Category: IT Investment Management

Playbook for Innovation

There are numerous definitions; perspectives and understanding exist for innovation in market place. It is educational to listen, analyze and understand various school of thoughts on the subject and most of it is useful. My definition on innovation for a profit organization is:“Innovation is a better or new method to bring efficiency or generate revenue”. As always, since Stone Age, innovation is the back bone for future & future economy and this message was echoed by The President of United States, The Prime Minster of India, major management consultants and chief executives of corporate world. In the recent survey conducted by McKinsey, 84% of executives say innovation is extremely important to their companies’ growth strategy. Strong message and emphasis on innovation from senior political leaders, management consultants and top executives motivates citizen of a nation and members of a corporate world to think and work on innovation. But the real challenge being faced by corporate world is lack of executional leadership capacity and refined steps to cultivate innovation.

In absence of executional leadership capacity,a structure for innovation within a corporate world, the members who would like to invest their time to be innovative, go down on a path which does not provide fruitful result. Innovation initiatives in an organization without a framework nor a structure is similar to the people who tirelessly worked hard, creative, extremely smart who were passionate to develop a flying machine by watching the behavior of birds. They were successfully able to fell down with wings in terms of flying.

In my own experience, I have seen in organizations where innovation program is established by placing suggestion boxes, launching bright idea database and introducing contemporary furnished conference rooms. When an organization is placing suggestion boxes for innovative ideas, the organization culture is too far behind in general communication. The immediate goal and focus of that organization should be to work on basic general organization communication.

“The real challenge being faced by corporate world is lack of executional leadership capacity and refined steps to cultivate innovation”

By just having a bright idea database, the employee who would like to take the organization imperatives and be part of it would come up with ideas which are impossible in reality due legal, regulatory, and compliance reasons. For instance; for an auto finance industry, a bright idea from an employee is to enter mortgage business segment. It is an idea, may be a bright idea but the company may not have license to be in that segment, nor capital to get into that market. Without this key information, employees are going to work very hard and think about the new ideas which are not practically possible to implement.

Playbook for Innovation:

  1. Establish an innovation program office
  2. Develop an innovation framework
  3. Communicate innovation framework to the organization
  4. Manage innovation
  5. Measure innovation
  6. Report innovation

1. Establish an innovation program office:

Make it as one of the performance measure of a strategic objective of a strategy map (strategy). Assign this task to an executive leader who has visionary ideas with executional insights – I called it as “executional leadership capacity”. It is challenging to find an executive leader in an organization with this trait.

2. Develop an innovation framework:

Let the program office develop this framework. The framework is a tool helps the organization to think outside the box within a business context boundary. There are five components to the framework. They are a) Organization change management: Partner with human resource department. Bring necessary training and coaching to the organization that helps members of the organization to think outside the box. Instill during the training that organization is willing to face both positive and negative consequence of each individual who are thinking outside the box. b) Business-IT alignment: Strong partnership with business team is critical for the innovation program office’s success. To accomplish it, identify partner relationship manager or IT ambassadors for each business unit and develop a sustainable bi-directional communication plan to enable fluid ideas flowing between all teams. c) Industry insights: Partner with the business strategy or business development team. Provide a periodic economical and industry data pertains to the business unit to entire organization. The organization must be aware of whom they are competing in the market, what is the market volume, market segment, how the distribution are spread out, what are the growth opportunities in the competitive landscape and etc. d) Business process competencies: Partner with business process management team or business process operation team or the team who manages the business process for the entire organization. This component of the framework should help the reader of the framework to understand how organization makes money.  e) Technology competencies: Identify technologically savvy and curious members in the organization and ask them to study game changing technology trends which are in the pipeline. At this time the game changing technology trends are: big data, mobile computing, social computing and cloud computing. The members must not be nominated by managers, the members of the team must be volunteered who wants to contribute in this domain.

3. Communicate innovation framework:

The framework is a document that contains all the above components. Make the framework available to the entire organization in all possible media and channels. If the organization management training and coaching technique is effective, organization will seek for the framework and keep it for their reference. It is program office responsibilities to keep the framework up to date and make it available to organization. The framework should also be made available as part of orientation training for new hire for both employee and contractor/consultants.

4. Manage Innovation:

It is the program office responsibility to guide organization to differentiate disruptive & sustained innovation combining with traditional and non-traditional approaches.

5. Measure Innovation:

It is the program office responsibility to measure how program office is performing by measuring number of disruptive & sustained innovative ideas submitted, reviewed, rejected, approved, funded, implemented, benefit realized and etc.

6. Report Innovation:

It is the program office responsibility to report all program office performance metrics to IT balanced scorecard to provide a holistic view on the organization performance.

IT Waste Management..

hmm.. Do you know what is being wasted in your IT organization?

Nirvana (the highest level of maturity) is not reality in IT organization. It is a stretch goal. There are always room for improvement in any IT organization.

Some time back, a set of projects were perceived as a high business value projects and in last few months the business climate or economical climate might have changed and the project could be in the brink of extinction.

Some time back, a set of skills was perceived as a core competency for the future organization and due to the recent merger or acquisition or economical situation, the business strategy changed and hence the IT strategy. The core competency developed few years ago is not core any more in the current environment.

Some time back, a set of tools bought to enable efficiency with in the organization is not really working out due to various reasons..

What ever the situations may be, the past investment made in technology, people, process may not be currently required with in the organization.

IT Waste Management must be part of IT finance management group and IT finance manager/director is responsible for IT waste management function.

IT Waste Management Process:

Trigger:
Change in business strategy, IT strategy,executive leadership (end up by changing the IT strategy) or  merger, acquisition

  1. Clearly understand the current direction of company
  2. Clearly understand the change in direction due to the trigger
  3. Identify the gaps
  4. Assess the impact of directional change in terms of
    • Vendor Contract  – Hardware/software/Purchase service/Professional service
    • Intellectual  capital loss (work with HR and IT senior management )
    • System landscape  (work with Architecture team)
  5. Identify the retirement plan or reusable plan for all IT assets. Multiple teams like architecture, HR, procurement all need to work together to develop the above plans.
  6. Execute the plan. Realize and monitor the benefits
  7. Report the sun downed systems to IT controlling as IT impairment assessment. The IT intangible assets which are in the books can be adjusted and would bring tax benefits to the company.

The systems which are sun downed or retired in the process must be reported to IT controlling as a IT asset impairment assessment to reflect the new IT intangible asset value in the books. It would bring tax saving to the company.

The above steps are part of IT waste management process and must be performed every 3-6 months in every IT organization.  It will bring operational and cost efficiency to any IT organization.

How much functional knowledge required for a CIO ?

Slowly IT (Information Technology) is becoming BT (Business technology). Traditionally the CIO of an organization (the core business is not IT) is a leader with strong technical background who understands the technology, systems, IT processes and have a less functional knowledge comparing to the IT knowledge.

Due to the role and function of IT changing rapidly, I predict that trend is going to change so quickly. In the near future, the companies are going to look for an extensive functional knowledge as a requirement for CIO. With increasing success of SaaS, ASP models, the hard core IT function (SAN, NAS, Network architecture, load balancers, SSL accelerators and etc) are not required to be directly performed by IT organization. It will be done by service providers and it is requirements by an IT organization to better manage the SLA, vendor relationship. Since the IT function is to enable and drive business (IT is not a service provider to the matured innovation organization) the functional knowledge is extensively required for a CIO to make the right decision. It is not going to be nice to have competencies of a CIO.

For example, for an Oil & Gas company, the CIO MUST clearly understand how OIL & GAS function generally work and it will be required that CIO must have worked in that sector as a Business Director or business senior manager.

How much functional knowledge required for a CIO?
Significant business functional knowledge is REQUIRED for future CIO to run the IT shop.

To test my theory, let us take Toyota Financial. As I understand (as per their web site), they are looking to fill the CIO position. Toyota financial organization goal is to support the consumer (who buys Toyota and Lexus product) by providing financial products like loan, lease, insurance and etc and dealers by providing financial products like floor plan, whole sale and etc.

As per my theory (or speculation), the new CIO will have an extensive business knowledge in the financial lending industry (like mortgage, auto loan, banks, etc). Let us wait for press release and verify my speculation.

IT Investment Management

When IT is a cost center to enable and support a core business (like financial services, credit card, etc) the investment decision with in IT requires a clear plan from the office of CIO and the plan is to align to the IT strategy. Investment management plan provides a guidelines to the senior management team of the IT organization to make the decision on projects, technology , people and process. Without the investment management plan, the organization investment and expenditure may not directly support the IT strategy.

Generally IT budget has the following category. Some of the categories are expenditure not investment.

  • Projects
  • Maintenance & Enhancement
  • Lights on
  • Technology
  • Hosting
  • Internal IT special projects (innovation or cost optimization)

Projects, technology and internal IT special projects are considered as investment and other categorize are expenditure. IT investment management is a structure and governance for the projects, technology and internal IT special projects.

Projects

Projects are major initiative an organization under take for that year to meet the organization goal. The project selection for each year will under go an internal process. The executive team will be part of the process and other key stakeholder (ideally from all the business process area) will participate to select and prioritize the projects and budget for those projects.

The projects for each year of an organization should be decided based on the current state of the organization and immediate requirements. In this market condition most of the industry segment (may be not oil & gas companies) are looking for the cost efficiency to sustain and continue the operation. For example, the financial industry (like Citi) are looking for funding to run their business. Looking for external investors like Abu Dhabi or Dubai etc and also they may look for innovative ways to bundle the securities to mobilize more funding or look for only a best customers to improve their securitization standards. The projects for this year for Citi will be more focused on this line of business. IT department will adjust their priorities and take this projects to support & enable Citi’s business. The IT projects are driven by the business team based on the current immediate needs. Strategic projects which may not fetch immediate benefits to the organization will be in the list and it will be prioritized accordingly.

Maintenance & Enhancement

Minor changes to the existing systems but a project. It is fine tuning the existing systems to continue to support and enable the core businesses. In few cases, regulatory requirements also will come under maintenance & enhancement IT budget bucket. This expenditure generally can not be avoided.

Lights on

This bucket is for keeping the system running to support and enable the core business. It is a regular maintenance like ensuring the log files are rotated, database back ups are taken, systems are regularly monitored etc. Some of the maintenance and enhancement may come under lights on. This expenditure can not be avoided.

Technology

Technology priority matrix (a different perspective of technology road map) is a list of technology and its priority to the company. For example, for financial service company the top most priority is to secure the systems to protect the consumer data.

An example of technology priority matrix:

  1. Security Technologies
  2. Business Intelligence
  3. Business Process management
  4. Enterprise systems
  5. Infrastructure technologiesAll the technological investment will be made based on technology priority matrix.

Hosting

It is a fixed cost for the running all the systems. It includes hardware, software, network, software license, desktop, system monitoring, mainframe, web environment. Every organization has a hosting cost and it generally it is a majority of the IT cost. It is slowly going to become a commodity and IT organization will not focus primarily on the hosting and focus on the business value augmentation.

IT special projects

Most of the organization does not have the IT special project bucket within their IT investment management plan. The purpose of this category to have funding to drive innovation, cost optimization (hosting provider evaluation), sourcing advisory, application portfolio assessment and etc. The special project priority matrix is created in collaboration with the senior and executive management of IT based on the IT strategy and direction. For an example, a special projects priority matrix is given below

  1. Innovation
  2. Cost optimization
  3. Organization alignment


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