Friday, March 23, 2012

The Executive Relationship (Part 2 of 3)

Recap

In the first part of this topic, I described my views on the impact you can have on your ability to successfully communicate value to a CIO if you approach it from an IT strategy perspective rather than a feature / functionality perspective.  This is the way a CIO thinks (and has staff that is responsible for making their vision become reality) so matching this modus operandi allows you to get past the barriers that they naturally have because they feel you cannot empathize with what they feel is important to their success.

Before we can begin to understand IT strategy, however, a few concepts need to be defined.  Most of this is common sense, but you'll see how we build upon these later.

The Real Purpose of IT

A common, humorous statement goes something like this:  if you ask 10 [insert profession] the same question you'll get 10 different answers. This is especially true if you ask them what the role of IT is in the business - some will say "keep the lights on" while others will say "ensure that the company stays ahead of its competition through the use of technology."  In reality, few people truly understand that the purpose of IT is singular:

The purpose of IT is to design and implement a technology strategy that allows the lines of business to meet their goals.

That's it.  Nothing more, and nothing less.  And the reason for this is simple:  IT is still viewed as a cost center rather than a revenue generating center because companies are reluctant to implement chargeback policies.  The means by which it accomplishes this purpose include many of the answers you'll hear:  keep the lights on; provide technology that prevents a company from lagging behind its competitors; etc. but this is the driving force behind it all.

Similar to this is the purpose of each line of business.

The purpose of each line of business is to design and implement a set of initiatives that do one thing:  make the company money.

Given both of these purposes, IT strategy can then be subdivided into two halves:  business strategy and operational strategy.

Business Strategy

Over the decades the role of the CIO has evolved:  "in the beginning" CIO meant Chief Information Officer. In those days they had to justify their existence by clinging onto any business matter that had an iota of relevance to technology.  (I'm exaggerating for the sake of illustration, but I'm sure you get the point.)

Revenue vs. Budget
Now, the (successful) CIO is the Chief Innovation Officer, and they are business partners that have the same goal as each of the lines of business - make money - using technology as an enabler, a means to an end.

From where does the money come for the technology?  Look at the graph on the left, which conceptually illustrates the relationship between revenues and budget.  Total budget has always been a function of total revenues.  Subtract "typical" business costs like building maintenance / upkeep, etc. and you derive the (lines of) business budget. (We'll discuss Operational budget in part 3.)

You'll see that, in spite of the global financial crash in 2007, business budgets resumed their upward climb when total revenues did as well.  Why shouldn't they?  If the head of business tells the board that it needs $1mm to make $10mm with a high degree of certainty of success, who wouldn't approve the investment of funds?  This is emphasized even more when you recall that the sole purpose of the lines of business is to make money.

The catch here is that, after business initiatives A, B and C are implemented and the technology has been rolled out into the production environment the business is able to essentially walk away.  At this point, the infrastructure needed to support those initiatives becomes the responsibility of the KTLO - Keep the Lights On - role, and it is here that Operational Strategy becomes so important.

The final part of this blog entry will conclude this topic by examining what Operational Strategy is, why it is important, and then summarize in a very high level fashion how the CIO takes both types of business activity into consideration when developing their 18-24 month plan.

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