I guess it is clichéd to say, but in this day and age that IT needs to be aligned with business to deliver the right value for the organization. And there have been so many dissertations about how best to do that. Experts talk of how the roles of the IT organization are changing from a service provider to that of a value creator. The continuum starts with roles like managing programs/projects, maintaining IT Infrastructure, application portfolio rationalization, negotiating service delivery arrangements, etc. to more strategic business focus such as aligning business and IT to generate incremental value, reducing technology costs, managing enterprise risks, reducing enterprise-wide business costs, developing technology-based growth strategies, unlocking revenue potential of intellectual property, etc.
But the typical problem CIOs face is that IT spending level is usually based on historical or competitive benchmark levels. There is often a lack of recognition for IT’s contribution to the business top line or bottom line. And IT cost-cutting further drives down the value-adding and innovative IT initiatives. As a result, IT capabilities deteriorate and midterm IT operating costs rise. This leads to the vicious circle: Business executives do not understand true IT needs and are inspired by external vendors and other sources. The business dictates a solution, IT accepts it and then IT resources are consumed by the complexity of non-optimal solution. There is pressure to deliver and consequently a high failure rate, rework rate and, hence, a low confidence in IT. This leads to further breakdown in IT business relationship and fuels more misaligned initiatives from an IT perspective. This misaligned spiral just tends to get bigger with time and worsening economic cycles.
To break this circle and to be considered a true partner of the business, the IT organization needs to accurately estimate and fill demand. It needs a consolidated view of all types of demand (IT Operations demand and IT Development demand) to realize tradeoffs and synergies. Supply constraints need to be looked at early in the project planning process to optimize project delivery. One of the biggest challenges to operationalize these concepts is to institutionalize IT Demand Management processes in the correct manner. IT Demand Management is a process to receive adequate initiative request, evaluate these requests for ROI and alignment, prioritize them, and hence create the right IT services organization by proper service catalog management. The value proposition of such a process is that it reduces investment risk, optimizes resource utilization, and minimizes cross-functional inefficiencies. It helps to focus resources on high-value business needs through more accurate forecast. It instills in the organization a greater discipline for developing realistic business cases that capture total cost and return on investment to enable trade-off decisions. This helps the IT organization step over its proverbial keep-the-lights-on role and engage more in EPS-enhancing (earnings per share) partnerships with the business.
Part of the legacy of the manufacturing principles from Toyota Production Systems (TPS) was Lean Thinking, which had concepts such as Just-In-Time manufacturing. This management philosophy believes in the elimination of waste in processes and the whole philosophy centers around 5 principles:
- Value – understanding what the customer buys and what the business s strategy should be.
- Value stream – the way value is delivered, including the IT value
- Flow – putting value added steps in sequence to create efficiency
- Pull – triggering flow from the customer needs
- Perfection – continuous improvement
The idea is pretty simple and yet very powerful. In order to define what value is, you need to know what your business really is and what it needs (what is the business strategy and alignment of IT Strategy to this). And then you design a process that encourages Flow and Pull systems. What this means is that you need to know how much water can flow through your pipe and only put so much more through it once some has left from the other side. So in IT management terms, you need to know your completion rate, your lead time and project arrival rate. Once you use this information to configure an optimized service delivery organization, you have to try to take on only projects that can be handled within this pipeline. And as and when they are executed, newer ones can be taken on. New projects enter the pipeline only after there has been one that is completed (Pull system). So if you see a situation whereby there are too many business needs and all lines of business (LoBs) are screaming for resources (people, hardware, software, etc.) you need to instill this discipline of establishing and managing a pipeline to handle a specific number of projects. These days CIOs also establish a portal/reporting mechanism for their internal customers to see the status of such projects (such visual boards were also used as part of the Lean Thinking principles in TPS). Every CIO that I have personally worked with has asked for these mechanisms to improve internal customer satisfaction and their experience of doing business with IT. So after the establishment and execution of these processes, the IT house goes from perception to reality to the desired outcome, as illustrated in Figure 1, where the customer can pull and pay for the services they need:
Figure 1: Redundant Processes When Managing Demand
IT Demand Management – Part of Your IT Governance
To further elaborate the concept of IT demand management, it’s important to realize that depending on the IT structure within the firm, this can be less challenging or just an excruciating exercise. Typically in large organizations with a more decentralized IT environment, businesses just ask IT to do a bunch of projects, based on historical budgets and some high level business forecasts. Part of the IT demand management culture is embedded in an overlying umbrella of IT Governance. This includes governance processes (processes that enable effective decisions and management of IT through all stages of planning, delivering, and operating), goals and metrics (business performance objectives and measures that provide insight and guidance to both business and IT leadership), and governance structure (structures, responsibilities and cultures that are clear, efficient and aligned to achieving the business objectives). The process for setting the right structure for IT demand management is to set up a structure for receiving, framing, prioritizing, confirming and base-lining the initiatives undertaken by the IT organization. Part of the Receiving phase is establishing an initiative triage and classification mechanism to help look at what might bring the best bang for the buck.
Initiative Request Triage and Classification
During the initial phases the team needs to be looking at elements like enterprise architecture alignment, business case development, impact analysis and portfolio allocation. This is to ensure that the correctstakeholders are enabled to capture the business and IT needs and everyone is looking at a bifocal strategy with tradeoffs for short term tactical projects and long terms strategic initiatives. For the IT Steering Committee (ideally a team of both business and IT participants) to look at the initiatives, IT organization can create thresholds for requests that they’ll look at, depending on the size and industry of the firm. For example:
Initiatives that are more than 3 months of duration
Initiatives that have an initial capital outlay of more than$150,000
Initiatives with cross-functional business impacts
When determining IT implications of proposed initiatives, the spending can be categorized into two categories, as shown in Figure 2:
Figure 2: Categorizing Project Requests to Perform Initial Triage
This process helps minimize effort focused on non- value add project requests, For example:
Small enhancements that have no impact within the system and are less than 40 hours of effort for design, code, test.
Request that requires immediate action, has no impact within the system, low complexity, and less than 8 hours of effort.
Request for a new report or updated report from the data warehouse. Does not include reports from specific systems (e.g., UWS or Focus reports
Functionality in the system that is not working as designed (i.e., any kind of help desk ticket)
Plan and Prioritize your IT Portfolio
After some initial analysis and categorization, IT relationship managers or demand managers should focus on better prioritization. The project prioritization could be based on the following parameters:
Business strategic fit – What value discipline is the organization pursuing – customer intimacy, operational excellence, or product leadership? This will enable the stakeholders to understand whether they need to focus on things like partnerships, enable/acquire new product capability, or reduce cost and complexity, etc.
IT strategic fit – Aligning the IT Strategy to a corporate value discipline could mean that the IT organization will understand where to focus – systems that enable faster delivery in the future, reduce IT running costs and risk through standardization, or build new architected capability, etc. For example, if a commercial bank is acquired by some retail bank, It will know to start looking at CRM capabilities seriously.
What is the project’s payback? Will it take 12 months or 18 months to break even?
What is the NPV of the proposed initiative? Especially with today’s economic climate, companies are putting even very high NPV projects on hold to minimize initial cash outflow.
Fixed and ongoing costs – Project requires addition of one or more permanent headcount to maintain.
What is the level of internal risk and external risk?
What is the level of technology risk? Is there a need for a one-purpose technology solution that does not fit with the Enterprise Architecture??
What is the likelihood of the risk to occur? What is the magnitude in cash terms of these risks? Value at Risk?
What are the risk response strategies – avoidance, transfer, mitigation?
Does the project use new technologies? Do we have the skills to take on this initiative to build and support the new technology stack?
Do we have the commitment / sponsorship to take on this project?
Have we done this type of project before? Can we use a repeatable approach to execute this project?
This ensures that the right initiatives are being evaluated and implemented by an objective process as illustrated in Figure 3:
Figure 3: Performing Portfolio IT Prioritization
Budgeting and Ongoing Monitoring
After this, depending upon the strategic planning process of the firm, this information can be further used to allocate appropriate budget. This helps create a consolidated view of all demand types to realize tradeoffs and synergies. The team can take the results of the IT prioritization process and begin adding projects in priority order to the IT Consolidated Plan. They need to ensure that project dependencies are considered when adding the prioritized projects and fill the IT Consolidated Plan to the target budget levels. This might involve iterating and driving to greater levels of detail in terms of resource requirements and staffing requirements to manage the proverbial funnel, as illustrated in Figure 4:
Figure 4: Managing Project Request Funnel by Priortization
Another important aspect of demand management is that it is an iterative and continuous process. There should be mechanisms set to continually monitor this for performance management, status tracking, and corrective action planning.