How do you turn money spent on IT into corporate profit? Although it is difficult to map precisely the links between IT investment and company results there are clear steps that can be taken by IT to maximise its business value.
At pharmaceutical giant Astra Zeneca chief information officer Paul Burfitt is taking those steps. Appointed in May 1999 to integrate the IT of the newly-merged Astra and Zeneca, he was tasked to save the company $150m (£100m) in IT costs.
"We needed to shift IS resources to where they could deliver greatest [business] value," he says.
But where was that delivery point? First, Burfitt needed to know what the company considered valuable, which meant acquiring a comprehensive understanding of its business strategy. "We have clear business priorities and I am confident our IS staff know what they are," he says.
Continued success requires Astra Zeneca to discover and develop new drugs and bring them to market before the patent expires and competition arrives in force. The patent clock is already ticking when a new drug is launched," says Burfitt. The degree to which IT can enable, support and accelerate this sequence of activities from discovery to sales is the business value it confers.
Knowing exactly what business wants of IT is crucial. Burfitt has divided IT into two categories:
- Staff working on IT demand - that is those working among employees in the business to identify opportunities for IT and feeding this information back
- IT supply - people who deliver IT.
Burfitt has outsourced IT infrastructure to IBM, but application development remains in-house, as does IT management and strategy. "IS demand people are embedded in and report to their business units, and only indirectly to me," he says.
Business value comes in varying amounts. Astra Zeneca classifies IT activity using the Cranfield portfolio management matrix:
- Strategic business advantage - difficult, very expensive, led by senior business executives and constitutes major business initiatives or transformation
- Key operations - critical, core, workhorse systems on which the company depends, and which must meet industry regulatory controls
- Support operations - the kinds of activities which need to be run at maximum efficiency and least cost
- Novel activities with high potential - fleet-of-foot experiments which might or might not work, run with a few people, typically taking less than three months.
Considering all of these, the crucial question Burfitt asks is "Have we got the right balance?" The decisions must be made with business colleagues. "We get quite a lot of discussion around here, such as should we be doing more of the high potential activities, or are we doing too much support activity?"
Because each IT activity or project in the grid is mapped against the business activity or project with which it is associated - from HR to drug development - it gives much-needed transparency to the links and dependencies between IT and business activity - and even helps to classify business activity in a coherent, value-driven way, points out Burfitt.
To counter-balance the value matrix you should apply a risk matrix as well. "Business change projects contain inherent risks," he says - and some are more risky than others. A project affecting a single site and a single function is, for example, far less risky than a project affecting many functions globally.
Similarly, a project which simply swaps out one technology for another is far less risky than one that totally redesigns a key business process and changes a large number of jobs as well.
Burfitt applies a "red-amber-green" score to projects. "Red are hard, amber are quite difficult and green are more straightforward and we know we usually do them well," he says. "Don't do too many red projects simultaneously, because the organisation may not be able to handle that much change all at once, and some projects may fail."
All red and amber projects must follow the company's global project management model, which provides a framework for how a project should be structured. "Measuring a project's success by whether it is completed to time and budget is meaningless in respect of whether it achieves business value," Burfitt says.
Business value has to be sustained throughout the life of the system, so understanding the total cost of ownership is essential.
The final plank of Burfitt's approach is to aim for a balanced scorecard. "In 2001 we had four key IS priorities," he says: to support business performance; to transform the way IS operates; to develop our IS skills and capabilities; and to deliver the integration and merger benefits.
"We've been pretty tough on ourselves to ensure honest scoring," he says. Tough enough to put more than his reputation on the line. "Some of our personal rewards depend on the scorecard results," says Burfitt.
How to deliver wins for the business
- Know what your company business strategy is, and what your key business imperatives are
- Divide IT staff into IT demand - those working in business units - and IT supply - those delivering IT, whether in-house or outsourced
- There are no pure IT projects, only business projects with an IT component
- Understand which IT systems and projects are strategic, core, support, experimental or high potential, and map them to the underlying business activities - (drivers and strategy)
- Make sure you have the balance right on the above - only business can decide
- Grade each project for risk - do not take on too many high-risk projects at once
- Do not sign off a project until the expected benefits have been measured
- Measure IT's performance - and link it to your rewards.