Recently, Rethink IT introduced 5 disruptive trends currently impacting IT and business leaders. One of the most unruly trends is that which signals IT’s shift in responsibility to the various business units within a company, bypassing IT in some instances. Given the shift in IT’s stronghold on technology and subsequently the transferal in budget allocations throughout an organization, how must governance change?
Before we consider this important question, we first need to define the term governance. In a broad sense of the word — governance refers to the management of IT investment. This includes hardware, software, services, people, and facilities. Additionally, governance includes the maintenance of alignment within the business practices, updating investment strategies, adhering to adopted standards and architectures, and managing the overall demand for IT services.
Traditionally, the IT governance organization consisted of the CIOs’ who acted as chairperson, senior IT leaders, representatives from finance, and potentially a few business leaders. The governance process focused on gathering requirements from the business units for new application functionality, compiling the needs associated with running the IT infrastructure, and bringing those together with the IT budget. This resulted in a prioritized spend for the upcoming planning period.
Today, with a greater proportion of the IT spend originating in the individual business units, the balance of power has noticeably shifted, and the traditional governance organization no longer has the same level of authority. Therefore, the governance model – organization and processes – are faced with both adaption and adoption.
WGroup has identified the following key suggestions for the new-generation of IT governance:
Business leaders must take a more active participatory role. It is imperative they are a part of, and actively engaged, in the governance process. They need to represent their parts of the business while also maintaining an appreciation for the priorities detailed in the enterprise’s strategic plan and make decisions in that context.
The role of the governance body becomes one of ensuring the various business entities are implementing IT solutions that are complementary, company assets (i.e. data) are protected, the investment is aligned to expected benefits, and the risks are identified and mitigated.
The CIO’s role becomes one of a key contributor of emerging technology opportunities, an arbiter of technology investment decisions, and an enforcer of standards designed to protect assets. While this paradigm may appear to mean the CIOs role has greatly diminished it, in fact, takes on new life. The CIO, in his new role, truly represents the needs and priorities of the overall enterprise. The greatest challenge is changing the personal operating mode to one of facilitation and steering the governance organization to decisions that reflect those priorities.
A well thought-out governance model serves as a foundation to manage other disruptive trends affecting IT such as increased focus on social, mobility, big data and “bring your own device”. When business leadership takes an active role and becomes exposed to the opportunities and risks these trends present, they are able to make better decisions for the enterprise and align more fully behind those decisions.
Organic growth, corporate expansion, increasing competition, and seizing new opportunities all require constantly evolving business strategies to keep the organization moving forward. As a key enabler of business strategy, IT must also evolve. The challenge is doing so in light of a rapidly changing technology landscape and ever-emerging business requirements. In view of these challenges IT must constantly question whether yesterday’s best practices, policies, technical architecture and governance processes still make sense.
WGroup has identified seven leading indicators that signal it may be time to conduct an assessment to determine effectiveness, and what benefits you can realize from doing this sooner rather than later.
Before we forge ahead, let’s stop for a moment and define -“What is an IT assessment?” An IT assessment is a comprehensive and thorough review of a company’s technology systems and environment. The assessment will appraise how the technology helps or hinders the core business. The assessment can include, but is not limited to, network and systems performance, software audits, concept testing and development, strategy evaluations, technical reviews, and risk management processes.
An effective IT assessment ensures that IT serves the business, and can drive substantial cost savings, increased efficiencies, and compliance to best practices. With so many service delivery options out there, ranging from outsourcing initiatives and shared services models to comprehensive vendor management organizations and enhanced governance processes, IT leaders are asking when and how to make the transition from outdated best practices to the new realities of IT.
The following seven leading indicators signal it is time for an IT audit and assessment:
Before a Major Investment: From building a new data center to opening a new facility, IT leaders need to understand the underlying technology and processes for seamless implementation.
During Significant Corporate Expansion: Companies undergoing growth and expansion should look into new approaches to reduce redundancy and add capacity.
Technology of Process Issues: From legacy systems to new business requirements, new technology implementations can stress the IT environment. IT leaders must assess the effectiveness of their applications, and identify new options to move forward.
Embarking on New Strategic Direction: When the corporate strategy changes, IT leaders need to understand what IT issues might impede the new business direction and which will enable it.
Considering Emerging Technologies: Before implementing the newest technologies, IT leaders must understand the foundational requirements and processes for seamless integration.
Under New Regulations: IT leaders need an independent understanding of compliance with new and updated industry regulations.
Combat Inertia: For continuous improvement, IT leaders should implement regular checks on their IT health to ensure early identification and resolution of issues.
If the results of the IT audit and assessment are leveraged effectively companies will realize immediate benefits such as cost reductions, elimination of redundancies, improved risk management and an effective application of new technologies.
The most successful outsourcing relationships we have seen between customer and provider are those that focus on business value. Business value is achieved when you can optimize the supplier’s solutions and capabilities to your advantage, at a cost-effective price.
When evaluating future state solutions, consider that certain technical approaches offer value beyond the current targeted service requirement. Look for the net impact to the overall proposal against long term strategy versus tactical short term solutions.
Certainly, deal pricing should be within the top three considerations to evaluate. But it should not be the primary or only consideration. From our experience, the supplier’s day-to-day behavior is based on both their profitability and opportunities for future growth. A low bidder deal may have been the result of the supplier establishing an initial presence or designed as a loss-leader at your company. If there is no balance between that profit on the existing deal and future contract growth potential, the supplier behavior negatively changes over time.
How do you avoid this supplier pricing and profit pitfall? We recommend a few simple things to remember when formulating your sourcing strategy and plans.
Understanding your own requirements and current state costs are key. Develop your sourcing strategy with a focus on value, where the requirements and outcomes should be inclusive of your intended future state. Be sure to include transformational initiatives that can funded by some of the intended savings. Sometimes providing the supplier with a cost range target will help fight against an over-engineered, gold-plated solution.
Choose suppliers for the bidders list with the necessary skills and capabilities to meet and exceed your future state requirements. During the sourcing process, you should learn as much about the supplier and their “sweet spot” capabilities as possible. Talk to their best, most satisfied reference customers, and on balance, their customers who aren’t that satisfied. You will gain insight into whether or not the supplier will be an appropriate match both from a solution and relationship standpoint.
Every supplier is different – and they need the opportunity to respond according to their proven solution and delivery approaches. Allow them to blend their best-of-breed, new and innovative solutions into your future-state solution, utilizing alternative technology platforms, frameworks and service delivery models. Creativity should be encouraged when developing solutions. You paid for a breadth of experience. Let the supplier propose out-of-the-box solutions and temper them with internal review. But scrutinize the solution so that your current and future state requirements can both be met, and at a cost-effective price. Keep in mind that this is a long-term, strategic supplier relationship you are building, not just executing a commodity transaction. Unbolting from a sourcing deal is difficult and often painful; instead, establish a supplier relationship based on short and long-term business value.
If you choose to ignore these points and require a supplier to provide you with a cost-centric “your mess for less” approach you will drive the supplier to lower margins and scaled-back solutions just to hit your cost target. You will likely not realize transformation, develop innovation, nor drive continuous improvement for the longer term. Consider this to ensure you get the most value from your outsourcing relationship.