Three Steps to Better Business-IT Alignment

IT departments don't exist in a vacuum. They serve the other business units of the organization. But often aligning the goals of the IT organization to those of other units can be a challenge. In order to develop a few concrete steps that companies can take to better align business and IT, Syntel asked some of its top executives to share their advice. Here's what they had to say:

1. Implement a Business Services Model (BSM)

IT organizations are driven and evaluated by metrics — percentage of uptime, the number of abends, etc. But business owners — non-IT personnel whose business units rely upon a certain application — often feel that IT is measuring the wrong things, and metrics often contradict the actual performance of the organization.

To illustrate this point, let's examine the case of a hypothetical claims processing application. The metrics indicate 99 percent uptime, but business owners are not happy. The cause of their angst is that fact that the application is often down during the early morning and late afternoon hours, the critical times when new claims are submitted and reconciled, respectively. To the business owner, 99 percent uptime is useless if it's not available when they need it. The problem arises from a lack of communication of specific business priorities and the poor translation into vague measures.

The solution, according to Mike Voss, Syntel Client Partner, Health Care, is to implement a Business Services Model (BSM). To accomplish this, both business and IT need to come together and negotiate internally to develop metrics that are linked to business priorities. Business must understand IT's capabilities and limitations, while IT must develop an understanding of the business needs.

This is easier said than done, says Voss. "IT is accustomed to being a driver rather than a support function, and business owners are not used to being involved with IT planning. Neither side is used to actually negotiating with an internal party," he says. "So this is another challenge that will have to be overcome."

Another important step is to discourage "cooking" the metrics, or structuring them so that they will appear more positive. One way to achieve this is to link the IT organization's reward and incentive systems to overall business performance, rather just IT service levels. While this will be an unpopular move, it is an important cultural change that can accelerate the process.

To ensure that metrics will properly measure alignment with business goals and user satisfaction, Forrester provides some advice. In order to be effective, a service level metric to:

• Be objectively measurable. Include a clear statement of the end result expected.
• Support customer requirements, including compliance issues.
• Focus on the effectiveness or efficiency of the process being measured.
• Allow for meaningful trend or statistical analysis.
• Apply appropriate industry standards or other external standards.
• Specify assumptions and definitions for satisfactory performance.
• Involve those responsible for the performance being measured in the development of the metric.
• Be accepted by the provider and the customer.

Forrester: Best Practices for Service Level Management, December 12, 2004

2. Link Strategic IT Planning to Business Goals

Both the annual and long-term IT plans must be linked to corresponding business plans. To ensure that the IT organization is planning investments that will support the overall business goals, each significant IT project and expenditure must be linked to a specific business goal. Furthermore, the business owner for each item should be identified and sign off on the expenditure.

For example, as part of their planning process, the regional IT units of a large US manufacturer submit individual lists of proposed projects and expenditures to the global IT organization. The global IT group collates these lists, identifies business sponsors for each item, and meets with the global business leadership to prioritize the portfolio. Each line item in the master IT project list is evaluated against the overall business goals, and the business leaders ultimately decide which of the projects are executed. In fact, in a recent survey by CIO, project prioritization was rated the most effective practice to establish a more effective IT function. (CIO Magazine, "How to Run I.T. Like a Business" May 1, 2004)

The solution, according to Mandar Kulkarni, Syntel Client Partner, Automotive, is to make sure that the IT leadership is involved in strategic business planning, although as a customer, rather than a contributor. "The business leaders must take great care to clearly articulate their business goals. This will help combat the 'Technology Freak' syndrome." According to Kulkarni, this occurs when the IT organization is disconnected from the rest of the business.

"In the absence of clear goals, IT can become more concerned with having the latest and greatest technology than with serving the business," he says.

3. Create a Three-Dimensional Organization Structure

Most IT organizations are vertically aligned, with various levels of staff reporting into a CIO, who is then responsible to the business leadership. However, some functions such as HR and Finance cut across geographies and practices, and the IT resources that support these systems should be horizontally aligned.

At a large U.S.-based consumer products company, for example, each division has a CIO who heads a vertically-oriented IT unit. Each divisional CIO reports to a global CIO. Additionally, there are executives responsible for all applications that support a particular horizontal function, such as Finance or HR. These executives report to both the global CIO and to the global head for that business function.

Sameer Gupta, Syntel Client Partner, Consumer Products/Retail, recommends organizing the IT unit into a structure that takes into account the particular business unit, technology, and functional area. Functional heads must have dual reporting, both to the CIO and to the business/operational head for that area, ensuring that IT is answerable for business performance.

The additional advantage of this leadership scheme is that is encourages common systems and platforms, which better serves current needs and enables future growth. This can be extremely beneficial in today's rapidly changing business environment, with large mergers and acquisitions becoming more and more common.

Enterprises should gradually move toward virtual workgroups and reporting frameworks based on common systems, technologies, and business goals.

Gartner refers to this structure as a "virtual matrix organization." The model identifies business sponsors, who come from the business or operating unit and are held accountable for the project and investment performance, and process owners, who design, implement and operate key business processes.

According to Gartner, "Typically, the virtual matrix governance structure includes a program management office — the competency center — that manages over-all programs. Individual project managers usually report to the program office as well as to business-unit or functional management. Thus, this creates the dual-reporting feature of the matrix." (Gartner, Leading and Managing in the Virtual Matrix Organization, March 11, 2004)

By following the three recommendations here — implementing a Business Services Model (BSM), linking strategic IT planning to business goals, and creating a three-dimensional organization structure — your IT organization can become more aligned with your company's business goals. And the more aligned with business goals, the more valuable the IT organization becomes. You may even find that other units see yours as indispensable to meeting their goals. Instead of working in a vacuum, you've created a team environment that makes the entire organization work like one big machine.

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