Aligning information systems to corporate goals has emerged as the number one concern over the last five years in surveys of information systems executives.
What does it mean that information technologies line up with the business plans? How does one make alignment verifiable? How does one judge the credibility of project proposals that compete for scarce funds?
To line up information technology with business plans require the adoption of the language used in dealing with financial matters. While project managers may praise customer satisfaction, quality and workflow simplification, CEOs and shareholders evaluate projects primarily on the basis of contributions to net cash flow. Therefore, alignment is the capacity to demonstrate a positive relationship between information technologies and the accepted financial measures of performance.
Market share, customer satisfaction, taking care of employees, acting as good citizens, innovation and innumerable other virtues are also essential. They are desirable, but only as the means for reaching the objective of creating value that is ultimately measurable only as a favorable financial outcome for a commercial enterprise.
Why Evaluation Comes First
Before an organization can begin to align information technologies, management needs to know what evaluation methods are already in place for alignment to be feasible. That requires passing a simple test: Are the consequences of individual computer projects clearly linked with a firm’s planning and budget commitments? If the answer is yes, then computer investments have a chance of becoming catalysts of organizational change instead of a discretionary expenses that doe not have a provable benefit.
The effectiveness of a computer is largely dependent on its capacity to enhance the health or worsen the malaise of organizational units. The technical merits of computer equipment are of secondary importance. This is why many of the methods and certainly the statistical techniques carry a close resemblance to the practice of diagnostic medicine or the analysis of socioeconomic phenomena.
Before one tries to prescribe solutions to problems, one must necessarily understand and interpret the problems correctly.
How to Realize the Alignment of I.T. and Business Plans
There are several requirements a firm must meet to ensure a successful alignment. These must survive changes in organization, will have to shift with re-directions in business goals and adapt to changes in top leadership personalities.
Alignment Must Show Enhancements to a Business Plan
Every computer project proposal should demonstrate the discounted cash flow of its proposed business improvement. It should show the high and low expected financial returns. A display of the ranges in risks will enhance the credibility of the proposed venture. Experienced executives must realize that computer-based changes in business processes are perilous. They should not trust a forecast that specifies a single target payoff number.
The business case should deliver its summaries as add-ons to the previously approved financial budget. In this way the proponents can be accountable for their documented promises. The actual results would be then comparable to the revised budgets and performance plans at stated intervals, such as monthly, quarterly and certainly not more than annually.
Alignment Must Remain Updated as the Business Evolves
All project plans are subject to change. Approval of a proposed investment is only the starting point for a continually widening gap between the stated objectives and the capacity to deliver results. There are no plans that can remain unaltered while an innovative project is on its way. Customers will discover unanticipated improvements. They will change what they had originally requested. The completion schedule and the spending forecasts will also require modification. Failed promises, human errors and unforeseen happenings cannot show up even in superbly conceived plans.
To keep up with reality, approved plans need continuous adjustments to avoid misleading management or creating self-delusions. Most importantly, there must be a steady exchange in information between the systems organization and everyone else. Without continuous feedback the technologists will drift away from the business and misalignment will prevail.
Gap between customer and developer widens with time
Alignment Must Overcome Obstacles to its Purposes
There are no resource commitments that can remain fixed as the scope of a project change and as new implementation problems surface. All cost estimates and schedules for technology investments are tentative targets. Nobody can predict the extent of customer or employee resistance to business process innovations.
Resistance to change may come from hundreds of sources. Management may not be able to change operating procedures, despite best intentions. Implementation may run into difficulties in training the operators to the desired standards of performance. A previously disguised opposition from entrenched bureaucrats will scuttle even the best-laid plans. Whenever that happens, it will certainly not appear in the newspapers. It will remain covered up just as some family episodes remain unseen and untold.
The recriminations, misunderstandings and confusion that take place in most periodic project reviews are destructive to morale and to careers. Budgets are summarily cut. Projects come to an abrupt termination when management finally acknowledges that the effort is out of control. There are too many examples of that happening. Perhaps the largest and most notorious of such calamities is the chronic failure of the Internal Revenue Service to acquire a functioning information system. The estimated cost to the U.S. government from this disaster is fifty billion annually.
Why to such disasters happen? The fault lies in the increasing divergence between the assumptions at the conception of a project and the reality that becomes visible only during execution. Initial project plans must necessarily appear in terms that cannot be too specific. The budget is a blanket to cover what is unknown. Not everything that requires altering the information flows in a firm is knowable in advance. When implementation starts, the tracking of actual project events is always in great details. The expense statements reflect every minute expense item.
The problem is that technical personnel find it easier to deal with the minutiae because the larger economic and political issues are mostly beyond the scope of their responsibilities. Planning by telescope while implementing under microscope will assure that the disparity between promises and results will always diverge as a project progresses.
The evidence about the widespread incidence of problems in executing computer projects comes from a recent survey. They showed that thirty-one percent of all information technology projects suffered cancellation before completion, at an estimated cost of $81 billion. Fifty-three percent of projects would suffer ninety percent over-runs above original estimates, at a penalty of $59 billion. Only sixteen percent of projects would show successful completion on time and on budget.
Similar malfeasance was reported elsewhere. In a study of seven thousand systems and application development projects started since 1990, fifty-five percent had cost overruns greater than fifty percent; fifty percent required at least twice the estimated completion time and thirty percent were delivered with less than half of the originally planned capabilities.
This deplorable situation is worse in the case of large corporations. Here only nine percent of their projects came in on time and on budget. Even those projects that met these criteria of success delivered only about forty-two percent of the original features and functions. Frequent restarts were the single largest cause of these failures. For one hundred projects there were ninety-four restarts, which includes multiple efforts pursuing the identical objective. Poor planning, flimsy technology and ill-conceived designs explain almost all of such futility.
Alignment Must be Planned
The original project plan requires documented agreements of any changes to keep it current. It should not gather dust in files, until recovered by auditors after a project is ready for autopsy. As conditions change, the initial assumptions and dependencies call for re-examination and re-adjustment to reflect what has been learned. The project plan then becomes the record of approved changes to the baseline budget and to any subsequent revisions. I call this continual updating of plans an evergreen alignment, since keeping information technology projects related to business goals is not a one-time happening, but an ongoing struggle. With assistance from the BizCase decision-aid corporate management should be able to practice business alignment every time they link projects to business plans.
Perhaps the most important benefit of focusing on alignment in this way is its use as a managerial process. It offers an opportunity to display a perspective that keeps connecting goals, programs, measures of performance, projections, expectations and actual results by means of a consistent approach. Alignment is also a perpetually current executive reporting system that insures that the linkage of I.T. project plans to standard corporate metrics of performance remains intact.
The best planning method for alignment is to make I.T. invisible. It is not I.T. that aligns with business, but how computerization lines up with those who get customers, serve customers and keep customers. I.T. should not ask what business should do to help its alignment; instead, business should demand what, how and when I.T. shall deliver results.
I.T. must not stand as an isolated cost center seeking to align itself with what generates revenues. Instead, the firm's engines of value creation should include I.T. as the profit-generation tool that offers the highest yield for money spent. Alignment requires reliable feedback of results to contain all automation on the path of stated objectives. Alignment must not take place through I.T. push, but through operational pull.
Alignment Must Relate to Benefits
To achieve alignment, one must first identify the sources of misalignment. If profitability or performance does not meet expectations, there must be denumerable reasons why this is so. There is no point in picking the latest technologies as a remedy if the problem is curable by changing management practices. Such action may not require computers at all. It may call for investing in people rather than in technology. How much to spend comes only after one answers what are the benefits.
It is not prudent to set the corporate information technology budget by some arbitrary rationale. Computer spending need not keep to a constant ratio of sales, or increase along with inflation. Such rationing will result in a steady leakage of costs from where they are visible to where they are hard to trace. Expenses for computing will be camouflaged as consulting fees, service contracts, office supplies or wasted time of administrative personnel. The expenses for information management are now sufficiently pervasive that it is easy to hide them into unrelated accounts.
Outputs, such as profits or revenue, do not determine the demand for information technologies. It is the organizational structure, the size of the corporate overhead, the opinions about the benefits of computerization, the proliferation of personal computers and the number of staff people that dictate the demand for computing. All of these are input. Output is a consequence. In the absence of trustworthy metrics, the current corporate and public sector practice is not to budget computers according to specified results, but according to the perceived needs of its proponents. Consultants and government bureaucrats reinforce this bias by offering advice on best practices for managing inputs in the hope that this will somehow yield superior outputs.
Budget analysts usually find it more rewarding to examine information technology costs rather than examining what benefits computer funding requests will deliver. The information technology budget, as an expense item, contains no meaningful insights by which someone can judge either its utility or its appropriate size.
It is not realistic to expect that during the annual budget reviews the chief computer executive can prove what are the profit gains from the proposed computer spending. Only operating executives who have harmonized their organizations to compete effectively can extract value from information technologies. In that arena, computers do certainly have a role, often a leading one, but certainly not one that is decisive. What matters are superb management and people who have the motivation to deliver superior results. A computer without such commitments is worth only its resale or scrap price, which is not much.
Benefits of Computers
Are the enormous commitments of resources to information technologies paying off? Almost every economist states that there is no conclusive proof that they are. Nobody is able to show the benefits of computers using national productivity statistics. Our society lacks the standards by which to judge how well we are taking advantage of our most important tools.
Computers are like drugs: they can either kill you or cure you, depending on informed choices. It is not the drug that should get the exclusive credit for bringing anyone back to health. It is the doctor who has prescribed the right drug with the appropriate dosage that matters more than any other influence. It is also the care a patient takes in administering the drug that makes the difference whether the prescribed therapeutic regime will be successful. Most importantly, good health is the consequence of inheritance, nutritious food, simple sanitation and reasonable precautions in avoiding accidents. The absence of sickness is perhaps the best measure of health. The degree of wellness differs by individual, country, age, civilization and economic conditions. What is admirable in Zaire is unacceptable in Connecticut.
The effects of information technology investments are observable only by comparing how a particular organization performs differently with or without added computer investments:
How to Evaluate Information Technology Alignment
After project completion actual results will tell whether the reality resembles the plans. Any quantification of the benefits of computerization must be sufficiently rigorous to show not only sustained improvement but also the absence of deterioration. To constitute a proof of alignment that computers improved profitability requires removing all savings that could have accrued anyway, without computer intervention. Getting rid of unnecessary paperwork is not a computer savings, but common sense waste elimination.
Computer projects frequently involve making of innovative and long overdue improvements in the way an organization operates. Only after setting aside gains that would accrue from an introduction of better management practices is it legitimate to attribute additional savings to the alignment of computerization with business goals. For improvement that must use computers their value is the cost advantage in accomplishing the identical task by other means.
Information technology proponents often credit all gains from management actions to computerization, whereas most of the savings could come from judicious elimination of organizational obstacles. Without meticulously prepared plans, these after-the-fact evaluations tend to uncover added benefits whenever projects over-run budget. The ensuing disputes diminish everybody's credibility. Alignment is not ex-post-facto reasoning. Alignment is the fullest understanding of the futurity of present decisions and present commitments of funds!
Evaluating the Success of Alignment
To link promised gains from computerization to profitability requires a financial planning and budgeting system that incorporates computer project commitments into measurable yearly, quarterly and even monthly targets. In the absence of such a discipline, insisting on a direct tie-in between increased funding for computers and operating profits encourages contrived projections. Fabricated estimates of huge payoffs discredit both those who produce them, and those who accept them. The value of an oil furnace is not in reducing hypothetical medical bills, but the price of delivering reliable heat.
Management must have the necessary assurances that operating executives have committed to verifiable performance improvement. Also, there must be a demonstrable link that such plans hinge on support from computer services. If such is the case, then the examination of the efficiency of delivering computer services becomes much easier. It is not the absolute amount of money spent on the information technology that matters, but what it delivers. If incremental profit gains are demonstrably associated with incremental investments in computerization, the case for an aligned I.T. organization has been made.
The above article is an edited excerpt from Paul Strassmann's The Squandered Computer, The Information Economics Press, 1997