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CIO as a Venture Capitalist

Aug. 15, 2003 Issue of CIO Magazine | The Resourceful 100

THE RESOURCEFUL 100
GOVERNANCE

Deciding Factors

A strong, efficient governance process is practically the definition of resourcefulness. Put these governance practices to work to maximize the value of your IT projects and processes.
BY ALICE DRAGOON


STUART SCOTT MAY BE the vice president and CIO of GE Industrial Systems, but he sees himself as a venture capitalist. He and his colleagues on the investment council, which includes the CFO and the heads of manufacturing and engineering, sort through a tantalizing array of business and IT projects every couple of weeks during budget season to determine how best to invest the company's money. "The way I view my job, I'm a VC. I've got things I'm trying to achieve for the business and for GE shareholders," he says.

Like any VC who wants to stay in business, Scott constantly looks for the highest possible return, subjecting potential investments to a level of scrutiny that can only be described in polite company as rigorous. While Scott's governance practices aren't for the faint of heart, they consistently generate good results. This rigorous governance is one of the best ways to foster resourcefulness. "People think of governance as something very constraining and resourcefulness as something innovative, but in fact, governance is a core component of resourcefulness," says Howard Rubin, executive vice president at Meta Group. "It's hard to foster resourcefulness without governance." In other words, a solid governance structure promotes resourceful thinking within an organization. Here's a look at the top governance practices of some of the CIO 100 honorees and how they're putting them to work to encourage resourcefulness and create value.


1 Scrutinize For Value
Treat each IT project as an investment, and recognize when it's time to cut loose projects that aren't delivering sufficient value.

STUART SCOTT, CIO of GE Industrial Systems, considers himself a venture capitalist and makes decisions based primarily on how they will impact investors and the business.
After a technology buying binge in the late 1990s, Yellow Technologies (the IT services company that serves Yellow Transportation) set up its own version of The People's Court to review whether usage levels justify renewing software licenses and maintenance agreements. Once a month, four IT "judges" hear department managers defend the value of software that's up for renewal. By not renewing software that's underused or overlapping, Yellow (which acquired fellow CIO 100 honoree Roadway in July for $966 million, after the CIO 100 honorees were selected) has eliminated 2 percent to 3 percent of its annual software licensing costs and targeted another 6 percent for potential elimination.

Treating IT projects as investments requires going beyond tracking whether projects are on time and on budget, says Meta Group's Rubin. If the market changes, a project may not produce the desired outcome, even if it's early and under budget. Rubin advises tracking whether projects are on time, on budget, and on scope and on value.

It is also important to subject all projects, even infrastructure upgrades, to the same stringent approval process as any other IT project. AARP CIO of IT Solutions John Sullivan put his request for a mainframe upgrade alongside an enhancement for the marketing campaign management system, even though it's hard to discuss back-office technology in terms of business value. "I want the organization to get in the habit of making sure everyone—including me and my staff—can articulate clearly why we're spending our members' money on anything that we do," he explains.


2 Require Formal Project Requests
The annals of IT history are filled with horror stories of business folks lobbing requests for IT projects over the wall, then grousing when the results don't meet their needs. Today, requiring formal written project requests is a staple of resourceful governance. The act of committing IT requests to paper is the first step toward ensuring that an IT organization is putting its budget and staff to work on the highest-priority projects.

Giving the business control of the IT purse strings (or at least sharing that control) encourages business executives at CIO 100 enterprises to share accountability for project success with IT. Project request templates can be relatively informal or highly detailed. World Wildlife Fund (WWF) encourages business executives to complete a business case template, which asks for specific metrics such as a 2 percent increase in donations or a 24-hour decrease in payroll processing time. Those who don't fill out a template are much less likely to get a project approved, says Vice President of IT and CIO Gregory S. Smith. "It's really designed to get the business to start thinking about how this project or enhancement will add value to WWF, not just 'This is what I want to do,'" he says. "They find out very quickly if they can't define any project benefits." The template helps WWF weed out less important projects and focus on those that will deliver the most value.

The number of project requests at AARP has dropped dramatically since it deployed an online portfolio management tool. "They line up support and develop their idea before making [a request]," says Sullivan.


3 Reuse Whenever Possible
The opportunity to reuse software and hardware—the CIO's equivalent of getting a box of hand-me-downs—is resourcefulness defined. A well-governed IT shop will make consideration of reuse a part of its standard operating procedure. (To read more about resourceful reuse policies, see "Déjà New.") Northeastern University has formalized its reuse philosophy into an official methodology it calls the Assemble Approach. The university first leverages existing resources, then buys the best application needed, then builds what can't be bought. Following the Assemble Approach, Northeastern VP of IS Robert Weir's team leveraged existing resources—legacy systems including the financial aid, admission and registration applications—to develop a student Web portal in just 90 days. MyNEU features a single sign-on ability and lets students access e-mail and class calendars, register, drop and add classes, and use student-developed applications.


4 Mandate Speed With Short Deadlines
Time is money, so a company that completes IT projects faster is doing a better job of managing its resources. One of the most effective ways to build speed into the culture—and ensure that benefits are still relevant when they are realized—is to mandate delivery of value on short deadlines.

Winning Ideas  - Examine a project's ROI -Insist on a certain level of return - Establish a formal and repeatable post-implementation audit process - Take the amount of promised return out of the affected business unit's budget At GE Industrial Systems, small projects must achieve payback in less than one year, large projects in less than two years—and project time frames and budgets become tighter every year. (Only compliance projects, like those required by Sarbanes-Oxley, are exempt from the strict time limit.) "We should be implementing every year 50 percent faster at half the cost," insists Scott. "If it cost us $1 to put in a general ledger, it should cost 50 cents next year. If it took six months, then it should take three next year. We recently did an Oracle implementation in four weeks." Whether the policy of halving cost and time annually is sustainable remains to be seen. While the cost and time savings have been significant, Scott jokes that he hopes he will have been promoted before he has to ask his team to do something like implement ERP in a week.

At Hershey Foods, project requests used to pour in so frequently that Vice President and CIO George F. Davis jokes that even the janitor could submit a half-million-dollar IT request. Now, projects rarely take longer than a year. To expedite the request process, the company introduced a triage system. All requests are immediately classified as small (IT staff can handle within 10 days), medium (requiring more than 10 days and costing up to $249,999) or large (projects costing more than $250,000). The IS staff handles the small projects. Each medium project is slated for further discussion with the head of the business unit that proposed it. All large projects go before the IS advisory committee, which focuses on the most important projects.

"Our goal is to provide timely feedback," says George Spanos, director of logistic and sales systems (who is also in charge of Hershey's project management office). "The answer might be, 'No' or it might be, 'We need to discuss it at this meeting on this date,' but it's a lot better than not hearing anything."


5 Adjust Budgets To Reflect Benefits
Business units are taking responsibility for funding IT projects that directly affect them. Two-thirds of the CIO 100 honorees fund IT projects from business unit budgets. At GE Industrial Systems, if an IT project proposal claims it will save $1 million, then $1 million is taken from the project owner's budget once the project is approved—period. "It's a significant sign-up by the functional owner, who is then committed to deliver," says Scott. "We've just found if programs become 'free money,' then everyone has a great project idea. You end up playing liar's poker to find out who's really telling the truth. This eliminates all that. No one comes to us unless they believe in it." And taking money out of someone's budget is a foolproof way to ensure that it won't be spent.


6 Manage Projects As A Portfolio
Fully 75 percent of CIO 100 honorees manage their IT projects as a portfolio—an excellent strategy for keeping sight of the forest through the trees (to Read More, see "Portfolio Management: How to Do It Right"). At Hershey Foods, a portfolio management system from ProSight has simplified the advisory committee's task of prioritizing IT projects. Instead of asking for the committee's feedback on one project at a time, CIO Davis and his team put some 20 to 30 large projects in context, showing their estimated dollar value and how they align with the company strategy. Davis says that despite tight budgets, his IT project budget doubled this year. "We got twice as much capital this year as we've ever gotten," he says. "We were able to articulate the value and show how projects align with the strategy of the company. It's a direct result of portfolio management."

Mony Group CIO E.P. ROGERS has transformed his IT group from being mostly operational in function to an even mix of operational and strategic.
The Mony Group Senior Vice President and CIO E.P. Rogers sees two roles for his IT organization: a utility operation that keeps the lights on, and a business partner working collaboratively with the business to identify and enable new opportunities. "If you don't do a solid job as a utility, you don't get a chance to be a partner or enabler," he says. Since becoming a shared services IT organization in 2001, Rogers says, Mony's IT group has gone from being 90 percent operational and 10 percent strategic to an even 50-50 mix. In other words, the financial services company has shifted 40 percent of its IT resources from utility operations to efforts that grow or transform the business. Meta Group's Rubin concurs that thinking of an IT portfolio in terms of projects that run the business (operational) versus those that grow the business (transformational) makes sense for most companies.

Once you have a portfolio of IT investments, safeguard those investments by making sure they're managed by experts. Project management offices (PMOs) increase the chances of success for IT projects. Expert project managers create and consistently employ best practice project methodologies. Bruce J. Goodman, senior vice president and chief service and information officer of insurance company Humana, says that even if he has no budget, he'll continue to hire project managers. Their skills are in such demand that his PMO "loans" out its project managers to other parts of the organization.


7 Close The Loop With Postmortem Audits
Checking to see whether IT projects deliver on promised value may seem like an obvious best practice, but Rubin says that auditing is relatively uncommon. Among the elite group of this year's CIO 100 honorees, however, 65 percent say they do post-implementation audits always or frequently.

Project managers are in such demand at Humana that CIO BRUCE GOODMAN "loans" out their services to other departments within the company.
GE Industrial Systems tracks project teams' histories of delivering value on time and on budget. This so-called say-do ratio reveals whether a team did what it said it was going to do. If a team spends more than planned, blows the deadline or doesn't deliver promised quality or financial benefits, it gets a zero for say-do on that project. Typically, teams hit all three 80 percent of the time. "If we feel a team has not delivered on prior projects, it has a negative impact on their ability to get funding the following year," Scott says. Rigorous? Sure, but there's a lot at stake. "We're spending hundreds of millions of dollars," he says. "We've got to make sure we're doing it right." By favoring teams with high say-do ratios, GE increases the chances that the capital it invests will pay off.

At hardware retailer Chase Pitkin, CIO T. Christopher Dorsey also happens to be the controller. Not surprising, he and the CEO consider only hard-dollar ROI when analyzing projects. Dorsey builds in specific metrics, and checks results monthly against P&L statements. For example, he found employees weren't always calculating special-order delivery charges correctly. After deploying a special-order system that automatically calculates delivery costs, Dorsey was able to determine the value of adding that function when the line item for home delivery income increased by 59 percent.


8 Avoid Draconian Measures
Cross-functional steering committees are typically composed of managers from both IT and business units. The cross-functional steering committee is used most often by CIO 100 honorees for architecture and infrastructure decisions. An executive council--made up of C-level executives, the head of IT and business unit leaders--decides on new projects and business initiatives at CIO 100 enterprises. A governance structure that is too constraining or draconian will alienate the businesspeople you're trying to engage to help set IT priorities. It's important to strike the right balance. "We had too much governance in the wrong places, or none at all," recalls Humana's Goodman. For example, he has eliminated the old practice of agonizing every month over how many full-time equivalent IT employees should be devoted to each business area. Instead, he shoots for the right range, based on his best estimate. "We try to keep bureaucracy to a minimum," he says.

Communicating to set the right tone and ensure that everyone involved understands your governance processes is also critical. The goal should be to avoid ambiguity and surprises. "Governance by definition is somewhat constraining," says GE's Scott. "It's not a free-for-all. It's meant to control. I try to communicate up front about what is the governance process, how does it work, and how people can be successful as project leaders."




Whatever governance you have in place today, be ready to adapt it to make the most of tomorrow's business conditions. "My governance has evolved," says GE's Scott. "My governance process five years from now will be different. It will be adjusted to whatever the requirements are at time. In the end, governance is forced upon us by the environment in which we work."

More Governance Best Practices
Effective governance promotes resourcefulness. Here are four more best practices of this year’s CIO-100 winners.

Read More
Good governance can also shape that environment to a certain extent. According to Meta Group's Rubin, governance should set boundaries but not mandate the use of this technology or that. Instead of establishing governance practices that focus on constraining and setting limits, Rubin says, organizations should set policies that feed innovation and resourcefulness. "Governance policy has everything to do with thinking of IT as an investment—and the return you're getting," he says. "A governance policy that says, 'Thou shalt only do things using this technology' and doesn't look at outcomes is a constrainment policy. A best practice in governance promotes thinking that leads to resourcefulness."


Contact Senior Editor Alice Dragoon via e-mail at adragoon@cio.com.

 

 

 

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