Mapping and Communicating IT Strategyc.ymcdn.com/sites/€¦ · – PepsiCo International ... CIF CRM Core Banking Services Banking Credit ... CEO, CFO, BU Heads, EVP operat ions,

February 20, 2009Atlanta SIM

Mapping and Communicating IT StrategyMapping and Communicating IT Strategy

Jeanne RossDirector & Principal Research Scientistp

Center for Information Systems Research (CISR)MIT Sloan School of Management

Phone: (617) 253-2348, Fax: (617) [email protected]; http://mitsloan.mit.edu/cisr/

Thi h d ibl b h f CISR d This research was made possible by the support of CISR sponsors and patrons.

Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross


CISR’s MissionCISR’s Mission• Founded in 1974; CISR has a strong track record

f ti b d h h fi g – Boston Consulting Group

MIT CISR gratefully acknowledges the support& contributions of its Research Patrons and Sponsors.

– IBM CorporationResearch Patrons

of practice-based research on how firms manage & generate business value from IT

• Research is disseminated via electronic research briefings, working papers, research workshops & exec. ed. programs including http://mitsloan.mit.edu/cisr/education.php

– BT Group– Diamond Management &

Technology Consultants– Gartner

– Aetna Inc – DHL Global Mgmt – Nissan North America

p– Microsoft Corporation– Tata Consultancy Services

Research Sponsors

2008 CISR Research ProjectsIT and Business Strategy:

•Achieving Superior Business Value from IT—A Single Framework of What Matters

•Managing IT for Efficiency and Growth

Aetna Inc.– Allstate Insurance Co.– ANZ Banking Group

(Australia)– AstraZeneca

Pharmaceuticals, LP– Banco Itaú S.A. (Brazil)

DHL Global Mgmt. GmbH (Germany)

– Direct Energy – Embraer – Empresa

Brasileira de Aeronautica S.A. (Brazil)

– EMC Corp.

Nissan North America– Nomura Research

Institute, Ltd. (Japan)– Parsons Brinckerhoff– PepsiAmericas, Inc.– PepsiCo International– Pfizer Inc.

•Benchmarking and Building Risk Management Capabilities*

•Business Models*The Digitized Business:

•Distributed Collaboration•Building Innovative Capabilities through IT

( )– Banco Real (Brazil)– BP– Campbell Soup Co.– Canadian Imperial Bank

of Commerce– CareFirst BlueCross

p– ExxonMobil Global

Services Co.– Fidelity Investments– Guardian Life Insurance

Co. of America– Johnson & Johnson

– PNC Global Investment Servicing

– Procter & Gamble Co.– Quest Diagnostics– Raytheon Company– Renault (France) g g

•Building a Platform for Agility•Enterprise Architecture as Strategy*•IT-Enabled Business Change*

IT Governance and Leadership•Maturing and Globalizing IT Governance•Redefining the CIO; Introducing the SEO

BlueShield– Caterpillar, Inc.– Celanese– Chevron Corp.– CHRISTUS Health– Chubb & Son

C lth B k

– Hartford Life, Inc.– HBOS Australia– ING Groep N.V

(Netherlands)– Intel Corporation– Int’l Finance Corp.

Liberty Mutual Group

– Standard & Poor’s– State Street Corp.– Sunoco, Inc.– TD Bank– Time Warner Cable– Trinity Health Redefining the CIO; Introducing the SEO

•Enhancing Engagement•IT Portfolio Investment Benchmarks, IT Savvy &

Links to Firm Performance*•Strategic Outsourcing*

* Projects previously conducted by MIT CISR that are regularly updated to include new data and publications

– Commonwealth Bank of Australia

– Credit Suisse (Switzerland)

– Det Norske Veritas(Norway)

– Liberty Mutual Group– Marathon Oil Corp.– Mars, Incorporated– Merrill Lynch & Co.– MetLife– Mohegan Sun

NASA

– TRW Automotive, Inc.– Unibanco S.A. (Brazil)– VF Corporation– Wal-Mart, Inc.– World Bank


Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 1

updated to include new data and publications.

Contact Information:5 Cambridge Center, NE25-778

Cambridge, MA 02142Ph. 617-253-2348; Fax 617-253-4424

E-mail [email protected]; http://mitsloan.mit.edu/cisr/

– NASA

Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR , 6-Jan-09

Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR , 6-Jan-09

AgendaAgenda

The Business-IT Alignment ProblemThe Operating Model as Guide to IT Capabilities– Four alternativesFour alternatives

– Differing requirements of the four operating models

Visualizing Operating Model Requirements in a High Level E t i A hit t G hiEnterprise Architecture GraphicThe Multiple Operating Models of Complex OrganizationsThe Implementation Journeyp yAn Evolutionary Approach to Changing Operating ModelsOperating Model Lessons from Top Performers



The IT Landscape at Most OrganizationsThe IT Landscape at Most Organizations

Corporate DataCorporate Data

DataData

ApplicationsApplications

Technology PlatformsTechnology Platforms



To Abandon Silos, Define An Operating ModelTo Abandon Silos, Define An Operating Model

A firm’s operating model is: the desired level of business process integration and business process standardization for delivering goods and services to customers.The operating model describes how a firm will profit and grow.



There Are Four Operating ModelsThere Are Four Operating ModelsC di i U ifi i

atio

n

gh

CoordinationUnique business units with a need to know each other’s transactions

Examples: USAA, PepsiAmericas,

UnificationSingle business with global process standards and global data access

Examples: Delta Air Lines, Dow

ss In

tegr

a

Hig p , p ,

MetLife

Key IT capability: access to shared data, through standard technology interfaces

p ,Chemical, UPS Package Delivery

Key IT capability: enterprise systems reinforcing standard processes and providing global data access

ess

Pro

ces

DiversificationIndependent business units with different customers and expertise

ReplicationIndependent but similar business units

Bus

ine

Low Examples: Johnson & Johnson, GE, ING

Key IT capability: provide economies of scale without limiting independence

Examples: Marriott, CEMEX, ING DIRECT

Key IT capability: provide standard infrastructure and application components for global efficienciescomponents for global efficiencies

Low High

Business Process Standardization



Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.


Different Standardization Requirements of the Four Operating ModelsDifferent Standardization Requirements of the Four Operating Models

C di i U ifi iat

ion

gh

CoordinationCustomer and product data

Shared services

Infrastructure portal and

UnificationOperational and decision making processes

Customer and product data

ss In

tegr

a

Hig Infrastructure, portal, and

middleware technology

p

Shared services

Infrastructure technology and application systems

ess

Pro

ces

DiversificationShared services

Infrastructure technology

ReplicationOperational processes

Shared services

Bus

ine

Low

gy

Infrastructure technology and application systems

Low High






Delta’s Unification Operating ModelDelta’s Unification Operating ModelOperational Pipeline

Clean/ServiceAircraft

UnloadAircraft

FlightArrival andCloseout

MonitorFlight

FlightDeparture

and Closeout

Load Aircraft

Prepare for FlightDeparture

AllocateResources

Operational Pipeline

E

Delta Nervous System

VENTS

Video

Voice

Pagers Gate Readers Kiosks Hand Helds

BusinessReflexes

Employee RelationshipManagement

Electronic Events

Location Maint.ScheduleFlight

Equip. Employee Aircraft Customer Ticket

Video

Nine Core Databases

Reservation

PDAs

ScannersLaptops

PROF

Desktops

Cell Phones

BaggageInflightBoardingCrownRoom

TicketCounterSkycapTravel

AgentReservationsSkymilesSkylinks

Reservation Systems

p p FILE



Source: Adapted from Delta Air Lines documents. Used with permission.

Personalization Digital Relationships Loyalty Programs

Customer Experience

250 B d

P&G's Diversification Operating ModelP&G's Diversification Operating Model

• Strong marketing and customer focus • Ownership of unique business processes• Product and service innovation and delivery

250 Brands

• Catalogue of services—some mandatory, some optional

• Marketing approach to build “brand” awareness • Marketing approach to build brand awareness and loyalty to GBS services

• Ownership of shared solution business processes

• Unit price management with guaranteed • Unit price management with guaranteed reductions over time

• Scorecard of GBS performance with variable compensation

• Architecture interconnecting the different

GBS Shared Solutions

• Architecture interconnecting the different solutions to be building blocks for innovation

• New product development group to add new solutions

• Management of outsourcing partners



• Management of outsourcing partners

Source: MIT CISR Briefing by Peter Weill, Christina Soh, and Siew Kien.

MetLife’s Coordination Operating ModelMetLife’s Coordination Operating ModelApplication Presentation Tier Application Business Logic and Data Tier

Customer

Security & Entitlements

Rates & Calcs

Licensing SuitabilityForms &

Requirements

Application Presentation Tier Application Business Logic and Data Tier

Screen Entry & V lid ti

Portal:Presentation Integration

Sign-On

NavigationBusiness

RulesProducer ACORD JLifeOperational Data Store

& Validation

Illustrations

Marketing

Search

SessionsSales Office

Party ManagementACORD XML

IntegrationHub

Order Entry

Billing/Payment

Underwriting

Underwriter

Underwriting& Issue

Service

Eligibility

Billing/Payment

Service

Partner Portals Events Workflow

Product Admin

Call Center

Servicei

Claims



Source: Adapted from MetLife documents. Used with permission.

Service Recording

Portals Events WorkflowProvider

ING DIRECT’s Replication Operating ModelING DIRECT’s Replication Operating Model

External Services

ReportsLocal/HQ/Tax

ProspectFulfillment

StatementFulfillment Payments Checks

Customer Relationship Services

Contact Product

CIF CRM

Core Banking Services

Banking Credit

MutualFunds Brokerage

ContactHistory

ProductInfo

Common Business Services

Ser icesTransactions C stomers Prod cts

BankingEngine

CreditScore

ServicesTransactions Customers Products

Channel Services

GatewayIVR/CTI Imaging E-mail Web GatewayServer

IVR/CTIServer

ImagingServer

E mailServer

WebServer

Customer Contact:Call Center, IVR, E-mail,

Self-Service:Internet, MinTel, ATM,



Source: “ING DIRECT: The IT Challenge (B),” D. Robertson, IMD-3-1345, 2003. Used with permission.

Direct Mail WAP, (WebTV)

C di i U ifi i

Johnson & Johnson’s Multiple Operating Models1Johnson & Johnson’s Multiple Operating Models1

atio

n

gh

Coordination Unification

USPharmaceuticals

McNeil Healthcare

Consumer

ss In

tegr

a

Hig European

Consumer Companies

ConsumerHealth Care

ess

Pro

ces

Diversification Replication

EuropeanPh ti l

Pharmaceuticals

Bus

ine

Low Pharmaceuticals

J&JCorporate

Low High




Legend Corporate Business Segment Regional Business Operating Company


1 Source: Researcher approximation based on historical data.

Target Operating ModelsTarget Operating ModelsC di i U ifi i

rati

on

igh

Coordination28% of business executives

16% of IT executives

Unification39% of business executives


ess

Inte

gr Hi

ess

Pro

ce

w

Diversification21% of business executives

16 % of IT executives

Replication12% of business executives


Bus

ine

Low

Low High




Framework Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.

Source, Business Executive Percentages: 107 Senior Executives—Attendees of MIT Sloan's "IT for the Non IT Executive Program" December 2007 and April 2008 -typical titles: CEO, CFO, BU Heads, EVP operations, President, CIOs, VP Business Services.Source, IT Executive Percentages: Survey of 70 IT executives—mostly CIOs and CIO reports from Fortune 500 companies, Spring 2006.

Companies gradually mature enterprise architecture and build out their platforms.Companies gradually mature enterprise architecture and build out their platforms.

Business Silos

StandardizedTechnology

OptimizedCore

BusinessModularity

Business Agilityg y

StandardInterfaces

and Businessand BusinessComponentization

E i Wid Standardized

Enterprise Processes/Data

Enterprise-Wide Technology Standards

Locally Optimal Locally Optimal Business Solutions



25% 46% 27% 2% % of Firms

Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.Percentage of firms in each stage is updated based on a 2007 survey of 1508 IT executives.

Architecture maturity increases global agility.Architecture maturity increases global agility.

Business Silos


OptimizedCore

BusinessModularity

GlobalAgilityLocal

Flexibility




IT spending changes as architecture matures.IT spending changes as architecture matures.i i i f

StrategicChoices

Operational Efficiency

ITEfficiency

Local/FunctionalOptimization

100%Local

Strategic Implications of IT

16% 15%

estm

ent

LocalApplications

Enterprise Systems

36%25% 16% 15%

21%32% 34%

age

of IT

Inve

Systems

Shared

18%

21%

Per

cent

a

Shared Data

Infrastructure35% 40% 35% 33%

11% 14% 17% 18%

Business Modularity

OptimizedCore


Business Silos

0%Data

Architecture Maturity

11% 14% 17% 18%



IT budgets are based on a 2007 survey of 1508 IT executives. Business silos budget is the baseline. Budgets for other stages are represented as a percentage of the baseline budget.

100% 84% 92% 145%IT Budget

Business Transformation at Toyota EuropeBusiness Transformation at Toyota Europe

Toyota Motor Marketing Europe 2002Sales growing dramatically: – 384 000 units in 1995 384,000 units in 1995

– 727,000 units in 2002

Toyota Europe structured as 28 independently managed t ticountry operations:

– Cars and parts ordered from 9 European manufacturing plants

– All product and spare parts inventories managed within countries

– Little transparency of supply and demand

– Different systems and processes in each country

Operating loss FY 2002 ¥9 9BOperating loss FY 2002 ¥9.9B



Source: Presentation by Peter Heinckiens, Chief Architect, Toyota Motor Marketing Europe to IMD OWP Program, June 30, 2005.

C di i U ifi i

Toyota's Operating Model TransitionsToyota's Operating Model Transitionsat

ion

gh

CoordinationUnique business units with a need to know each other’s transactions

Examples: Merrill Lynch GPC,

UnificationSingle business with global process standards and global data access

Examples: Delta Air Lines, Dow “Required”:

Transparency for “Desirable”:

Standardized

ss In

tegr

a

Hig p y ,

PepsiAmericas, MetLife

Key IT capability: access to shared data, through standard technology interfaces

p ,Chemical, UPS Package Delivery

Key IT capability: enterprise systems reinforcing standard processes and providing global data access

Virtual Supply and Demand Chain

Systems to Reduce Cost

ess

Pro

ces

DiversificationIndependent business units with different customers and expertise

ReplicationIndependent but similar business units

1999 Position:

Bus

ine

Low Examples: Johnson & Johnson, GE, ING

Key IT capability: provide economies of scale without limiting independence

Examples: Marriott, CEMEX, ING DIRECT

Key IT capability: provide standard infrastructure and application components for global efficiencies

1999 Position: Decentralized Independent

Country Operations

components for global efficiencies

Low High






Toyota Europe's TransformationToyota Europe's Transformation

Performance Business Changes

Units Sold Revenue (¥) Operating Income (¥)( ) p g ( )

2002

727,000 1,266B (9.9B) 28 autonomous marketing companies9 manufacturing facilities

2004

898,000 2,164B 72.5B European delivery lead time for vehicles reduced 35%Inventory of spare parts reduced by almost 50%O ti g i 3 5% f lOperating income: 3.5% of sales

2008

1,284,000 3,993B 141B Reorganized as Toyota Europe



Operating Model Lessons from Top PerformersOperating Model Lessons from Top Performers

Make Tough ChoicesAn operating model is a commitment to a way of doing business. It involves eliminating some strategic options in order to better deliver on others.

Consider the Off-DiagonalsAs firms seek more integration and standardization the Coordination and Replication models allow for more rapid implementation and payback than the Unification model.the Unification model.

Prepare for a TransformationTransitioning from one operating model to another will always involve a transformation. Small steps toward the targeted operating model can make p g p gchanges more evolutionary than revolutionary.

There is No Substitute for Strong Senior Management LeadershipFirms getting strategic business benefits from an operating model have senior g g g p gbusiness leaders who are actively involved in its design, management and implementation.



Documents

Mapping and Communicating IT Strategyc.ymcdn.com/sites/€¦ · – PepsiCo International ... CIF CRM Core Banking Services Banking Credit ... CEO, CFO, BU Heads, EVP operat ions,