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IT Value – Making IT Real Shafeen Charania Director, Platforms Communications Microsoft Corporation "Getting Past the Hype -- Delivering Business Value"

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Presentation on theme: "IT Value – Making IT Real Shafeen Charania Director, Platforms Communications Microsoft Corporation "Getting Past the Hype -- Delivering Business Value""— Presentation transcript:

1 IT Value – Making IT Real Shafeen Charania Director, Platforms Communications Microsoft Corporation "Getting Past the Hype -- Delivering Business Value"

2 © 2004 Microsoft Corporation. All rights reserved. The Value of IT?

3 © 2004 Microsoft Corporation. All rights reserved. E-Government Hype Cycle Evolution Source: Hype Cycle Shows E-Government Overcoming Disillusionment 3/17/04 - Gartner

4 © 2004 Microsoft Corporation. All rights reserved. So – What Matters More??? IT… …or the Business??? Related question – what matters more – the people? …or HR?

5 © 2004 Microsoft Corporation. All rights reserved. Revenue growth Return on assets Revenue per employee BUSINESS UNIT FINANCIAL BV Dilution of Impact Time to bring new product to mkt. Sales from new products Product or service quality BUSINESS UNIT OPERATIONAL BV Dilution of Impact Time to implement a new application Cost to implement a new application Information Technology $ BUSINESS UNIT IT APPLICATIONS BV BUSINESS UNIT IT APPLICATIONS BV Dilution of Impact Source: P. Weill & M. Broadbent Leveraging the New Infrastructure: How market leaders capitalize on IT, Harvard Business School Press, June Time Dilution of IT Impacts ITManagement ResponsibilitiesBusinessManagement Sample Value MeasuresImpact Sought Infrastructure availability Cost per transaction Cost per workstation FIRM-WIDE IT INFRASTRUCTURE BV Information Technology $ Tracking the Impact of Information Technology Investments Center for Information Systems Research BV = business value

6 © 2004 Microsoft Corporation. All rights reserved. Context Business Strategy Business Processes IT Strategy Business Capabilities IT Solutions Approach: Cost/Value Analysis Focus: Governance Portfolio Architecture Sourcing Need: Resilience, Flexibility, Opportunism Drivers: People, Process, Information, Relationships Focus: Processized Analysis – Vocabulary Metrics

7 © 2004 Microsoft Corporation. All rights reserved. Agility and the Process of Change Agility is Optimal Sense and Response Act : Are you able to follow through as efficiently as you can? Strategize : Are you able to effectively plan to respond to the change? Decide : Can you commit to the plans? Sense : Are you aware of significant changes in your business environment? Communicate : Are you able to get the word out to everyone who needs to know?

8 © 2004 Microsoft Corporation. All rights reserved. The AQ Analysis AwarenessFlexibilityProductivity PeopleProcessesRelationshipsInformation What key technologies can help? What can you do to improve your agility? What does your company do that needs to be agile? Business Drivers Agility Enablers Key Agility technologies Those you have Those you need RecommendationPrioritization Assessment & Gap Analysis Current vs. Desired State You vs. Industry PrioritizedInitiatives Top Issues Overall

9 © 2004 Microsoft Corporation. All rights reserved. AQ Executive Summary PW AF PW AF PW AF PW AF PW AF A: Awareness F: Flexibility P: Productivity W: Willingness CUSTOMER wants to be sense environmental changes quickly and respond efficiently and effectively to those changes. It wants to be agile not only to survive but to maintain its leadership in the industry. Agility is the ability to sense, strategize, decide, communicate and act throughout the organization at the right time with the right economics. CUSTOMER does a fairly good job in strategizing and communicating with appropriate support from IT infrastructure and services. The effectiveness of good strategy is tampered by lack of timely awareness and flexibility and speed in taking actions. Based on the response to the agility questionnaire and the agility analysis tool developed by Gartner and Microsoft. Poor Moderate Good Agility State Sense: Awareness is a prerequisite for sense and respond. CUSTOMER must ensure that the right information is made available to the right people at the right time. Strategize: The organization is reasonably good at planning in response to changes in the environment it can detect. Decide: In order to evaluate and execute the plans, CUSTOMER needs the flexibility of re-wiring processes and integrating information across application and organizational boundaries. Communicate: The organization has various communication channels and culture to communicate information and decisions at all levels and across groups. Act: Due to limited flexibility to connect and consolidate information and processes, business activities and people are not very efficient and effective in executing strategies. Enterprise Architecture: Develop set of principles and guidelines to direct the process of acquiring, building, modifying, interfacing and managing IT services and resources. Role-based Information Dashboards: Provide consolidated view of information and business processes for individual groups. Firm-wide infrastructure and applications: standard (utility) desktop and server infrastructure ( , office tools, directory, OS); Collaboration (Web Ex, net meeting); SAP Architecture and governance: Primarily application-based; Insufficient architecture for application and data integration. IT Environment Recommendations Sense Strategize DecideCommunicate Act Actual Desired

10 © 2004 Microsoft Corporation. All rights reserved. What is IT Governance? Decision rights and accountability framework to encourage desirable behavior in the use of IT Who has decision rights and input to key IT decisions. IT Principlesrole for IT IT Infrastructurewhat is shared and put in first IT Architectureintegration & compatibility Business application needswhat is required IT Investment & Prioritizationhow much and when What is desirable behavior in the enterprise. Sharing, reuse, cost savings, innovation, growth What mechanisms are used to implement governance. E.g., IT council, process teams, architecture office, SLAs How much business value. Responsibilities, accountabilities, measurement and metrics Source: Dont Just Lead, Govern!: Empowering Effective Enterprise Use of Information Technology, P. Weill & J. Ross, Harvard Business School Press: Boston, Forthcoming

11 © 2004 Microsoft Corporation. All rights reserved. How do enterprises govern? Most common patterns The numbers in each cell are percentages of the 256 enterprises studied in 23 countries. The columns add to 100%. ©MIT Sloan Center for Information Systems Research 2002 – Weill This framework is adapted from Weill & Woodham's work originally published and copyrighted by the MIT Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective IT Governance," April 2002.

12 © 2004 Microsoft Corporation. All rights reserved. ( ) = public sector Source: Weill & Broadbent Leveraging the New Infrastructure: How market leaders capitalize on IT, Harvard Business School Press, © Weill Increased sales Competitive advantage Competitive necessity Market positioning Business integration Business flexibility Reduced marginal cost of BUs IT Reduced IT costs Standardization Increased control Better information Better integration Improved quality Cut costs Increase throughput (Innovation) (Major Change) (Facilitation) (High Value Added) (Interact with customers) Rethinking IT as an Investment Portfolio - asset class, risk and return, strategy INFORMATIONAL STRATEGIC TRANSACTIONAL INFRASTRUCTURE Center for Information Systems Research

13 © 2004 Microsoft Corporation. All rights reserved. IT Portfolios In Different Industries Center for Information Systems Research 4 Source: Leveraging the New Infrastructure: How Market Leaders Capitalize on Information Technology, Peter Weill & Marianne Broadbent, HBS Press, Services include Professional, Scientific and Technical Services, Heath Care Services, Social Assistance, Accommodation and Food Services 1 Net Sales = Interest Income plus Fees 2 Total Expenses = Net Sales – (Net Sales * Net Margin) 3 Discretionary Expenses = Net Sales – (Net Sales * Operating Margin before Depreciation) NSF Grant Number IIS IT Investment 2001/02 18% 13% 54% 15% 22% 11% 56% 11% 12% 20% 14% 26% 11% 45% 18% 20% 13% 54% 13% 54% Firm-wide $IT as a Percent of Net Sales (Three year averages) Nonmetal Manufacturing, Utilities, Construction Metal Manu- facturing Finance, Insurance Information & Services All No. of firms Firm-wide $IT as a Percent of Discretionary Expense 3 (Three year averages) % 17% 52% 14% Wholesale Retail, Transport IT Investment 1993–97 4 (54 businesses over 5 years) 22% 14% 52% 12% 13% 16% 14% 57% 13% 61% 22% 14% 12% 52% Information (15) Strategic (5) Transactional (40) Infrastructure (40)

14 © 2004 Microsoft Corporation. All rights reserved. IT Portfolio Mix of Investments IT Portfolio Mix of Investments $IT compared to industry avg. as % of expenses or revenues IT is 10-20% lower than industry average IT is around industry average Average % of Revenues & Expenses IT is 10-25% higher than industry average 20% 15% 20% 13% 13% 5% 14% 17% Cost Focus Balance Cost & Agility Average FirmAgility Focused Business Strategy Synchronize Information Technology Portfolios to Strategy 42% 40% 50% 15% 58% 11% 54% 13% Center for Information Systems Research Source: P. Weill & M. Broadbent Leveraging the New Infrastructure: How market leaders capitalize on IT, Harvard Business School Press, June (Based on a study of 54 businesses in 7 countries over five years and 117 firms studied in 2001/02.)

15 © 2004 Microsoft Corporation. All rights reserved.

16 Value Tools Total Value of Opportunity Measures both costs and benefits Standard business measures TCO Analyst Focus = cost Reference database REJ (Rapid Economic Justification) Alignment, Quantification, Accountability Framework independent of tools

17 © 2004 Microsoft Corporation. All rights reserved. Business Value Inventory Business Value InventoryStudyFocusDeliverableDuration Microsoft REJ BDM Relationship Building Cost/Benefit Analysis ROI Analysis Business Case4 to 6 Weeks Gartner TVO Cost/Benefit Analysis ROI Analysis Gartner Credibility Business Case2 to 4 Weeks Microsoft RPA BDM Relationship Building Application Portfolio Analysis Microsoft/Customer Action Items Customer/MS Account Plan2 Weeks Microsoft AQ BDM/TDM Relationship Building IT Alignment to Business Agility Gaps Uses Gartner IT Agility Impact Model Prioritized Technology Initiatives Sustained xDM Engagement 2 Days Navigant Office Value Industry and process orientation Value analysis (productivity focused) ROI Analysis Vertically-aligned business case focused on KW productivity 1-2 Days Microsoft BVA Product Feature Mapping Cost/Benefit Analysis ROI Analysis Collateral for Business Case1 Day Gartner TCO Analyst Limited to Infrastructure ROI Analysis Gartner Credibility Cost Analysis Document1 Week 3 rd Party TCO Tools High Level TCO Estimate Product Specific TCO ROI Analysis Limited Cost Analysis Document2 Hours NerveWire Deployment Cost Tool Desktop Deployment Costs For MS, Partners & Customers Predictive Modeling from RDP Data Deployment Cost Estimate1 Hour Business Value Total Cost Cost

18 © 2004 Microsoft Corporation. All rights reserved. AQ Strategy Assessment Spectrum TCO Analyst 1-2 weeks Cost Oriented Value Oriented Comprehensive/Long BV Consultants required Simple/Fast Mini – REJ 4-6 weeks TVO 2-4 weeks Office System BV Model 1 day - 1 week REJ 8 – 12 weeks TCO Manager 4-8 weeks Deployment Cost Tool 1-2 hours ROI (VS03) Calculator 30min - 1 hour BVA 1 day

19 © 2004 Microsoft Corporation. All rights reserved. FedEx Smart Tags for MS Office XP

20 © 2004 Microsoft Corporation. All rights reserved. Level and Effectiveness of Senior Management in Governance More senior management is better… 1. CEO (4.4) 2. COO (3.0) 3. Business Unit Leader (2.7) 4. Business Unit CIO (1.7) 5. CFO (1.5) 6. CIO (1) Rank/(Scale) of Effectiveness When Involved* * Statistically significant relationship with governance performance – scale estimated by strength of coefficient. CIO must be involved for effectiveness © 2002 MIT Sloan Center for Information Systems Research (Weill).

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22 © 2004 Microsoft Corporation. All rights reserved. This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

23 © 2004 Microsoft Corporation. All rights reserved. Shifting the value equation

24 © 2004 Microsoft Corporation. All rights reserved. Manifesting Value Life Cycle Progress Developing Opportunities Delivering Benefits Assess & Qualify Prioritize & Plan Design & Identify Solution ProofBusiness case Technology Implementation Projects Ongoing Operations Value Discovery IS Portfolio Themes/Relationships Business Needs and Priorities A lignment Business Value Planning Benefits: Scenarios/Proof of concepts IT Service Portfolio Assessment Develop Business case Develop Plan to realise benefits Q uantification Value Realisation Exploitation and Accountability Deliver business benefits Project implementation/support A ccountability


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