Month: September 2010

Foundation for open source strategy

Iterative analysis required to classify differentiating technologies and others. Generally, a logical straight forward approach does not fetch approvals from senior and executive management team. Strategist and architects must understand each senior and executive management team members individuals concerns, passion, interest, motivation and their vision and collate it. Work with them individually and as a team to build the consensus on differentiating technology and others. This classification plays a vital in defining the open source strategy.  The differentiating technology depends on the industry you are in. In oil and gas sector, safety plays a most vital role and classification is made based on those attributes. In banking and finance sector, compliance, information security plays a most vital role. For any companies, the credit ratings are important. Particularly it is very important for banking and finance sector. Explore the criteria used by credit rating companies, bank examiner, external investor to evaluate a company in banking and finance sector and identity the role played by IT in those scenario. It will provide insights on differentiating technologies and other technology category.

In this step, strategist or architects makes a case for technology investment plan. Differentiating technology requires investment and others category technology requires cost reduction or optimization. Objective in this step is to have net saving projection to the over all IT operating cost.

At end of this step, you will have the list of technologies which requires cost reduction and investment. In the next blog, I will write on the frame work to reduce technology cost.

(Note: If you want to follow the story of IT strategy formation in the absence of business strategy, please start from this blog post)

Blessings from Cheetahs for a long journey

A new revolutionary or evolutionary ideas are not agreed in one step nor in first step. It is a process to build consensus even to explore a new idea. An IT strategy may be an evolutionary or revolutionary idea based on the current state of an organization.  In the IT strategy definition process, the idea of change must be agreed by  senior and executive management of an organization before even a new IT strategy definition process is kicked off.  A need and purpose for a change in an IT organization becomes imperative when there is a business strategy clearly defined.  How do you define IT strategy when there is no clearly defined business strategy. In the previous post, I recommended that, in those scenario, create an IT strategy to improve the value of IT organization.  Since the IT valuation process and methods are so vague, I suggest, it is not wise  to start the discussion with senior executives as to increase the value of an IT organization as IT strategy.  The moment an IT strategy person starts the discussion of improving  value of the company, the speculation starts with wild imagination which are destructive.  

First step in introducing a change is to have courage to talk to executives of the organization and get their blessings for your ideas. The philosophy is, people will listen to your idea when you tell them nicely and you will have their blessings if it is a good one. The rank you hold in the organization does not matter and you will be able to connect with them, make them listen and get their blessings.  Result of the attempt to make the connection with your idea with your ideas  may be career threatening but,  as a strategy person, you need that courage to take the risk to make that change in the organization.

Reduction in operating cost of an IT organization is an easy sell. If someone has an idea to reduce the operating cost by 20-25% with out the reduction of services nor resources, then you will get everyone’s attention in the board room. Open source platform would be a good starting point if it is not fully maximized in the organization. Receive conceptually concurrence on embracing and encouraging open source platform in the organization. If that   is accomplished, that is a great starting point for a long road to reach the end goal – increase the value of an IT organization.

It goes back to the abstract strategy approach  “think big, start small and run fast”.

Once open source platform adoption is agreed than the next step is to show results. Look for a commercial software product that has significant on-going maintenance cost. It could be due to license, complexity, resource availability, hardware  or others. Identify an area carefully and diligently analyze the cause for higher cost. Study the availability of open source equivalent and its capabilities, capacity, supportability and maturity. Compare and contrast it with commercial product. If it is feasible to show cost saving with the open source replacement, identify technical resources and perform end-to-end proof of concept and show the results to the senior management. 

When people run fast, it is assumed that you reach the destination sooner. Generally, the audience does not have the curiosity to inquire the distance you run.  When you do a first proof of concept to prove your first idea of a long road, the time taken to accomplish it is very important. Don’t take more than 5 weeks to complete the proof of concept to show the results. Draft an implementation plan with risk.

Details on how to receive concurrence on open source adoption from senior and executive management will be in my next post..

IT Strategy: In the absence of a Business strategy

Business strategy drives IT strategy. But, what drives IT strategy in the absence of clearly defined business strategy?

Identification of successful business strategy in a dynamically evolving consumer and financial markets is extremely challenging and sometimes, it is impossible. Look back in few years, take business strategies of top companies and their result today, and hence the evidence of extreme complexity and challenge exist in defining successful business strategy for an organization in a dynamic market.

IT strategy supports business strategy in spite of the out come of the business strategy. True. However, the point is, some times business strategy can not be defined clearly or it does not exist and in that case, how the IT strategy should be defined.

In the absence of business strategy, IT strategy is to increase the value of IT organization.  Now the questions are, what is IT valuation and how to measure it, and finally how to increase it?

I had the opportunity to work with a purchase accounting project for a well known demerger in the auto industry.  I noticed, there is a significant market opportunity for a IT valuation model in spite of 3 of  big 4 consulting and accounting companies were heavily involved in that project. So I developed a simple IT valuation model to determine the fair market value of an IT organization to readjust the book value of IT assets.

To simplify it, let me put a different spin to IT valuation. Purchase accounting occurs after a merger or demerger occurs. But, before a merger or acquisitions occurs, an organization is evaluated for its market value. That includes tangible and intangible assets. The tangible assets are mostly fixed assets and over the years, valuation process for the tangible assets is more matured. Most of the IT valuation comes from intangible assets.  For a pure technology companies like Microsoft, Intel, the intangible assets of the organization can be quantified by patents, copy rights, trade mark and etc. For an IT organization supports a business function in banking and finance, oil and gas and etc, the intangible asset valuation is challenging.

In those scenarios, the intangible assets are:

  • An organization ability to adapt to market change in terms of capacity & capabilities. ie scale up or down infrastructure based on future requirements
  • An organization ability to develop a rapid applications for future requirement – skill set, processes, knowledge
  • An organization’s efficient operating cost mode –  in terms of license, hardware depreciation
  • An organization’s IT general controls and management – IT risk management, Security Management, compliance management

The above intangible assets of an organization improves the value of IT organization. It will be reflected  in case of merger or an acquisition.  In the absence of clearly defined business strategy, take the above strategic objectives of  IT strategy and plan.

The above IT strategy will reduce the cost, improve the over all reliability, flexibility, security and adaptability  of an IT organization. It requires investment and the question is how a CIO can justify the ROI for the above initiative.Biggest advantage of the above approach is, the initiative does not require any additional incremental cost. Since it has very high ROI, it will sponsor the project from its saving and improves the value of IT organization. When there is no clearly defined business strategy then the IT strategy is to improve the value of IT organization.

If any one interested to understand the granular details of the above IT strategy, practical difficulties of framing the strategy, actual results and etc. More blog postings will follow to provide the details of the above steps. Mean time, if you’re impatience and you need immediate information,  please do not hesitate to contact me.