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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
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
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
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 2
The IT Landscape at Most OrganizationsThe IT Landscape at Most Organizations
Corporate DataCorporate Data
DataData
ApplicationsApplications
Technology PlatformsTechnology Platforms
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 3
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.
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 4
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
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 5
Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
Business Process Standardization
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
Business Process Standardization
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 6
Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
Business Process Standardization
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
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 7
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
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 8
• 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
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 9
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,
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 10
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
Business Process Standardization
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 11
Legend Corporate Business Segment Regional Business Operating Company
Business Process Standardization
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
57% of IT executives
ess
Inte
gr Hi
ess
Pro
ce
w
Diversification21% of business executives
16 % of IT executives
Replication12% of business executives
11% of IT executives
Bus
ine
Low
Low High
Business Process Standardization
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 12
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
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 13
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
StandardizedTechnology
OptimizedCore
BusinessModularity
GlobalAgilityLocal
Flexibility
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 14
Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
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
StandardizedTechnology
Business Silos
0%Data
Architecture Maturity
11% 14% 17% 18%
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 15
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
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 16
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
Business Process Standardization
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 17
Business Process Standardization
Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
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
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 18
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.
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross
Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 19