For two long years CIOs have largely succeeded in squeezing cost out of their IT departments. Now, as the economy starts its fitful resurgence, they find themselves pressed to justify their value to the business, and to enable the business to capitalise on the fleeting opportunities that present themselves.
How can they persuade the board not to outsource everything to Google and Azure? How can they build up their credibility with business colleagues? How can they save their jobs?
IVI, housed at the National University of Ireland Maynooth campus outside Dublin, is the product of more than 60,000 man-hours put in by IT experts in dozens of companies, academic researchers, and paradigm-changing consultancies, supported by a $10m (£6.76m) investment from Intel, the world's largest maker of microprocessors and a heavy-duty internal IT user.
More than 80 firms have already chosen to be measured under IT-CMF's terms. Five energy companies, including BP and Chevron, are using it now in the first collaborative sectoral study to benchmark the oil and gas industry's IT investments and capabilities.
The IT-CMF model is the brainchild of Martin Curley, Intel's global director of innovation and head of IVI. It is based on Curley's 2004 book, Managing IT for Business Value. Exposure to real world experience and updated academic research has refined the model.
IVI believes IT-CMF is now a practical tool to assess or benchmark a firm's IT capability, to provide a framework through which to distinguish the best use of the IT budget in terms of return on investment, and a blueprint to allocate and monitor the IT assets at the CIO's disposal.
How it looks
The model consists of four macro processes:
- Managing IT as a business
- Managing the IT budget
- Managing the IT capability
- Managing IT for business value.
Together they comprise 32 sub-processes, plus one on sustainable IT.
Where possible the model incorporates existing techniques and maturity models, such as ITIL, CMMI, and CoBIT, to provide a complete and integrated way to assess and manage the way IT adds value to the business.
Curley says IT adds business value in two ways. One is "keeping the lights on" by ensuring business continuity. The other is by enabling business change in response to market events.
The rule of thumb, supported by research, suggests that 70%-80% of IT budgets are spent on keeping the lights on, and that the balance goes to new applications. But after two years of cost-cutting and an uncertain economic outlook, IT departments are now being asked to come up with fresh implementable ideas to help grow the business.
The IT-CMF offers CIOs a way to make better choices about what to spend their money on in the light of what the business owners say they want. It also provides a "common vocabulary" shared with CIOs' peers in the business, Curley says.
This common ground elevates the IT discussion from how to get iPlayer running on the chairman's mobile, to how to use IT to gain sustainable cost and delivery advantages over the competition.
Getting the answer right is crucial to preserving the CIO's job.
Ralf Dreischmeier, partner and managing director of the Boston Consulting Group (BCG), one of the founding patrons of IVI, says the world economy is splitting in two. The west is a stable, slow-growth economy, while the emerging markets are accelerating, but from a low technology and economic base. Unburdened by legacy systems, they pose a clear threat to the status quo.
"The need for value creation is becoming more and more important," he said. "Coupled with the shift towards consumerisation, there is a recognition that technology is becoming more important."
A recent BCG survey of 1,600 top executives found that 75% felt that innovation was the most important factor in coping with the new reality, he said. "But how much innovation really happens - very little."
He said key to the future is to be "operationally excellent", no matter what the industry.
He said increasing numbers of staff are working outside the office, and firms are increasingly likely to be tied into their suppliers' and customers' supply chains, forcing collaboration.
"Companies like Proctor & Gamble say that more than 50% of their innovation will come from outside the company," he said.
Preparedness is all
So how well-prepared are firms to meet these challenges?
Andrew Agerbak, a principal with BCG, reported on IT-CMF assessments at scores of Fortune 500 firms.
- In terms of managing IT as a business, the average was 2.9 out of 5.
- Firms scored better at managing IT budgets, at an average of 3.2.
- They averaged 3.0 for managing IT capability
- and 2.9 for managing IT for business value.
However, there were wide gaps between the top and average performance in specific areas such as innovation management, service analytics and intelligence, and enterprise architecture management, he says.
Firms collected lots of data about their systems, but few could say precisely how it related to overall business performance, he said. Similarly, enterprise architects had lot of technical skills, but were unable to translate it into what that meant for the business.
"IT departments can often make a strong business case for new projects, but they are weak at providing evidence of value delivered," he said
In terms of overall maturity, the high-tech sector (at 2.5) led financial services (2.2), 'others' (2.1), utilities (2.0) and pharmaceutical firms (1.9).
Case study: Beaumont Hospital
Over the past two year few sectors have faced as much pressure to cut costs as the public sector in Ireland.
But the IT department at one of the republic's largest teaching hospitals has turned that to its advantage.
In the spirit of not wasting a good crisis, Beaumont Hospital CIO Martin McCormack says the pressure to cut costs meant that people could think freshly about what was really important.
McCormack called for an IT capability maturity assessment using the Innovation Value Institute's (IVI) IT-CMF process, and used the results to guide the board's decisions about how best to spend an IT budget cut by 25%.
"After some help from IVI, the results gave us a common language with which we could discuss the applications portfolio, plan new apps, and the criteria we would use to measure return on investment," McCormack said.
The key change has been to evaluate the systems in terms of value delivered to patients. "We deal literally with life and death decisions," said McCormack. "What patients and doctors value is fast and accurate information about a patient's condition."
Understanding the hospital's IT capability was key to winning early involvement with projects such as the €40m (£33.47m) National Integrated Medical Imaging System (NIMIS). Beaumont now uses the web to deliver scans of accident victims within 30 minutes of the patient being scanned.
Similarly, it developed an electronic patient record for its 600 cystic fibrosis patients. The application saved the hospital €200,000 at a cost of €3,000. "That's now a fixed cost. We can now reuse that record template at no cost for all future cystic fibrosis patients, and we can adapt it at minimal cost for other care disciplines," he says.
It also allowed him to go back to the board and tell them not to give him any more money. This year's budget, which includes 200 staff, is €7.5m. "I had all I needed," he says.
Beaumont's expertise with handling images and making them available quickly for analysis prompted interest from energy company Chevron. Jack Anderson, who is in charge of innovation at the oil company, said his engineers use imagery extensively to find new oil deposits.
"We might have something to learn from Beaumont," he says. "That's one of the main benefits of being part of the IVI community - there's always someone who's found a way to address a similar problem to yours, and they are happy to share their knowledge."
Case study: Cisco
Network equipment maker Cisco is to use the Innovation Value Institute's (IVI) IT capability maturity framework (IT-CMF) to help manage both Cisco's internal IT as well as the development of the software that drives its network products.
Cisco joins Intel, Microsoft, and SAP as an IVI patron. All are using the framework to get a tighter fit between the overall business strategy and the deployment of their internal IT assets and processes.
Robert Kuppens is one of Cisco' four CIOs and has specific responsibility for the Europe Middle East & Africa region as well as IT innovation and creativity in the firm.
"It's about how we can increase our revenue and at the same time become more productive," he said. "We've got to become faster and more agile to deliver the right capabilities to internal clients, business partners and external customers."
Kuppens said Cisco does not separate internal and external software development. "The Cisco IT organisation supports the Cisco R&D organisation to leverage internal quality for external capabilities," he said. "That's why we need something like the CMF."
Cisco assessed its IT capability several years ago. "The view was that we were delivering the right capability at the right cost, but too late," Kuppens said. "What we are trying to do now is almost to predict where the business is heading so that we can deliver the right capability sooner."
This starts with understanding what Cisco's basic delivery capability is today. "You've got to have a predictable operating model. The framework helps me understand where the weakest link and the strong points are," he said.
This helps him in discussions with business unit managers who are eager for new apps. "The conversation is around the four main areas of growth, productitivity/profitability, the client's experience level, and IT's capability," he says. This helps both sides understand more precisely what's required to meet expressed goals.
Kuppens noted that business unit managers don't really care how their systems are delivered. As a result, Cisco is headed towards becoming an internal systems and services provider, he said. "We will be having our own private clouds, combined with public clouds, to deliver services rather than systems. In the near future a business manager will be have a palette of services that he will be able to pick and chose from. One part of the service catalogue will be a commodity service - you click on it and it's pay-as-you-go and you don't have to talk to IT to get it.
"Then you might mash up different service capabilities where things are a little more customised, but still require very little IT interaction. Then there are the applications which definitely do require IT involvement and require a (fully-argued) business case to justify it."
Kuppens said this will help business unit managers decide more accurately what time, cost and function trade-offs they have to make to get their fully-customised system.
Cisco is going to its suppliers, such as IBM and Vodafone, asking what they have off-the-shelf that can make its life easier. For example, this means having links between Cisco's purchasing system and IBM's sales order system so that Cisco managers can click to order their laptops, subject to pre-agreed budget and configuration limits.
Similarly, Cisco has asked Vodafone to "pre-populate" the bills it sends Cisco so that staff on a Vodafone contract can see in real time what they owe for personal, company and data calls, and manage their allocated budgets. "For us that's a major challenge because we want to give staff the freedom to use the device, but we don't want unpredictable bills," he said.
Switching to a service mode of delivering IT requires a huge change in the IT department's skills mix, one that started two years ago, he said. "We call it 'IT as a service organisation'. Some people hate it, but it underlines the change in the mix of skills that we think will be required in future," he said.
Kuppens said the scope for the technically-minded IT worker is vanishing fast. Server farms now auto-populate themselves, provisioning is highly automated, as are other datacentre operations. "Unless the people who like doing these jobs re-educate themselves, their jobs are gone."
This was first published in June 2010