IT Process Organization

(Provided by Booz-Allen & Hamilton)

Technology Issues

DRI VER I /T CHALLENGE

I /T Staff Turnover Rates > 14%

Wages increasing at a rate of 4x average

Renewal Eff orts Major ERP implementations (SAP, Peoplesoft, Oracle)

Emerging Technologies Requires diff erent management model than maturetechnologies

Outsourcing Must determine where and how to use service providers

Demand Management What level of service, which development projects?

Costs Costs perceived to be too high with too little control

from the business

How should businesses be charged for these services?

Growth How can I /T support and enable corporate growth?

Organization

What organization model should I /T adopt (Centralized,Decentralized, Shared Service)?

How can duplicate services (“shadow” I /T shops) bemanaged?

Extended Enterprise What I /T services can enable supplier/customer processimprovements?

Business Imperatives are Putting Challenges on the I/T Capability

Business I mperatives I /T Implications

Scaleability

Mergers, acquisitions and entry into new markets require thecapacity to deploy increased levels and coverage of services quickly

Divestitures, J V’s and outsourced business processes drive loss ofscale and loss of cost eff ectiveness in existing services

I mplementing new technologies and accommodating business changecreate large peak demands f or services

Flexibility

Flexibility is essential to introduce new technologies andaccommodate business change

Freedom to select the technologies best suited f or businessobjectives is important (i.e., technology choice is not dictated byinternal skill base)

Responsiveness andManageability

Quick access to productive, external resources is needed torespond to business opportunities

Reliability Service levels must be reliable in an unpredictable, changingenvironment

Sustainability

Need skills that will eff ectively transfer technology into theorganization

Viable career paths are needed to eff ectively manage and leverageI / T f or business benefi ts

Cost- Eff ectiveness Variable costs must be kept variable

Must maintain our cost competitiveness while changing scale

Risk Minimization Need to make the right choice on technologies and partners

Need to manage the overall risk in our technology portfolio

Taking a Process View Has Helped Several Organizations Improve the Value Received from the I/T Capability

• Improving the value and return on I/T assets by focusing resources on critical market driving capabilities (e.g., “Advantaged Systems”)

• Positioning the I/T Organization to support growth

• Improving service management disciplines using process based organization concepts

• Capturing cost reduction opportunities of up to 40%

Capturing Information Technology Opportunities Requires the Implementation of Best Practices on a Global Basis

• Simplifying I/T Operational Processes

— Separate supply and demand, fixed and variable

— Eliminate low value added work and redundant support systems accumulated over years of growth, acquisitions, etc.

— Optimize I/T processes for low cost delivery…benchmark to best practices

— Develop processes to share expertise and internal best practices

• Restructuring I/T Delivery Model to Achieve Operational Effectiveness

— Centralize operations where strong economies exist

— Develop service level agreements to create accountability to the line

— Balance sourcing of I/T capabilities (insourcing vs outsourcing)

Capturing Information Technology Opportunities Requires the Implementation of Best Practices on a Global Basis (Cont.)

• Leveraging Information Systems Investment

— Enforce common technical architecture standards (hardware, software, network)

— Implement rigorous cost/benefit standards for new application software investments

— Optimize application software maintenance requirements

• Reducing Headcount Costs

— Strip out redundant support systems and staff accumulated over years of growth, acquisitions, etc.

— Staff to “base case” I/T delivery model and streamlined I/T processes

I/T Transformation is a Long-Term Program for Change

Identify/Validate/Prioritize

DetailedDesign

ImplementProcess

Scopingthe

OpportunityContinuous

Improvement

Segment/Roles/Responsibilities

TransitionPlanning

ImplementOrganization

StructureDecision Go

Iterate/Streamline/Structure

Accountability/Alignment Action

PolicyDecision

Go

BusinessProcess Redesign

Phase I Phase II Phase III

Corporation Staff Design Approach

Each Phase is Based on Facts and Analysis to Drive the Business Change

Lost Economies of Scale in Help Desks(FTE’s Versus Call Volume)

Client’sHelp Desks Were Too

Small and Did Not LeverageEconomies of Scale

Sufficiently

HelpDesk

(FTE’s)

Help Desk Call Volume(Calls Per Month)

Root Cause Analysis Highlights Common Themes That Erode Value

COMMON THEMES I MPACT EXAMPLES

Decentralized anddiversified corporatestructure

Limited sharing among divisionsand/or geographic areas

Duplicate groups and assets

Loss of economies of scale

Small and subscale Help Desks

Small and subscale Data Centers

Multiple applications supportingthe same process

I nformal cost/benefitprocesses

Selection often driven byhistorical not economicconsiderations

Excessive dependence onautomation through technologyto capture benefits

Excessive number of productdevelopment projects focused onautomating low- value transactions

I nsuffi cient support of cross-functional applications targeted tosupporting key decisions

I nsuffi cient costvisibility andaccountability over I /T

Excessive discretionaryactivities

Lack of visibility of I /T costslimits opportunities to makeeff ective cost/service tradeoff s

Multiple planning and technologygroups

Underutilized computers andnetwork, often viewed as “sunkcost” with no incremental cost

I nadequate level ofstandardization

Unclear definition of whocontrols assets – often leadingto lack of standards and tounderutilized assets

Limited definition andenforcement of standards

Multiple Networks and Desktopstandards increased support costsunnecessarily

Multiple organizations defining andenforcing standards often createda diff erent set of standards bydivision and/or geography

Once the Opportunities are Understood, Objectives are Set to Guide the Design:

• Achieve best in class cost savings

• Redirect cost efficiencies to fund new business opportunities

• Deploy a flexible organization that will support a growth strategy– Respond proactively to strategic changes -- e.g., new JVs, deregulations– Facilitate entry into new markets– Establish partnerships with service providers

• Respond promptly to business needs– Establish clear accountability over key services– Create global organization to facilitate cooperation– Establish priority over delivering services -- not technology

• Develop reliable solutions, more cheaply and more quickly– Consolidate Infrastructure -- on a global scale– Leverage learning and expertise on a global basis– Fund and create a global, standard infrastructure -- new applications will

“plug in” to the infrastructure– Develop global, common application solutions

Benchmark Studies on Growth Companies and Leading Edge Practices are Useful to Guide Design

• Growth company benchmarking concluded successful companies were leveraging scale and standards to control overhead costs and deploy quickly in new geographies

• Best practice process benchmarking revealed options to improve value– Demand and supply management– Cost restructuring– Leveraging the market– Knowledge sharing

• Our benchmarking confirmed a new approach to HR management is needed:– Demand for I/T resources will continue to outpace the supply– Traditional HR practices are challenged by rapidly changing business

and technology environments– Existing retention and reward practices are not always market

competitive and can hinder I/Ts ability to attract and retain key talent– Employee training and development practices often lack a strategic

focus on business, organization and people requirements

Fundamental Reengineering Starting With a Service Mission and Definition Allows the Organization to Redesign Itself

Based on Priorities

• Process Improvements

• Development

• Computer Operations

• Telecommunications Networking

• Problem Support

1

2

3

Identify KeyServices

ReengineerProcess

Deploy Process-Based Organization

Clients

EncouragesNew

Behaviors

Measure, Benchmark,and Manage

Service Levels

The Analysis Starts by Prioritizing the Key Services and Processes to Redesign

Key I/TServices

I.BusinessSystemsPlanning

II.Architecture& Standards

III.ApplicationDefinition &

Analysis

IV.Develop &Implement

Applications

V.Support/Maintain

Applications

VI.Engineering,

Design &Implementation

VII.Asset &Contract

Management

VIII.Operations

IX.End-UserSupport

ProcessImprovement

Development

ComputingOperations

Telecommuni-cations, Net-working

ProblemSupport

These marksrepresent the focus of the

reengineering effort

See Overhead Slide

The New Processes Address All Key Management Issues Identified in Phase I and Drive the

Organization Design

KEY I SSUES (PHASE I ) ORGANI ZATI ON DESI GN I MPLI CATI ON

Excessive demand

Lack of accountability of demand to business

Separate demand and supply groups and makethe business accountable for demandmanagement (through formalized I /Tembedded groups)

Poor management of standards

Multiple, duplicate I /T groups

I nsuffi cient scale (e.g., data centers, helpdesks)

Multiple, unclear accountability over I /Tservices

Create a single I \ T shared serviceorganization, design the organization to beprocess- based to deliver services eff ectively

Establish I /T Business Council to manage I /T

Establish a single architecture and standardsfunction

Merge data centers into one

Eliminate unnecessary management positionsand create an empowered work force

Need to perform business processreengineering Establish the I /T Process Specialist position

A Key Aspect of the Change is to SeparateDemand and Supply Management

I/T BusinessManagers

(Embedded)

I/T BusinessLeaders

(Embedded)

ManagementCouncil

GlobalInformation

Manager

GlobalSystems

RegionalI/T

Supply

GlobalNetwork

ComputingService

Service &Asset

Management

DEMANDDEMAND SUPPLYSUPPLY

I/T SHARED SERVICE ORGANIZATION

Focus = I/S Service Delivery

Separate Demand and Supply Organizations are Needed to Maximize Sharing While Maintaining

Strong Business Focus

• Enable I/T to meet two separate goals– Reduce I/T supply costs by increasing sharing and by

standardizing I/T services -- throughout the embedded organization

– Increase I/T value by prioritizing I/T solutions aligned to specific business strategies and filtering discretionary, low value-added requests -- through I/T shared services

• Create constructive tensions between both groups which enables the organization to make cost/service tradeoffs effectively

• Formalize a demand management process and organization which helps control and eliminate “shadow” costs

An Implementation Guide Defines the New Organization and How It Operates

TABLE OF CONTENTS

I. Implementation Guide Summary

II. Products and Services

III. Major Processes

IV. Major Process Changes

V. Organization

VI. Governance

VII. Demand Management

VIII. Organization Linkages

IX. Organization Capabilities

X. Roles and Responsibilities

XI. Accountabilities

XII. Budget

XIII. Service Agreements

XIV. Related Projects

IMPLEMENTATIONGUIDE

See Overhead Slide

Regular Benchmark Analysis Ensures That the Organization Remains Market Competitive and Focused on Supporting the Business Strategy

ReengineerFor Growth

Establish“Balanced”Scorecard

Deliver I/TServices,Measure

Performance

Benchmark Periodically- Cost- Service Levels- New Investments

NegotiateCost, Service

Levels

Client Requirements

Updated StretchTargets

InitialTargets

Market Input

• Identify “Market” competitive performance targets -- especially in a high-growth environment

• Review current performance against market cost and service levels

The Organization Must Implement Best Practices for Continuous Improvement

• Assign accountability for continuous improvements to those responsible for each service -- not to a dedicated quality management group

• Establish a close link between scorecard performance and performance based systems -- in process

• Define periodic market competitive “stretch” targets through benchmarks

• Continuously improve I/T cost and service structure– Ongoing Service -- Organize I/T buyers’ committees to review cost

and service performance and to negotiate future targets– Current Investments -- Appoint “process professionals” to maximize

the value of current applications/investments on an ongoing basis– Discretionary Investments -- Review value proposition for new

projects and perform “post-audit” reviews to capture benefits

• Negotiate cost and service levels with clients