P3 January 2005 Class 4: ISM IT Management Effectiveness The Organizational View

P3 January 2005 Class 4: ISM Value of IT at BCP Increased efficiency Digital signatures and based authorization (from 1hr to just a few minutes) Direct 24/7 telephone banking Reduced costs Only five employees per Novarede branch Enable each branch to break-even in 18 months Fast IT enabled innovation Dual accounts - “sweep” balances between accounts Interest based on daily balance Salary account – using special software Information integration – 360 o customer information Better decision making – e.g. for account managers

P3 January 2005 Class 4: ISM BCP’s IT A Large Mainframe A Customer Information System (CIS) A Strategic Database An EAS Database 24/7 Phone Banking A proprietary ATM network Digital signatures and IT business applications for new products: Dual accounts - “sweep” balances between accounts Interest based on daily balance Salary account – using special software

P3 January 2005 Class 4: ISM Does IT matter for BCP? Is there any single IT system that Continental Bank, or any other bank, could not replicate? No single technology per se gave BCP any sustainable competitive advantage Almost all of BCP’s IT ( , phone banking, etc) became a strategic necessity IT does not matter. IT management effectiveness matters. “BCP Keeps Running Faster with IT”

P3 January 2005 Class 4: ISM BCP’s IT Assets 1. Effective IT Governance (decision rights, decision process, accountability): (Who?) Accountability: Users are accountable for the IT business applications projects Organizational structures for IT decisions: IT users committee consisting of managers, users, technical specialists Reviews and prioritizes IT projects Monitors IT implementations and decides required changes Top management involvement CDP General Manager directly reporting to the board A board member being the general manager of IT before Top management leadership in key IT decisions, i.e. mainframe decision Central information management group: interface between users and IT (How?) IT decisions process: Effective IT investments decisions process 2. Well defined IT architecture: Standardized IT in all branches Integrated data across all units and branches (CIS, EAS, Strategic Database) Flexible IT infrastructure, quick to add new IT systems 3. Users and IT both business and IT literate: 3-week IT training for all employees IT people rotating between business units to gain business understanding IT Governance Technology Human

P3 January 2005 Class 4: ISM IT Investments Decisions at BCP A Business Driven Well-Defined Process: I.New business applications: i. Business user fills one-page request ii. Business group collects requests of its users iii. IT users committees rationalize and rank requests iv. Final approval by the board II.Very large strategic decisions (e.g. the mainframe decision) made directly by top management

P3 January 2005 Class 4: ISM Four Key Types of IT Investments: (“Run”, “Grow”, “Transform”, “Experiment”) 1.Maintain and gradually upgrade (70-80%, ideally less than 50%) 2.Implement new business applications (20%, ideally more than 50%) 3.Major IT transformation (major project every few years (?) – e.g. KCC, Rich-Con, mainframe decision at BCP) 4.Experiment with emerging technologies (variable %) Ross and Beath, SMR 2002

P3 January 2005 Class 4: ISM IT Investments Evaluation 1.Maintenance/Gradual Upgrade Decision maker/accountability: mainly IT centered (often “blurry”) Criterion : Total Cost of Ownership (mainly quantitative, cost focused) 2.New business applications Decision maker/accountability: Business user centered Criterion: ROI + Soft costs and benefits 3.Transformational Decision maker/accountability: Top management Criterion: Strategic thinking, option valuation 4.Experimental Decision maker/accountability: business users, IT, top management if needed Criterion: Option valuation, risks evaluation

P3 January 2005 Class 4: ISM IT Assets at Continental Bank Upgrade of IT skills (?) Questionable IT skills Major IT quality improvements IT too slow and expensive, and it can’t support the business Managers actually doing something with IT! Managers “struggling” with what to do with IT Manage IT proliferation (?) No information integration, duplicated isolated systems Stricter evaluation of IT proposals Messy IT prioritization and investment process 20+ team of business people committee + Two oversight committees Lack of Biz-IT communication After OutsourcingBefore Outsourcing G T H Value

P3 January 2005 Class 4: ISM The 3 IT Assets: G.T.H. Technology assets: -The IT architecture -More technical issues… Human assets: - IT sophistication of B and IT - Business understanding of IT IT Governance (B-IT Relationship Assets): - Who makes IT decisions and who is accountable? - How IT (investments) decisions are made? Ross et al, SMR 1996

P3 January 2005 Class 4: ISM Evaluating the IT assets IT Governance What organizational structures (e.g. committees) are there for making IT decisions? What formal communications are there between IT and business people? What percentage of IT projects are owned (accounted for) by a business manager? Is there an established business driven IT investments decisions process? Are different IT investments treated differently? Technology Asset How standardized and integrated is our IT across the organization? How are exceptions to our technology standards handled? How flexible is our IT infrastructure? How “easily” can we build or change our IT? Human Asset How are the technical skills of our IT department? How IT sophisticated are our business users? How satisfactory are the IT training schemes for users and IT people? How is the business understanding of our IT people?

P3 January 2005 Class 4: ISM Transforming IT: Four Key Available Strategies 1.Focus on a high priority IT project or use a business event as an excuse to implement a successful IT project, put in place a solid IT Governance, and build confidence (e.g. like KCC) 2.Outsource and use it as an “excuse” to build your 3 IT assets (mainly the IT Governance, which is now largely your relationship with your outsourcing provider) 3.Evaluate and build your 3 IT assets e.g. using strategies like BCP 4.Restructure so that IT reports to a proactive business executive

P3 January 2005 Class 4: ISM Key Lessons Almost all IT becomes a strategic necessity, but IT effectiveness (= strong IT assets (G.T.H.)) can lead to sustainable competitive advantage (“BCP Keeps Running Fast with IT”) IT Governance (= who makes IT decisions, who is accountable for IT, how IT investment decisions are made): No single IT decision matters. What matters is the organization’s ability to take, implement, and monitor business aligned, fast, and cost efficient IT decisions Different types of IT investment require different evaluation and different decision makers: Run, Grow, Transform, Experiment The management of IT is a managerial issue that cannot be outsourced

P3 January 2005 Class 4: ISM Next Class The “Networked Knowledge” Economy Managing knowledge networks Adopting KNETs