TO: Mr. George Trevalian
CEO, Chemaglom, Inc.
CC: Students in MIS 7550
FROM: Chuck Gibson
DATE: September 17, 1998
SUBJECT: A Conceptual Context for IT Strategic Planning at Chemaglom
Based on our work on an IT Strategic Plan (ITSP) at Chemaglom, I thought you and the IT Steering Committee would find interesting a review of some key ideas and frameworks in the management of IT within organizations. There are eleven of these, and they were used recently by my colleague Bob Reck and me at the Olin School of Babson in our MBA course, "Deploying IT Strategically." Taken together, these ideas and frameworks provide a conceptual context for ITSP in general. What follows is a brief description of each of the eleven, how each fits into ITSP and might apply to Chemaglom, and a summary of action recommendations for their applicability for the ITSP project there.
Each of the eleven ideas and frameworks is summarized in a graphic way as a slide. The titles of the slides are listed in Exhibit 1. I refer you to the course website for the slides themselves: http://www.kendall-consulting.com/babson/babhome.
For our purposes in the ITSP project at Chemaglom, slide #11, "IT Strategic Planning: Elements and Process" provides a structure for not only our project there but for organizing the rest of the slides in terms of their relevance to the project. Because of its role, slide #11 is reproduced below:
The three elements in the left-most box are the inputs to an ITSP. They interact with the two elements of the second box to create the vision and the issues and opportunities for the future of IT as a strategic and competitive resource, and to generate the goals and specific guidelines, plans, budgets and projects for managing IT and delivering results. I recommend we adopt this framework in our ITSP project, and that everyone on the project team come to understand exactly what each element means and how we will proceed to employ this in the project.
Looking at the left-most box, "business context" simply means all those aspects of a company's business which must be taken into account in establishing a strategy and plan for IT. A complete list of those aspects may be found in slides #9 and #10, "The 7-S Model" and "Organizational Frameworks: Business Diamond". These two slides are a list of the things that make up a business organization as inputs to how it operates: from formal "hard" things like business strategy, organizational structure and systems to the "soft" ones like skills, staff (people), shared values (culture), and style (culture, leadership). Moreover, these two frameworks remind us that everything is connected to everything else: if you change an organization's structure, you will affect its execution of strategy and may need to retrain people and adjust incentive systems for some desired behavior and result to be obtained. I recommend that our ITSP project methodology include interviewing the senior managers about their business context using the elements from the 7S model and the business diamond.
For our purposes, Chemaglob has a clear business strategy, focused on acquisitions, turnaround, and occasional divestiture of small independent operations in the chemicals industry internationally. It's structure is highly decentralized operations, but with a strong "federal" central set of management procedures. An immediate implication of this for the business-IT strategic vision (second box in above diagram) is the importance of IT as a key enabler to achieve the right balance of divisional autonomy with tried and proven management procedures. If we decide that a common infrastructure for IT is needed, as might be accomplished by implementing the same Enterprise Systems in all divisions, the implications are profound for corporate and divisional management. We would need to set this as a goal and articulate programs and policies (last two boxes) which make it possible. I am not recommending this right now, as we need to study the implications and engage the Steering Committee in the discussions, but I did want to illustrate further the use of the ITSP process as supplemented by the 7-S model and the business diamond.
The "current state of IS" in the ITSP diagram is an assessment of the strengths and weaknesses of a company's current IT function. We can carry out the assessment in part by again applying the 7-S and diamond frameworks to the IT function, as opposed to the business as a whole. The IT function has its own current "strategy" and structure and so on. Beyond this, however, the "systems" part of IT is so important that two other slides apply to give us guidance for a more detailed assessment. These are slides #1, "Eras of IT", and #3, "the Benefit-Beneficiary Matrix". The three eras each represent an S-shaped learning curve for society. Note also that each organization using the prevailing technology had to go through a learning curve. Note also that the learning curves are discontinuous, so there is a step down and cost and even chaos when a company goes from, say, emphasis on stand-alone desktop technology from the micro era to networked client-server in the network era. Another important point about the three eras is that they don't die: as you well know at Chemaglob, most organizations add on the technologies of the new era without adequately planning for transition and integration. This has been illustrated in your mainframes not communicating with the PC's, and with users in some divisions striking out to create electronic commerce connections in defiance of their IT manager.
The benefit-beneficiary matrix is a map to classify IT applications (as opposed to infrastructure such as the networks and hardware and some software that supports the applications). A key idea here is that the benefits from an IT application can be 1) efficiency (doing things faster, measurable by ROI for an application project) or 2) effectiveness (doing things better, such as better decisions from better information for managers, measurable by judgment by experienced individuals) or 3) transformation (doing different things, where the application is part of a significant change in work, structure, product, etc.) Note also that it is impossible to tell from the matrix itself which applications will be strategic for a business: that depends on what the business strategy happens to be. At Chemaglob, it would appear the applications portfolio in most divisions is heavily weighted toward the "functional efficiency" or process automation box. A good question for the next phase, in setting vision and listing opportunities, is to ask, "What kind of transformational benefit might make sense in the businesses?" and, "What IT applications could be part of that?"
While we are on this point of business value from IT, slide # 2, "Business Value Comes from Business Change", is an important reminder that IT installations themselves (hardware, software, networks) do not directly lead to business value. In its three forms of efficiency, effectiveness and transformation, business value only comes from business change. Slide #2 reminds us, just as does the second phase of the ITSP that we must align IT strategy with business strategy. Another way of saying this is that our priorities for buying IT must be set by our business plans. Moreover, we should recognize that no IT application or infrastructure investment will do anything for us unless it changes something, from the way a clerk takes an order to the reengineering of the supply chain. This, in turn, should remind us that the greater the change in conjunction with an IT application the greater the need for business line managers to be responsible for the change. I think this is a very important message for the Steering Committee at Chemaglob, as you and I have begun to discuss.
Looking again at the overall ITSP diagram, "relevant technology trends" in our project means things that are happening in the IT industry that are likely to affect our businesses. A good example is the strong trend in chemical toward enterprise software, SAP in particular. But what about the future? I urge that a small group be formed to look into this, and that they create two to five scenarios for relevant technology for the year 2005. One scenario might be a fully networked industry with competitive strength relying on decision-support software. Another scenario might be the breakdown of networking due to inability to provide for security and reliability. These are just suggestions to illustrate the need for this to be covered in our ITSP.
Let me focus further on the second box in the ITSP diagram. A framework for discussing what we want for the "Business-IT Strategic Vision" is in slide #4, "The Strategic roles for IT in an Organization". Chemaglob as a whole appears to be in the "support" box, where IT is not of critical importance either to operations or our competitive position in the industry. Clearly, however, you are experiencing competition from firms like Elf Atochem which are beginning to steal business by their IT-enabled rapid central ordering. Our ITSP should consider moving Chemaglob into the "information business" quadrant by the year 2005, at least as a straw man for discussion. Note that as a company moves upward and to the right in the grid it becomes more essential that senior managers be fully conversant with IT terms and plans, and that the job of the senior IT manager be at the top team level.
At a more specific level of the strategic role of IT, look at slide #5, "Market Power Matrix". You are familiar with the Michael Porter framework of industry competitiveness. This slide is related to that. It shows that the relative power of suppliers and of buyers defines the conditions within an industry, from buyer dominant to supplier dominant to the intermediate situations, "partnership" and "channel warfare". One needs to know where a company or an industry is in this grid, and where it is going, before one invests heavily in such things as electronic commerce. This should provide us, like the strategic grid in slide #4, with good grist for the Steering Committee discussions on business-IT alignment.
As we look at "issues and opportunities" in Chemaglob's ITSP process, we can benefit from the remaining three slides, #6, #7, and #8. Slide #6, "Value Chain Analysis" is another contribution from Michael Porter, and simply shows the sequence of tasks (from R&D and inbound logistics over to servicing customers) and support functions (HR, IT, procurement, etc.) that constitute how a company does business. It is very important to note that the value chain is suggestive of a sequence of tasks that constitute a business process. IT can support a process-orientation in a company, and this is clearly the prevalent trend in most industries. But the real payoff from taking a value-chain and process-oriented approach comes when suppliers and customers can be joined in a "daisy chain" of connected value chains, as illustrated in slide #7. And this cannot be done in any effective way without IT for electronic commerce. At Chemaglob it appears most divisions are reluctant to consider these kinds of inter-organizational opportunities at this time, largely because of concerns for the risk of exposing their operational data to the outside world. The ITSP should look specifically at this. It is my view that the chemical world is already way ahead in electronic commerce, and the necessity to catch up for some of Chemaglob's divisions is urgent. Security will require an investment, but it can be done.
A final slide, #8, "Customer Satisfaction = Product Quality/Value + "Moments of Truth" During and After Purchase" can be used like the value chain slides to help a company look for opportunities and issues. This is the "customer resource life cycle", showing how a customer experiences doing business with a company. The key point is that every business must take the customer perspective and think through its business strategy in terms of the value being offered to the customer throughout the life cycle of a product or service. Every so often there is an encounter that is a "moment of truth" in which customer satisfaction can be enhanced or destroyed. IT applications can be thought of here as a key means to 1) be in touch with the customer, or sense their needs, to 2) know the customer and 3) respond to the customer. At Chemaglob it appears too often the divisions have had an attitude at best of "make it at the lowest cost, offer it for a competitive price, and let the customer take it or leave it." This customer-oriented framework should help you begin to change this attitude, and to explore how IT can encourage and support such a change of attitude by means of data, information and incentives for management decision-making.
As you can see, most of the ideas and frameworks fit into the early steps of the ITSP. This is because that is the more conceptual and high-level planning part, and these frameworks are of a similar nature. This should not be taken to diminish the importance of getting the goals (third box in the ITSP chart) for IT and the business right, and of specifying projects and budgets as soon in the process as possible. Remember that ITSP must be iterative.
I hope you find these ideas and frameworks useful. There are several recommendations which come out of this:
Share these ideas, frameworks and thoughts with the IT Steering Committee. This should be done in the context of the ITSP planning process. It has been my experience that purely conceptual ideas and frameworks are rarely of interest to executives, but when they have a task that can make use of such things they can see the relevance and importance.
Have the IT Council immediately begin two things: the assessment of the IT function and the development of the technology trends scenario, as described above. The assessment must be under the leadership or strong guidance of an outsider who has your trust and confidence.
Look for some "quick hits" in addition to generating the ITSP. For example, as the IT group conducts its assessment of applications across the divisions, they should be alert to best practices and transportable applications among divisions. The rivalry among some divisions will be a barrier, but the IT group should be challenged to overcome that barrier.
Structure the ITSP to use these ideas and frameworks in a way that brings together the IT group and the business leaders in Chemaglob. For example, the ITSP should include (as part of "issues and opportunities", and as a follow-on to vision-setting) a high-level mapping of the value chain and business processes of each division. In this mapping, the two groups should brainstorm ideas for change supported or enabled by IT.
(An Index of Slide Titles from Class #1, MIS 7550, Fall 1998)