I was working with an IT group that had recently been asked to increase their "value-added” and start running their operation more "like a business.” They nodded in agreement at the time. But upon returning to their offices, immediately began asking what this really means and what should be done first.
Lots of articles and research discuss these topics, but what are the simple ideas and practices that really work and are easily implemented? CIO Magazine reported a best practice IT group in this arena and identified five of their business practices:
- Begin each year proposing a Value Agreement to business customers specifying goals and service levels
- Measure customer satisfaction
- Provide monthly management report/dashboard in Balanced Scorecard format
- Track top performers and identify high-potential individuals
- Develop leadership and communication skills in the technical staff
For the group in question, we developed an implementation plan shown in Chart 1, which incorporates not only the best practices reported in CIO Magazine, but also other elements that you might want to consider for your organization.
In this article I won’t cover each of the plan elements in-depth. Instead, I’ll address two business practices which, when implemented correctly and in concert with one another, help provide a majority of the data and supporting analysis you need to implement these practices and go a long way towards helping run your organization like a business.
Most of you have heard of and probably used scorecards and activity analysis at some point, often with varying degrees of success. When used correctly and following basic principles, both of these techniques are common sense and extremely useful tools. These two techniques complement one another and focus on different aspects of the organization. Chart 2 shows an overview of the top-down/bottom-up process, along with some of the resulting outputs. As you can readily tell, these outputs match up well with best practices and the implementation plan elements from Chart 1.
One key learning when implementing is not to overextend either of these two techniques. For example, activity analysis usually works best in understanding, measuring and improving work from an operational, i.e., bottom-up, viewpoint. However, it does little to help define strategy or identify what you should be doing.
On the other hand, scorecards work well with strategy and top-level metrics, i.e., top-down, but tend to fall apart as they cascade down into functions and work processes. Scorecards also do little to identify what actually needs to be improved to change performance metrics.
As you can see, the strengths and weaknesses of these two techniques tend to complement one another and can be a powerful "one-two” punch for understanding, measuring and improving your organization.
Bottom-up with Activity Analysis
Many often think that IT is primarily about technology and systems, but the IT environment should be understood as a process. As one CIO emphasized in an Internet Week article, "You give me good people and a great process, and we’ll beat any organization with the best technology but a poor process and under motivated people.” In one short sentence, he’d captured the essence of process and activity analysis.
Activities and work processes are at the heart of any organization as they produce our outputs and are the source of competitive advantages. Most would agree that it’s worthwhile to understand what these activities and processes are, what they cost, why they cost that amount, where to improve, and how they support customers. Activity analysis provides these answers in a common sense and data-focused approach.
The first step in activity analysis involves translating your "not overly-useful” budget data into an activity-based view that allows you to quantify what your organization is doing and what it costs. With just this first step accomplished, you have developed unit costs, workload data and benchmark comparisons, and can begin asking pertinent questions about the value of your work processes.
You can then trace these costs to a series of services and products and to the business units that consume them. With just these two steps, you’ve now in a transparent manner:
- Defined and quantified activities/responsibilities, services and outputs
- Developed unit costs, overall costs and consumption rates for chargebacks and service level agreements
- Identified best practices and benchmark comparisons
- Developed the data for metrics, target costs, outsourcing comparisons and budgeting
Chart 3 shows an example of these two steps.
Next up is cost driver and process analysis to quantify non-value added for each of the activities, thus leading the way for generating improvement initiatives and return-on-investment calculations (Chart 4).
The final step includes developing operational performance measures and identifying those that will most likely show impacts of efficiency and effectiveness initiatives, and thus lend themselves to inclusion on a scorecard (Chart 5).
In just a few short steps, you’ve generated a tremendous amount of operational awareness and performance data to understand what you do, what it costs and how you can do it better. You now have a majority of the actual data you need for implementing the business practices shown in Chart 1 – all through using a single and coordinated activity analysis process.
You might think that such analysis takes a long time. Would you be shocked to know it just takes four days? If you want to see how dozens of other organizations have done it, plus get access to the free FastTrack web-based activity analysis software, go to www.fasttrackabm.com.
Top-down with Scorecards
Most organizations have used or are using scorecards. However, as the Hackett Group warned us a few years ago, "Most companies get very little value out of Balanced Scorecards because they haven’t followed the basic rules that make them effective.” Many companies and consultants are guilty of making the process too complicated.
When first implementing or updating scorecards, mission and vision statements can be a good place to start as they help crystallize the value of the organization and communicate it to employees and customers. Just don’t fall into the trap of cobbling together a series of business phrases that would only make sense in a Dilbert cartoon.
Instead, mission statements should help define the core purpose of the organization and address why employees come to work. One useful technique for developing mission statements is the "5 why” technique. You start by identifying what you provide your customers and then ask a series of questions on why this is important. Somewhere near the fourth or fifth iteration, you’ll begin to identify your mission.
Vision statements then define the future of your organization and should be a source of inspiration for employees (and customers). Close your eyes and visualize your organization in ten years. What do you see? How are things working? What have you achieved? Answers to these will help craft your vision.
With a common understanding of mission and vision, you can now begin to craft your actual scorecard. It’s not complex and only requires three simple efforts:
- Understanding your operational and strategic objectives, i.e., what do your customers expect from you and what do you need to survive in the future
- Developing lagging measures – lagging measures are usually attainable and may be leading indicators in other areas
- Identifying initiatives to accomplish change
That’s all there is to it. With answers to these three, you can assemble a scorecard and easily brief any executive on your strategy, how you’re measuring success, and what you’re doing to accomplish change (Chart 6 shows a sample scorecard format). Again, this doesn’t take weeks or months to accomplish, but only a few days.
From here it’s relatively straightforward to link ‘top-down’ with the ‘bottoms-up’ activity analysis and cascade the scorecard and metrics down to various functions, teams or individuals (see Chart 7). With this completed, you now have most of what you need to begin running your organization like a business.
Not long ago, CIO Magazine interviewed internal users of IT services and asked if they were getting a good deal. For those that said yes, they identified three components of value. First, satisfied users understood exactly what IT delivers. Next, they believed that costs were fair. Last, they knew the contribution of IT deliverables to the bottom line.
These three could be considered the foundation of running IT like a business. It’s how you want your users to feel in the end and it’s exactly what you get when implementing top-down/bottom-up.
Andrew Muras is Senior Manager of BAE Systems Technology Solutions & Services and is responsible for developing and implementing performance management, knowledge management and business solutions for both industry and government organizations. He teaches various courses and workshops in performance measurement and process analysis techniques across North America. His professional experience includes IT and back office/shared services functions and front-line operations. Andrew has published a book, "Process Improvement and Performance Management Made Simple", www.simpleprocessmgmt.com, and has over a dozen articles in such publications as the Journal of Corporate Accounting and Finance, IT Financial Management Journal, the Petroleum Accounting and Financial Management Journal, Performance Management Institute’s Measured Quarterly and the Shared Services News. He lives in the Dallas/Ft. Worth area and can be reached at 817-481-2997, firstname.lastname@example.org.