and goals?
  • Do we have the appropriate risk reward ratio across our investment portfolio?
  • Are we delivering the desired ROI from our portfolio of investments?
  • Are we making the right level of investment to accelerate customer adoption & utilization?
  • Does our portfolio of investments maximize the business value if IT across our company?

Creating and effectively communicating a compelling IT business value story is not an easy task. Overcoming legacy mindsets about the role and value of IT requires a strong framework; a well-balanced risk vs. reward investment strategy aligned with corporate goals and deliverables; a new development process that is in sync with the fast cycle market cadence of digital enterprises and a new set of consumption market metrics.

Armed with those tools and that approach, CIOs should be well prepared to make the business case for the value of IT.

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com

 

 

 

Implementing the 4 Zone Model Playbook

From Strategy to Implementation: Common Drivers & Expected Outcomes

signs

Like any new strategic framework and set of tools and processes, the 4 Zone Model’s value can only be realized through implementation and execution. I have outlined below how some early adopters of the model have deployed different elements of the playbook to address critical issues and opportunities.

The 4 Zone Model is built upon several drivers common to enterprise information technology functions:

  • A need for innovative approaches to enable organizations to address five disruptive technologies: Cloud, Mobile, Social, Data Science and Internet of Things.
  • A need to evolve from lengthy waterfall-based technology implementations to the more rapid agile development approach. The Plan, Build, Run model will be displaced by a Co-Develop, Assemble, Consume model.
  • A need to embed a trapped value assessment process to identify opportunities to shift resources and funds from maintaining legacy systems of record to developing new systems of engagement.
  • A need to utilize new methodologies and tools to identify, develop and reinforce the relevant new skills and capabilities necessary to lead and manage a digital enterprise.

The motivation to adopt the Four Zone Model playbook encompasses a number of expected outcomes:

  • Higher percentage of IT resources allocated to change-the-business outcomes.
  • Significant increase in speed to market and throughput of all development initiatives.
  • Strong alignment between future IT investment priorities and critical business outcomes.
  • Increased ROI from the portfolio of IT innovation investments.
  • More impactful IT presence at the business strategy table.

To respond to these drivers and expected outcomes, the Four Zone Model playbook affords technology teams’ processes and tools which enable them to maximize the business value of IT across all three levels of their organization.

graph

The Starting Point: Mission-Based Teams

In order to move expeditiously, the 4 Zone Playbook begins at the “starting point” with mission-based teams specifically assembled and empowered to attack prioritized desired outcomes. These mission- based initiatives all start from the “Incubation Zone” and seek an exit path to one of the three other Zones depending on the desired outcome.

3 exits

IT Executives leading mission-based initiatives begin the process by asking three key questions:

  1. Should we do it? Does it align with and support critical business outcomes?
  2. Can we do it? Do we have the relevant skills/capabilities, tools and capacity to achieve the outcome?
  3. Did we do it? Do we have the right metrics to measure the achieved outcome vs. the desired outcome?

Mission-based teams are appointed for work which has been identified as a priority for movement from the Incubation quadrant to another Zone within the Model. Expectations for success can be high given the following critical elements:

  • Alignment at the leadership level that the work commands sufficient priority to be implemented. Alignment must occur not only within IT but also with all other key stakeholders including internal business partners and shared services partners.
  • Formation of the mission-based team includes careful appointment of team members to ensure they have the appropriate skills and competencies necessary to achieve the outcome.
  • The initiative must be carefully scoped to fit within the Model’s timeframe boundary conditions (namely pilot initiation to go live within 30-90 days especially for productivity and performance zone projects).
  • Active collaboration and critical thinking processes must drive the shared discovery, problem solving and solution adoption. The focus of the team and their work is deliberately narrow, user centric and intentionally innovative.
  • Measurement is expected to occur throughout the discovery and design process as well as at the conclusion of the team’s work.

The Outcome is Worth the Journey

What we have learned over the past 12 months is that to successfully introduce and deploy this playbook is a leadership challenge not a management challenge. This is not about just doing what IT has always done better, faster and cheaper. This is about transforming the role of IT from a cost center/support function to a business enabling strategic partner. This is about changing outcomes by changing legacy attitudes, behaviors and actions.

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

The 4 Zones Model: A Playbook for the Incubation Zone

Companies have no choice but to up their technology enabled innovation game

According to a recent McKinsey study, more than 60% of CEOs expect up to 50% of their earnings growth in the next 5 years to come from “technology-enabled” business innovations. A recent study of CIOs by IDC found that 57% expect to be defined in terms of delivering business innovation to increase revenue, margins and new products.

In order for companies to be competitively viable in this new era of digital disruption, they have to dramatically increase their ROI on their portfolio of technology innovations. As I’ve stated in earlier blogs, these digital disruptions are fundamentally changing the way companies engage with their employees, customers, supply chain partners and other key stakeholders.

Disruption Chart

Companies have been spending money on research and development at the fastest pace in 50 years. From last November to the end of March, U.S. companies funded R&D at an annual rate of $316 billion or about 1.8% of GDP which is the largest share ever for the private sector.

As such, it is disturbing to read that, according to a recent Deloitte study, the return on R&D investments by the 12 biggest biopharmaceutical companies fell from 10.5% in 2010 to 4.8% in 2013.

The Incubation Zone: The Three Innovation Playbooks Model

The 4 Zone Model I’ve developed (link to earlier blog http://eepurl.com/blFb3T) is designed to enable CIOs and their senior leadership teams to maximize the business value of IT across their organizations. IT’s charter for the Incubation Zone in particular is to help the company identify, test and validate next generation product, service and business ideas and leverage technology-enabled innovation tools to develop them.

In our work with many companies across multiple industries, we have developed a set of three innovation playbooks to help them better organize and implement their portfolio of technology innovation investments as the chart below illustrates:
Three Innovation PlaybooksAt the core of this tool are three distinct innovation playbooks that clearly define the mandate and desired outcome for each one. Here are the key diagnostic questions that clarify those mandates and outcomes:

  • Have we differentiated our offer enough to gain real competitive separation?
    • Have we created a truly unmatchable offer?
  • Have we neutralized offers with enhanced features from our reference competitors in a timely manner?
    • Have we gotten to good enough fast enough?
  • Have we optimized our opportunities for gains in resource utilization and cost reduction?
    • Have we reclaimed unproductive resources and redeployed them against differentiation or neutralization opportunities?

Our work in this space has also shown us some of mistakes companies make with their approach to innovation which results in a very low ROI on their investments. Here are two rules of thumb to avoid:

  • Never tie differentiation and neutralization programs to the same release schedule
    • Differentiation has to go far
    • Neutralization has to go fast
    • Combining the two dumbs you down and slows you down
  • Best in class is appropriate for productivity innovations only
    • Too low a mark for differentiation (beyond class)
    • Too high a mark for neutralization (good enough)
    • Benchmarks are for productivity programs only

The Harsh Reality about the ROI on Technology Innovation Investments

As the chart below illustrates, the majority of innovation investments do not deliver the desired results or ROI. These less-than-optimal outcomes most often occur when differentiation projects are launched too soon or neutralization projects take too long.

Why many innovation efforts are wasted - graph
While there is no silver bullet that guarantees innovation success, when the three innovations playbook model and tools are successfully deployed ROIs have greatly increased in many technology investment portfolios.

In my next blog, I will take a deeper dive into the Transformation Zone and talk about how you can deploy our Three Horizons model to scale net new lines of business that produce material new revenues and profits.

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

The 4 Zones Model: A Playbook for the Performance Zone

The CIO is not a “Device Santa Claus”

santa image

My good friend and technology futurist, Thornton May, clearly defined the CIO’s role when he said “…the role of the CIO is not to be a ‘Device Santa Claus’ but, rather, to craft an environment which empowers executives to create competitive advantage vis-à-vis the innovative and informed use of information technology.”

A recent McKinsey & Company survey of business and IT leaders validated that when CIOs play an active role in shaping their company’s business strategy both IT’s and the company’s overall performance greatly improve. However, when business executives were asked how well IT supported key business activities like entering new markets and driving new revenues, only 35% agreed IT played that role in their company down from 57% in the same survey two years ago.

If actively engaging the CIO in helping to shape a company’s business strategy works so well, then why are so many companies not doing it? My answer is that they don’t have a “good decision-making governance process” that aligns future IT investment priorities with critical business outcomes.

The Performance Zone: Demonstrating the Business Value of IT

The 4 Zone Model I’ve developed ( link to earlier blog http://eepurl.com/blFb3T ) is designed to enable CIOs and their senior leadership teams to maximize the business value of IT across their organizations. IT’s charter for the Performance Zone in particular is to provide new user-centric tools, services and solutions e.g., social, mobile, cloud and data analytics that improve the competitive performance of each of the company’s lines of business.

To effectively demonstrate IT’s ability to directly contribute to generating new revenues and profits, CIOs and their leadership teams must actively engage their internal business partners and users. To activate this new process, I propose that they utilize the Collaborative IT Governance Model below.

The Collaborative IT Governance Model

infographic

From my early work in this area, I have seen first-hand how effective this model is in breaking down hierarchical, silo-based decision-making processes and converting them into horizontal cross-enterprise decision-making processes. It enables all the key stakeholders to be aligned with and committed to a common course of action to deliver the desired business outcomes. It has also dramatically increased the speed to market and throughput of major IT developmental projects.

It’s An Outside-in Approach Not An Inside-out Approach

To effectively deploy the collaborative IT model, you need to start with a common understanding of what you want the ultimate user experience to deliver to customers, employees, supply chain partners and other key constituents.

Historically IT has started with the technology it has and added to it. This inside-out approach is fine if your goal is to modernize your Systems of Record and optimize the cost of maintaining them. However, if your goal is to provide “friction-free” customer engagements then you must take a very different approach.

This outside-in approach begins by getting all the key stakeholders to address three fundamental questions:

  1. What are the key moments of customer engagement that define the success of our business or company?
  2. Who or what system represents our company at this moment of engagement?
  3. How could we strategically intervene with a new system of engagement in order to make that moment of engagement more compelling and enduring?

Some companies I’ve worked with have used a “customer touch point” mapping exercise to identify all the different touch points and eliminated those that they felt added no value to the customer. They then looked for opportunities to enhance the value of critical touch points and finally they identified gaps where they could add new touch points.

In all cases, it has been gratifying to see that when these models and tools have been utilized they have successfully demonstrated the business value of IT in multiple business growth venues.

In my next blog, I will take a deeper dive into the Incubation Zone and talk about how you can deploy our Three Innovation Playbooks model to significantly increase the ROI on your portfolio of IT investments.

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

The 4 Zones Model: A Playbook for the Productivity Zone

Reversing the IT Resource Allocation Imbalance Equation

red balls on a ramp

For decades, senior IT leaders have confronted the financial reality that every year 80% of their IT budgets are allocated to “running the business” while 20% are allocated to “changing the business.”

No one can argue how important it is for IT to make sure each company’s systems infrastructure and data is stable, secure and in compliance with industry standards and regulations. Unfortunately, just doing that job well severely limits the ability of CIOs and their senior leadership teams to maximize the business value of IT across their organizations.

The Trapped Value Audit

The new 4 Zones Model is designed to reverse that equation by creating individual playbooks for each zone and, in doing so, enable IT to exponentially increase its business value. The Productivity Zone Playbook is designed to optimize the costs of maintaining a company’s systems of record thereby freeing up resources to be redeployed against developing new systems of engagement.

A key tool to achieve this outcome is the Trapped Value Audit which enables cross-functional teams to systematically review all their systems of record and determine if they should be modernized, out-sourced or, if possible, eliminated. This audit is also designed the identify opportunities to significantly reduce or eliminate a company’s “technical debt.”

You can get started by asking some core questions:

  • Where is the trapped value in our company? E.g., maintaining systems of record
  • How can we identify and unlock that trapped value?
  • How can we redeploy that trapped value against critical new IT investment priorities? E.g., the development of new systems of engagement
  • Where is the new business value of IT going to come from?

The results of these efforts will enable senior IT leaders to redirect resources away from lower busine47ss value activities in the left hand column to higher value activities in the right hand column in the chart below.

infograph

Extending IT’s Business Value Beyond A Company’s Infrastructure Model

Unlike previous evolutions of enterprise IT, which were mainly focused on the need for a company to adjust its infrastructure model, the disruptive impact of social, mobile, analytics and the cloud extend to its operating and business models. As such, it is imperative for IT to realign its skills, capabilities and resources to better enable the performance of the company’s operating model and if necessary help shift its business model.

From my early discussions with CIOs, this process entails earning the trust and confidence of their internal business users and partners as well as creating cross-functional teams to align future IT investment priorities with critical business growth goals and deliverables.

The chart below highlights these three levels of disruption and identifies specific sources of trapped value that these cross-functional teams can pursue together.

infograph2 By optimizing the costs of maintaining the infrastructure value delivery system, IT is then well positioned to deliver net new value creation for the company and thereby extend its business value across all three areas of potential disruption.

End Of Life Programs – It Takes A Village To Make Them Work

To be perfectly clear, companies cannot operate without stable, secure and well-maintained systems of record. These SORs run core functions from CRM to ERP to Finance. They also must be able to quickly and seamlessly connect with systems of engagement in order to deliver a friction-free user experience. That said, the fact remains that there is a significant amount of trapped value in how most companies deploy resources to maintain them.

In taking on the challenge of reducing or eliminating that trapped value, CIOs must establish a set of protocols and repeatable processes to monitor and evaluate the business value each SOR delivers. I have drawn upon some ideas and perspectives from my brother, Geoffrey, to give you some suggested ways to increase your odds of success:

  • Establish a stand-alone end of life (EOL) shared service function whose sole purpose is to manage this process from start to finish. Note: this is not just IT but all effected stakeholders.
  • Transfer all the SOR’s costs/expenses to the EOL shared services function.
  • Develop an EOL roadmap and timetable for each SOR.
  • Don’t allow non-EOL priorities/deliverables to compete for the shared services time and resources.
  • Accrue any trapped value savings to be redirected to new IT investment priorities.

A First Step

The Productivity Zone playbook is the first step in helping CIOs maximize the business value of IT across their organizations. It incorporates a set of tools to help senior IT leadership teams find the right balance between protecting the value they’ve created with stable, secure, compliant systems of record and creating new business value with easily accessible, friction-free systems of engagement that deliver compelling and enduring user experiences.

In my next blog, I will take a deeper dive into the Performance Zone and talk about the importance of IT building strong collaborative relationships with their internal business partners and other key stakeholders.

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

THE 4 ZONES MODEL: A Playbook to Maximize the Business Value of IT


Defining the Company’s Future Enterprise IT Agenda

The disruptive impact of social, mobile, analytics and the cloud is fundamentally changing the ways companies engage with their employees, customers, supply chain partners and other key stakeholders. In order for companies to remain competitively viable in the new world of digitally mediated interactions, they will need to overcome their legacy mindset about IT as primarily a cost center support function. CIOs must facilitate IT’s evolution to a full strategic partner role that directly contributes to delivering new revenues and profits. Simply put, a company will have to use technology as a source of competitive advantage in order to transform itself into a digital enterprise.

What’s ultimately at stake for CIOs is who will take the lead in defining and implementing the future enterprise IT agenda for their company. To regain their rightful leadership position requires both a new organizational and operating playbook for IT. We call this the Four Zones Playbook and it is designed to ensure that the organizational structure, operating cadence, resource allocation process and success metrics including ROI are properly adjusted to and aligned with the priorities and deliverables for each zone. In doing so, it will maximize the business value of IT across the enterprise.

The Four Zones: Maximizing the Business Value of IT


The 4 Zones

The Productivity Zone: Here the focus is to optimize the costs of maintaining the company’s legacy systems of record while making sure that all systems and platforms are stable, secure and in compliance with industry standards and regulations. There will be an ongoing effort to identify and unlock trapped value in maintaining legacy systems of record to be invested in new systems of engagement. There will be a goal of “no technical debt.”

The Performance Zone: Here the focus is to demonstrate the business value of IT as a source of competitive differentiation for all of the enterprise’s established lines of business. IT’s charter for this zone is to provide new user-centric tools, services and solutions eg: social, mobile, cloud and data analytics that improve the competitive performance of each of the company’s lines of business. The implementation of a Collaborative IT Governance Model will align future IT investment priorities with critical business outcomes.

The Incubation Zone: Here the focus is to help the company identify, test and validate next generation product, service and business ideas and leverage technology enabled innovation to develop them. An Agile development model will replace the traditional waterfall development model.

The Transformation Zone: Here the focus is to help the company scale net new lines of business that produce material (10% or more of current revenues) new revenues and profits. There can only be one transformational new business initiative in play at any one time.


The Key Principle for Success

Overall, the key principle behind the Four Zones model is that, because the goals and objectives of these quadrants are so diverse, any set of management methods that creates success in one zone is likely to cause failure in each of the other three. Therefore, it is critical to:

  • Install a governance model that separates these four zones from one another
  • Establish IT business value deliverables for each zone
  • Overlay a light-weight corporate system to oversee all four zones in parallel

In upcoming blogs, I will take a deeper dive into each zone and further examine the specific functions and deliverables from each one. I will also highlight specific implementation tools for each zone such as the Trapped Value Audit and the Collaborative IT Governance Model.

Based on some early engagements with CIOs and their senior leadership teams, I have seen first-hand the value and benefit this 4 Zone Model brings to maximizing the business value of IT within an organization and with its key external partners and stakeholders.

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

A New Playbook for Enterprise IT: A Get Out of Jail Free Card

You cannot successfully transform your company into a true digital enterprise if you keep your IT Group under house arrest.

Image showing hands on bars in jail

The pace and magnitude of digital transformation disruption mandates that your company must figure out how to deploy technology-enabled innovation as a critical driver of new revenues and profits. This doesn’t mean you need to be the disruptive innovator in your industry, but it does mean that you need to figure out how to neutralize the disruptive innovation’s impact on your business/operating model quickly.

If you just look at your IT Group as a source of cost optimization whose primary role is to keep the lights on, then you miss the opportunity to leverage technology as a change-the-business tool in the new world of digitally mediated customer engagements. Simply put, you have to let IT play offense not just defense.

McKinsey & Company Survey Results:

That said, I found the dichotomy presented by the results of McKinsey & Company’s latest survey of business and IT executives both validating and troubling. Their findings strongly validated that when CIOs play an active role in shaping a company’s business strategy IT’s overall performance significantly improves. However, when business executives were asked how well IT supported key business activities such as entering new markets and driving new revenues, only 35% agreed IT played that role in their company down from 57% in the same survey two years ago.

If actively engaging the CIO in helping to shape a company’s business strategy works, then why are so many companies not doing it? My answer is that they haven’t found a way to free IT from the legacy mindset of its past. To do that successfully, I want to propose a prototype for a new playbook for enterprise IT which is highlighted below:

faq
Over the past 3 years, I’ve had the opportunity to talk to well over 200 CIOs and senior IT leaders about the different operating and cultural challenges they face in gaining a seat at the business strategy table. Their input and ideas have contributed to helping me develop a Collaborative IT Governance model, a series of IT thought leadership forums and communication programs, a process to identify and redeploy trapped IT value, as well as other tools to help them evolve IT from a cost center support function to a strategic business partner role.

These multiple conversations along with some early use case studies have gone into the design of the prototype playbook model above. It is by no means exhaustive or complete but rather suggestive of the variety of capabilities, services and deliverables that represent the new business value IT can deliver across any enterprise. It is designed to enable IT to carry out its core “run the business” functions while still being freed up to deploy “change the business” functions.

Each component of this new playbook will contribute to allowing your company’s enterprise IT function to evolve from a cost center/support function to a service provider to a business enabler to eventually a full partner in shaping and guiding your business growth strategy.

What I have learned over the past 3 years is that to successfully create and deploy this playbook is a leadership challenge not a management challenge. This is not about just doing what IT has always done better, faster and most cost effectively. This is about changing the role of IT from follower to leader. This is about changing outcomes by changing legacy attitudes, behaviors and actions. Simply put, this about choosing results over rhetoric.

These discussions and dialogues will continue in the months and years ahead and I invite you to participate in them and contribute your ideas and potential solutions. These challenges are bigger than any one company or any one CIO can solve. But I strongly believe that as a community of open minded, forward thinking IT professionals we can collectively find a way to get out of jail.

get out of jail

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

Unlocking trapped value to fund critical new IT investments

picture 1
One of the resounding truths of the past few years is that more and more companies are tightening their IT purse strings and mandating that CIOs and their teams better optimize the costs and returns on the company’s technology spend. Some of this belt tightening is understandable as 80% of most corporate IT budgets are still allocated each year to maintaining a company’s systems of record. While they need to be maintained, every dollar invested in SOR supported systems and software produces virtually no ROI as 95% of the lifetime value of these investments has already been received and as such no longer delivers competitive differentiation.

Unfortunately, many CIOs and their teams have just responded to this new mandate with a series of cost reductions which only reduces the available dollars for critical new IT investments, and thereby, IT’s ability to help drive new revenues and profits for their company.

picture 2
Start by asking some core questions

While a number of CIOs are resigned to their new fate, I have run across several who have taken the bull by the horns and figured out a way that they can self-fund critical new IT investments. They are starting this new process by asking some core questions:

1. Where is the trapped value in our company eg: maintaining systems of record
2. How can we identify and unlock this trapped value?
3. How can we redeploy this trapped value against critical new IT investment priorities eg: the development of new systems of engagement?
4. Where is the ROI going to come from?

One of the benefits of this approach is that IT can have more direct influence and control over the process rather than just responding to a new cost reduction mandate from finance. The other benefit of this approach is that once CIOs and their teams demonstrate the impact and return of releasing and redeploying trapped value within IT they can then put together cross-functional teams with their internal business partners to get similar outcomes from their IT budgets.

Releasing trapped value within your business units can create high returns

The impact of SMAC ( Social, Mobile, Analytics & Cloud ) can present three different levels of disruption to either your company’s infrastructure, operating or business model as the chart below, which was developed by my brother Geoffrey, illustrates. These new forces are also all levers for reducing the cost of service transactions via systems of engagement, and therefore, present three different ways to identify and release trapped value and thereby create higher returns for your company.

picture 3

In the current IT resource constrained environment, in order to get these new SOEs developed and funded you need to tap into the line of business side of the organization. Part of this process is to work together with your internal business users and partners to demonstrate how the next generation of IT can dramatically improve productivity and ROI.

The good news

The good news is that every dollar invested in Systems of Engagement supported software and systems offers a much higher future revenue and profit stream as they will become the primary source of future competitive differentiation for your company.

So if you want to fund new investments in mobile devices or the cloud or analytics & machine learning or you just need new resources to shore up your privacy and security systems and protocols you have the ability to find and deploy resources that are already in your IT budget or your business unit partners IT budget, and therefore, don’t need to run the corporate gauntlet for approval.

There is no question that this set of exercises is hard work and necessitates some very heavy lifting which may explain why a number of CIOs and their business unit colleagues aren’t rushing to take it on. That said, from my vantage point, you really don’t have an option. As the old Fram Oil Filter television commercial said “pay me now or pay me later” and later always costs much more.

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

Why a Good IT Governance Model Is Essential to a Good Digital Transformation Process

I have previously stated that the ability of CEO’s, C-suites and Boards to transform their companies from analog to digital business models will be the defining leadership challenge of the next 10 years. When tackling a challenge of this breadth and scope, it is often difficult to gain the necessary alignment, support and commitment to make the right trade-off decisions that will result in the desired outcomes.

At this point in time, many of the early adopters of digital transformation are focused on multiple trade-off decisions:

  • How do we best accommodate the BYOD needs of our employees while still maintaining secure and stable access to and utilization of critical customer data?
  • How do we create “friction-free” customer engagements from multiple mobile devices while still maintaining the security and privacy of those interactions?
  • How do we effectively evaluate the trade-offs between a public, private or hybrid cloud structure?

The chart below highlights a number of other “trade-off” decisions that are primarily being orchestrated by CIOs and their senior leadership teams.

The Hybrid Stack

From my vantage point, one of the major challenges CIOs and their teams face in helping to move their companies into a digital-based business model is to lay out a compelling business case to support the redeployment of resources away from systems of record in the left column in the chart above to systems of engagement which are in the right column. Without a good decision-making governance model, it is extremely difficult to make good resource allocation trade-off choices between “run the business options” and “change the business options.” In most well-established companies, the legacy mindset trumps the innovative mindset.

As it turns out, my early work in this area has provided firsthand evidence at how critical an IT governance model is to a successful transformation process. The new Collaborative IT Governance Model shown below has proven to be a critical foundational element to break down hierarchal, silo- based decision-making processes and convert them to horizontal cross-enterprise decision-making processes. Simply put, good governance equals good decision-making. It has also been a valuable component to help CIOs and their teams build the necessary support and commitment to take the critical actions required to implement the digital transformation process.

The Collab. ITFor many companies who are starting to put together a digital transformation strategy, there is a tendency to get caught up in a series of silo-based technology infrastructure and application delivery trade-off discussions without the benefit of a solid governance model to enable a collaborative cross- enterprise decision-making process. Absent this governance model, these trade-off discussions often break down into individual fiefdom fights which ultimately result in the wrong decisions or no decisions at all. Needless to say that is not an outcome that is in the best interest for the long term success of your organization.

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

 

Technology-Enabled Innovation is the New Source of Competitive Advantage

Everywhere you look technology-enabled innovation is the driving source of new competitive advantage for companies of all sizes across all industries:

ubersmFrom Uber redefining the taxi user experience by utilizing the GPS function on your smart phone to find you rather than you finding a cab and then billing you afterward so you don’t need cash or a credit card

Airbnb_Horizontal_Lock_Up_PMSTo AirBnb redefining the lodging user experience by letting you “rent a room” through your PC or phone at far less than standard hotel rates

60To major pizza chains significantly increasing their market share by letting you order and pay for your pizza delivery or pick up by phone

Technology-enabled innovation is not only disrupting the competitive landscape, it is redefining the user experience value proposition across a multitude of industries. It is also putting companies on notice that if you can’t successfully engage your customers in this new “digitally mediated world” you are on your way to your very own Kodak moment.

SMAC – Social, Mobile, Analytics, Cloud

These four disruptive models are completely altering how people connect, communicate and discover information. What these individuals are looking for are “friction-free” user experiences that delight and inspire them. These new tools affect how customers make decisions which affect their entire “customer journey” which ultimately affects their customer lifecycle. Simply put, it defines the differences between the traditional customer and the new connected customer.

Redefining IT as a source of innovation rather than a constraint to innovation

In a recent study on IT innovation, 90% of CIOs said that technology-driven innovation is crucial for achieving competitive advantage. Yet, on average, just 14% of IT budgets are earmarked for innovation and only 23% of companies report very positive results from their IT innovation efforts. Why the disconnect?

Historically IT has been viewed as a constraint to new ideas and innovations as CIO’s primary focus and responsibility was on building and maintaining secure and stable platforms and tools that “keep the lights on.” While it is still essential to securely maintain these systems of record, it is now a competitive imperative that IT evolves to a business enablement role that leverages technology innovations which deliver new revenues and profits for the company.

A Framework for Organizing and Implementing IT Innovations

In his recent book, Escape Velocity – Free Your Company’s Future From The Pull Of the Past, my brother, Geoffrey Moore, put forth a three part innovation framework that is designed to significantly increase the ROI on innovation investments. At the core of this framework are three distinct innovation playbooks (see chart below) that clearly define the mandate and desired outcome for each one. Here are the key diagnostic questions that clarify those mandates and outcomes:

  • Have we differentiated our offer enough to gain real competitive separation?
    • Have we created a truly unmatchable offer?
  • Have we neutralized offers with enhanced features from our reference competitors in a timely manner?
    • Have we gotten to good enough fast enough?
  • Have we optimized our opportunities for gains in resource utilization and cost reduction?
    • Have we reclaimed unproductive resources and redeployed them against differentiation or neutralization opportunities?

pic 1
Two Rules of Thumb
There are two key rules of thumb that can keep you from making the mistakes most companies make and result in most innovation initiatives not achieving their desired goals and outcomes (see chart below ).

  1. Never tie differentiation and neutralization innovation programs to the same release schedule. Differentiation is all about how far while neutralization is all about how fast. Combining the two dumbs you down and slows you down.
  2. Best in class is appropriate for optimization innovations only. It is too low a mark for differentiation (goal is beyond class) and too high a mark for neutralization (goal is good enough).

pic 2
Some compelling examples

Here are some recent examples that caught my attention of how companies are trying to get better returns from their portfolios of technology-enabled innovation investments:

Burberry_logosmBurberry – When Angela Ahrendts took over as CEO in 2006, she envisioned how Burberry could remake itself into a digital brand. Her initiatives which tripled revenues during her tenure included:

80-A new website (Art of the Trench.com) that featured customers as models
-A more robust e-commerce catalog that matched the company’s in-store inventory
-The digitization of retail stores using RFID tags

walmart newsm@Walmart Labs – Walmart set up a separate “idea incubator” as part of its eCommerce division in Silicon Valley which helped the company increase its online revenues by 30% last year.

P&G Decision Cockpit – To improve the “clock speed” for new innovations at P&G, they set up a single analytics portal called Decision Cockpit. This tool provides real time data across brands, products and regions to more than 50,000 employees globally.

starbuckssmStarbucks optimizing back-office functions – In 2013, 1/3rd of the 100 active IT projects at Starbucks were focused on customer or partner facing initiatives; 1/3rd were focused on improving efficiency and productivity away from the retail store; and 1/3rd were focused on improving resilience and security.

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.