Chapter 12 IT Strategy and Balanced Scorecard Prepared by Dr. Derek Sedlack, South University Learning Objectives IT Strategy and Strategic Planning Process Aligning IT with Business Strategy IT Sourcing and Cloud Strategy Balanced Scorecard Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Strategy and Strategic Planning Process • Value Drivers – Enhance the value of a product or service to consumers, creating value for the company (such as advanced IT, reliability, and brand reputation). – Three general types of Business Value Drivers: • Operational Shorter-term factors • Financial Medium-term factors • Sustainability Long-term factors Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Strategy and Strategic Planning Process • IT Strategic Planning – A systematic process for determining what a business should become and how it can best achieve that goal. • Reactive Approaches Fail – Fail to align IT to real business needs. and, as a result – Fail to deliver value to the business. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Strategy and Strategic Planning Process IT Strategies Support the Business Strategy • Four IT Strategic Plan Objectives: 1. Improve management’s understanding of IT opportunities and limitations 2. Assess current performance 3. Identify capacity and human resource requirements 4. Clarify the level of investment required Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Strategy and Strategic Planning Process IT Deployment Strategies • In-house development – Systems are developed or other IT work is done inhouse, possibly with the help of consulting companies or vendors. • Sourcing – Onshore: sourced to consulting companies or vendors that are within the same country. – Offshoring: work sourced to other countries. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Strategy and Strategic Planning Process Figure 12.2 IT strategic planning process. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Strategy and Strategic Planning Process IT Steering Committee • Set the direction – Links corporate strategy with the IT strategy, • Allocate scarce resources – Approves the allocation of resources for and within the information systems organization including outsourcing policy. • Make staffing decisions – Key IT personnel decisions involve a consultation and approval process made by the committee, including outsourcing decisions. • Communicate and provide feedback – Information regarding IT activities should flow freely. • Set and evaluate performance metrics – Establish performance measures for the IT department and see they are met. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Strategy and Strategic Planning Process • Governance – Formally established statements that direct the policies regarding IT alignment with organizational goals and allocation of resources. • Long-range IT plan (Strategic IT plan) – What IT should do to achieve the goals, objectives, and strategic position of the firm and how this will be achieved. – The overall direction, requirements, and sourcing of resources. – Time frames are set for three to five years into the future. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Strategy and Strategic Planning Process • Medium-range IT plan – Identifies general project plans in terms of the specific requirements and sourcing of resources as well as the project portfolio. • Tactical Plan (Short-range) – Details budgets and schedules for current-year projects and activities. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Strategy and Strategic Planning Process • Project Portfolio – Lists major resource projects that are consistent with the long-range plan. • Applications Portfolio – A list of major, approved information system projects that are also consistent with the long-range plan. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Strategy and Strategic Planning Process 1. 2. 3. 4. 5. 6. What are value drivers? What are the three categories of value drivers? Why do reactive approaches to IT investments fail? What is onshore sourcing? What is the goal of IT–business alignment? Why is IT strategic planning revisited on a regular basis? 7. What are the functions of a steering committee? 8. Describe the IT strategic planning process. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives IT Strategy and Strategic Planning Process Aligning IT with Business Strategy IT Sourcing and Cloud Strategy Balanced Scorecard Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 Aligning IT with Business Strategy • IT Business Alignment Improvement Activities 1. Commitment to IT planning by senior management. 2. CIO is a member of senior management. 3. Understanding IT and corporate planning. 4. Shared culture and good communication. 5. Multilevel links. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 Aligning IT with Business Strategy • Strength of CIO & C-Suite Relationship Influences Performance 1. Achieve better results. 2. Adapt quickly. 3. Think together. 4. Act together. 5. More aligned on strategy. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 Aligning IT with Business Strategy • CIO Skillset – Political savvy – Influence, leadership, and power – Relationship management – Resourcefulness – Strategic planning – Doing what it takes – Leading employees Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 Aligning IT with Business Strategy • IT/Business Alignment – CIO drives business change through the use of digital technology, not just supporting business, but introducing profitable new lines of business. – Even older organizations, considered traditional and slow-moving, can become agile, even innovative through technology. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 Aligning IT with Business Strategy 1. How can IT–business alignment be improved? 2. How does strong collaboration among the CIO and other chief-level officers influence performance? 3. What skills are important to a CIO’s success? 4. How did the CIO of CBA contribute to the bank’s competitiveness? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives IT Strategy and Strategic Planning Process Aligning IT with Business Strategy IT Sourcing and Cloud Strategy Balanced Scorecard Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 Balanced Scorecard Old Approach to Business • Lagging Indicators – P&L, Cash Flow, Balance Sheets – Confirm what has happened. – Evaluate outcomes and achievements. – Represent history, not ideal for managing day-to-day operations and planning. Multidimensional Approach to Business • Leading indicators – Predict future events to identify opportunities. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 Balanced Scorecard Figure 12.3 Balanced Scorecard (BSC) uses four metrics to measure performance. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 Balanced Scorecard Balanced Approach Metrics • Financial – Revenue, earnings, asset utilization • Customer – Market share, Brand image, price-value relationship • Business processes – Cycle times, cost per process/transaction • Innovation, learning and growth – Employee skills, IT capabilities, R&D Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 Balanced Scorecard IT & Business Strategy Alignment through BSC • Clarify and update strategy • Align IT strategy with business strategy • Link strategic objective to long-term goals and annual budgets Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 Balanced Scorecard Identify performance metrics Implement necessary data collection tools Select meaningful objectives Collect, analyze, and data with targets Select effective measures and targets Revise actions Alignment The BSC methodology process. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 Balanced Scorecard 1. How did the BSC approach differ from previous measurement approaches? 2. How does the BSC approach “balance” performance measurements? 3. What are the four BSC metrics? 4. Give an example of each BSC metric. 5. How does BSC align IT strategy with business strategy? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives IT Strategy and Strategic Planning Process Aligning IT with Business Strategy IT Sourcing and Cloud Strategy Balanced Scorecard Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Sourcing and Cloud Strategy Cloud Strategy and Services • Cloud Strategy – Short for cloud computing IT strategy. • Edge Service – Term that refers to a cloud service. • Tactical Adoption Approach – Incremental deployment resulting in apps and services, patched to create end-to-end business processes. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Sourcing and Cloud Strategy Cloud Complexity • Extensibility – The ability to get data into and out of the cloud service. • Migration Issues – Cybersecurity, privacy, data availability, and service accessibility. • Newer Challenges – Cloud integration with on-premises resources, extensibility, and reliability. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Sourcing and Cloud Strategy • Sourcing Driving Factors – Generate revenue – Increase efficiency – Agile enough to respond to market changes – Focus on core competency – Cut operational costs – More accepted IT strategy – Cloud and SaaS have been proven – Move IT from capital to recurring operating expenditure Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Sourcing and Cloud Strategy Outsourcing Risks • Shirking – The vendor deliberately underperforms while claiming full payment. • Poaching – The vendor develops a strategic application for a client and then uses it for other clients. • Opportunistic repricing – Client enters into a long-term contract with a vendor, the vendor changes financial terms at some point or overcharges for unanticipated enhancements and contract extensions. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Sourcing and Cloud Strategy • Work Not Readily Offshored – Work that has not been routinized. – Work that if offshored would result in the client company losing too much control over critical operations. – Situations in which offshoring would place the client company at too great a risk to its data security, data privacy, or intellectual property and proprietary information. – Business activities that rely on an uncommon combination of specific application domain knowledge and IT knowledge in order to do the work properly. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Sourcing and Cloud Strategy Outsourcing Lifecycle Strategy Reassessment Selection Negotiation Implementation Oversight Management Build Completion Change Exit Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Sourcing and Cloud Strategy Vendor Selection Criteria – Experience with very similar systems of similar size, scope, and requirements; experience with the ITs that are needed, integrating those ITs into the existing infrastructure and the customer’s industry. – Financial and qualified personnel stability. A vendor’s reputation impacts its stability. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Sourcing and Cloud Strategy Focus On Value Not Costs – Costs undermine goals. – Close relationships are mutually beneficial. – Both sides are best served viewing relationship over simple transaction. Before Signing… – Do a trial run. – Create SLAs. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 12 IT Sourcing and Cloud Strategy 1. What contributes to the complexity of a cloud strategy? 2. How does tactical adoption of cloud services differ from a coordinated cloud strategy? 3. What are the major reasons for sourcing? 4. What types of work are not readily outsourced offshore? 5. When selecting a vendor, what two criteria need to be assessed? 6. What is the risk of an overemphasis on cost when selecting or dealing with an IT vendor? 7. What needs to be done before signing a contract with an IT vendor? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.