Organizational Innovation

Boundary Fallacy Large-Scale Innovative Technology BMGT 725 - RAD & Prototyping Boundary Fallacy Large-Scale Innovative Technology Production code is generated by a number of sources CASE tools hard-coding prototypes of sub-systems System builders have to assemble the parts and hope they all fit perfectly Don’t forget, everyone followed the methodology exactly, right? There should be no problem, right? 9/18/2018

BMGT 725 - RAD & Prototyping Apollo 1 - May 25, 1961 ...I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth. ...We propose to accelerate the development of the appropriate lunar space craft. We propose to develop alternate liquid and solid fuel boosters, much larger than any now being developed, until certain which is superior. 9/18/2018

BMGT 725 - RAD & Prototyping Apollo 1 Kennedy’s mandate required a massive effort from NASA if it was to have a chance of succeeding. Structured development (read, problem identification and solving) techniques were immediately decided upon and made formal. The only way to accomplish the goal was to adopt a sub- system parallel development approach. define bounded sub-systems within the defined system boundary develop simultaneously using a formal methodology 9/18/2018

Apollo 1 Parallel Development BMGT 725 - RAD & Prototyping Apollo 1 Parallel Development Primary Methodology: SDLC Primary Methodology: SDLC Primary Methodology: SDLC Enviromental Bio-Medical Electrical/ CapComm Escape Systems Minimum 90 second procedure Pure O2 Atmosphere in Capsule Hi-efficiency Gold Contacts Hi-tensile plastic insulators Manually actuated ratchet-type release for latches Sealed Biomedical Atmosphere in Spacesuit Assumed NO2 Atmosphere January 27, 1967 9/18/2018

BMGT 725 - RAD & Prototyping January 27, 1967 - 1:00pm - Grissom, Chaffee, & White enter the capsule. - Grissom reports a “strange odor” in his spacesuit O2 loop. - High O2 indicator triggers master alarm; - Environmental Control determines the high indication was a result of astronaut movement. - Intermittent communications became regular between Grissom and the control room at 5:40pm. - At 6:31pm both Chaffee and White announce “Fire in the cockpit.” What caused this system failure to occur? - Autopsy showed death by CO asphyxia - 27 others were treated for smoke inhalation - Investigation revealed that fire started in a wire bundle - White had been able to make part of one full turn of the ratchet-style latch release system before being overcome. 9/18/2018

BMGT 725 - RAD & Prototyping Boundary Fallacy Assumed system boundaries Actual system boundary Enviromental Bio-Medical Primary Methodology: SDLC Pure O2 Atmosphere in Capsule Sealed Biomedical in Spacesuit Electrical/ CapComm Hi-efficiency Gold Contacts Hi-tensile plastic insulators Assumed NO2 Escape Systems Minimum 90 second procedure Manually actuated ratchet-type release for latches 9/18/2018

Models of Organizational Comparison and Analysis

Have-Can-Do Model Thinking or a firm in a theoretical rather than physical sense can allow us to make comparisons between firms of dissimilar structure or marketplace. One way of doing this is to break the firm down into three elements: HAVE: the resources possessed by the firm including physical assets, human assets, patents, business models, etc. CAN: the various capabilities of the firm created by the various combinations of their resources DO: that which the firm has chosen to execute from their portfolio of capabilities

Have-Can-Do Model HAVE CAN DO

Leavitt’s Model of Organizational Change Structure Technology Strategy Products Culture/People SOURCE: Based on Harold J. Leavitt, “Applied Organizational Change in Industry: Structural, Technical, and Human Approaches,” In New Perspectives in Organization Research, ed.W.W. Cooper, H.J. Leavitt, and Shelly II (New York: Wiley, 1964), 55-74.

Important to Note that the models suggests equilibrium will ALWAYS be reached… Hopeful Strategy Proactive Strategy

Key Governance Decisions IT Governance Key Governance Decisions Adapted from Weill & Ross, (2004) IT Governance, HBS Press.

Characteristics of Top-Performing Enterprises MIT/CISR research has shown returns up to 40% greater than competitors by firms who… Clarify business strategies and the role of IT in achieving them Measure and manage the amount spent on, and the value received from, IT Assign accountability for the organizational changes required to benefit from new IT capabilities Learn from each implementation, becoming more adept at sharing and reusing IT assets.

What shall we call this behavior? IT Governance Specifying the decision rights and accountability framework to encourage desirable behaviour in using IT

What it is…and is not IT Governance is not… About making specific IT decisions – management does that IT Governance is… About determining who systematically makes and contributes to those decisions About encouraging and leveraging the ingenuity of the enterprise’s people in IT usage and ensuring compliance with the enterprise’s overall vision and values

The Haves and Have Nots All organizations have IT governance Only some have effective IT governance Effective IT governance means… An actively designed set of IT governance mechanisms that encourage behaviors consistent with the organization’s mission, strategy, values, norms, and culture. Effective IT governance does not mean… IT governance by default (tactical governance)

News Flash… Strategy does not create value! Behaviors create value Good governance design allows enterprises to deliver superior results on their IT investments Conclusion from research: effective IT governance is the single most important predictor of the value an organization generates from IT

Effective IT Governance Must address three questions: What decisions must be made to ensure effective management and use of IT? Who should make these decisions? How will these decisions be made and monitored?

Governance Arrangements Matrix Evidence to date shows that there are typical IT governance input and decision rights patterns. The federal style dominates, with IT making infrastructure and architecture decisions Governance Arrangements Matrix IT Principles IT Architecture IT Infra- structure Strategies Business Application Needs IT Investment Domain Source: MIT Sloan CISR Figure 2-7 Which Governance Style for each Key IT Decision What are the components of top level IT governance? A matrix can be used to depict governance arrangements by listing the six governance styles on the vertical and map them to the five IT domains on the horizontal. The MIT Sloan CIST and Gartner EXP study identified how 250 enterprises made major decisions - who had decision rights and who had input about each of the five IT domains. © MIT Sloan CISR – used with permission.

Five IT Decision Types IT Principles IT Architecture IT Infrastructure Clarifying the business role of IT IT Architecture Defining integration and standardization requirements IT Infrastructure Determining shared and enabling services Business Application Needs Specifying the business need for IT applications (either purchased or internally developed) IT Investment and Prioritization Choosing which initiatives to fund and how much to spend

Who Should Make the Decisions? Often this question is answered with an organizational chart. A better approach may be to consider “patterns” of decision making and rationale.

Decision Archtypes Business Monarchy IT Monarchy Feudal Federal Top management IT Monarchy IT specialists Feudal Each business unit makes independent choices Federal Combination of the corporate center and the business units with or without IT people involved IT Duopoly IT group and one other group (i.e. top management or business unit leaders) Anarchy Isolated individual or small group decision making

Business Monarchy A group of business executives (CxO) Includes committees of senior executives (may include CIO). Excludes IT executives acting independently Input typically from C-level execs Business unit IT leaders Enterprisewide IT budget process SLAs and chargeback agreements IT resource activity-tracking systems

IT Monarchy Individuals or groups of IT executives Examples can range from IT Governance Committee (UPS) Senior IT Managers Office of IT Architecture (State Street) IT Managers/Specialists Enterprise Architecture Group (DuPont) Representatives from all regions, strategic business units, all competency centers Proposes architecture rules to senior IT and CIO

Feudal Based on the traditions of “merrie olde England” Typically the feudal entity is the business unit, region, or function. Business unit leaders, key process owners or their delegates This decision system does not facilitate enterprisewide decision making

Federal C-level execs and business units Equivalent of federal and state governments working together Attempts to balance the responsibilities and accountabilities of multiple governing bodies

Federal Considered the most difficult archetype for decision making Enterprise leaders and business unit leaders often have differing concerns Incentive systems often focus managers on the business unit results rather than enterprise results

Federal The impact of shared resources on business unit performance – specifically the transfer prices charged for the resources – typically raises concerns about fairness The biggest, most powerful business units often get the most attention and have the most influence on decisions

IT Duopoly IT Executives and one other group 2-party arrangement where decisions represent a bilateral agreement Differs from a federal model in that federal always has both corporate and local business representation Duopoly has one or the other – but not both – and always includes IT professionals Duopolies can take one of two forms Bicycle wheel or t-shaped

Bicycle Wheel IT Duopoly BU BU RM RM IT RM RM BU BU

T-Shaped IT Duopoly X = business manager Y = IT manager Executive Committee X X X X X X Y X X X X X X Y IT Committee X = business manager Y = IT manager

Duopoly Over one-third of the 256 enterprises in the MIT/CISR study used a duopoly in the three less technical IT decision domains IT principles Business application needs IT investment Also frequently used to provide input into architecture and infrastructure decisions

Anarchy Decisions made by each individual user Very expensive to support and secure Formally sanctioned anarchies are rare but are supported where very rapid responsiveness to local or individual customer needs are required

Making IT a Strategic Asset What decisions must be made? Who should make these decisions? How will we make and monitor these decisions?

Domain Style IT Principles IT Architecture IT Infra- structure Strategies Business Application Needs IT Investment Monarchy IT Feudal Federal Duopoly Anarchy Don’t Know Domain Style Evidence to date shows that there are typical IT governance input and decision rights patterns. The federal style dominates, with IT making infrastructure and architecture decisions Source: MIT Sloan CISR Figure 2-7 Which Governance Style for each Key IT Decision What are the components of top level IT governance? A matrix can be used to depict governance arrangements by listing the six governance styles on the vertical and map them to the five IT domains on the horizontal. The MIT Sloan CIST and Gartner EXP study identified how 250 enterprises made major decisions - who had decision rights and who had input about each of the five IT domains. © MIT Sloan CISR

Domain Style IT Principles IT Architecture IT Infra- structure Strategies Business Application Needs IT Investment Evidence to date shows that there are typical IT governance input and decision rights patterns. The federal style dominates, with IT making infrastructure and architecture decisions Source: MIT Sloan CISR Figure 2-7 Which Governance Style for each Key IT Decision What are the components of top level IT governance? A matrix can be used to depict governance arrangements by listing the six governance styles on the vertical and map them to the five IT domains on the horizontal. The MIT Sloan CIST and Gartner EXP study identified how 250 enterprises made major decisions - who had decision rights and who had input about each of the five IT domains. © MIT Sloan CISR

Decision 1: IT Principles A related set of high-level statements about how IT is used in the business. IT principles become part of the enterprise’s lexicon They can be used as a tool for educating executives about technology strategy and investment decisions The hallmark of an effective set is a clear trail of evidence from the business to the IT management principles

Decision 1: IT Principles Detailed IT principles should clarify at least three expectations for IT in the enterprise: What is the enterprise’s desired operating model? How will IT support the desired operation model? How will IT be funded?

Domain IT Principles IT Architecture IT Infra- structure Strategies Business Application Needs IT Investment Evidence to date shows that there are typical IT governance input and decision rights patterns. The federal style dominates, with IT making infrastructure and architecture decisions Source: MIT Sloan CISR Figure 2-7 Which Governance Style for each Key IT Decision What are the components of top level IT governance? A matrix can be used to depict governance arrangements by listing the six governance styles on the vertical and map them to the five IT domains on the horizontal. The MIT Sloan CIST and Gartner EXP study identified how 250 enterprises made major decisions - who had decision rights and who had input about each of the five IT domains. © MIT Sloan CISR

Decision 2: IT Architecture The organizing logic for data, applications, and infrastructure, captured in a set of policies, relationships, and technical choices to achieve desired business and technical standardization and integration.

Decision 2: IT Architecture Process and data standardization are the defining characteristics of enterprise architecture. Enterprise architecture defines data and infrastructure as a stable platform supporting faster-changing (flexible/agile) applications.

Domain IT Principles IT Architecture IT Infra- structure Strategies Business Application Needs IT Investment Evidence to date shows that there are typical IT governance input and decision rights patterns. The federal style dominates, with IT making infrastructure and architecture decisions Source: MIT Sloan CISR Figure 2-7 Which Governance Style for each Key IT Decision What are the components of top level IT governance? A matrix can be used to depict governance arrangements by listing the six governance styles on the vertical and map them to the five IT domains on the horizontal. The MIT Sloan CIST and Gartner EXP study identified how 250 enterprises made major decisions - who had decision rights and who had input about each of the five IT domains. © MIT Sloan CISR

Decision 3: IT Infrastructure The foundation of planned IT capability (both technical and human) available throughout the business as shared and reliable services and used by multiple applications. In the typical enterprise, infrastructure accounts for about 55% of the total IT investment.

IT Infrastructure as a Set of Shared and Reliable Services Centrally Coordinated Local Applications Fast changing local business applications Shared and Standard IT Applications Shared and standard applications that change less rapidly Services that are stable over time IT Infrastructure Human infrastructure of knowledge, skills, policies, Information Technology Components Human Information Technology Infrastructure Shared information technology services Commodities – Computers, printers, networks, databases… Information Technology Components Source: P. Weill & M. Broadbent Leveraging the New Infrastructure: How Market Leaders Capitalize on IT, Harvard Business School Press, June 1998.

Domain IT Principles IT Architecture IT Infra- structure Strategies Business Application Needs IT Investment Evidence to date shows that there are typical IT governance input and decision rights patterns. The federal style dominates, with IT making infrastructure and architecture decisions Source: MIT Sloan CISR Figure 2-7 Which Governance Style for each Key IT Decision What are the components of top level IT governance? A matrix can be used to depict governance arrangements by listing the six governance styles on the vertical and map them to the five IT domains on the horizontal. The MIT Sloan CIST and Gartner EXP study identified how 250 enterprises made major decisions - who had decision rights and who had input about each of the five IT domains. © MIT Sloan CISR

Decision 4: Business Application Needs Defining and delivering value through business applications remains a significant organizational challenge. Identification of business needs for IT applications often has two conflicting objectives – creativity and discipline.

Domain IT Principles IT Architecture IT Infra- structure Strategies Business Application Needs IT Investment Evidence to date shows that there are typical IT governance input and decision rights patterns. The federal style dominates, with IT making infrastructure and architecture decisions Source: MIT Sloan CISR Figure 2-7 Which Governance Style for each Key IT Decision What are the components of top level IT governance? A matrix can be used to depict governance arrangements by listing the six governance styles on the vertical and map them to the five IT domains on the horizontal. The MIT Sloan CIST and Gartner EXP study identified how 250 enterprises made major decisions - who had decision rights and who had input about each of the five IT domains. © MIT Sloan CISR

Decision 5: IT Investment and Prioritization IT investments are like any other investment. You must make a decent return or you go bust. It just happens faster with IT! Three basic dilemmas exist: How much to spend? What to spend it on? How to reconcile the needs of different constituencies?

How Much to Spend Industry benchmarks are only a starting point The key is to match the spending levels to that portion of the organizational strategy being served.

What to Spend it On This must be determined via monitoring of appropriate indicators of success. The portfolio approach applies equally well to IT investments. Groupings can be thought of in terms of categories reflecting various business objectives Strategic, informational, transactional, infrastructure

Reconciling Differing Needs Business leaders must articulate the enterprise-wide objectives of shared infrastructure and provide appropriate incentives for business unit leaders to sacrifice local needs in favor of enterprise- wide needs. If senior management has not clarified or communicated enterprise strategy or if strategy changes so frequently that it isn’t worth investing in today’s strategy, the IT investment process will break down.

Key IT Governance Decisions IT Principles Decisions High-level statements about how IT is used in the business IT Architecture Decisions Organizing logic for data, applications, and infrastructure captured in a set of policies, relationships, and technical choices to achieve desired business and technical standardization and integration IT Infrastructure Decisions Centrally coordinated, shared IT services that provide the foundation for the enterprise’s IT capability IT Investment and Prioritization Decisions about how much and where to invest in IT, including project approvals and justification techniques Business Applications Needs Specifying the business need for purchased or internally developed IT applications

How Enterprises Govern Evidence to date shows that there are typical IT governance input and decision rights patterns. The federal style dominates, with IT making infrastructure and architecture decisions IT Principles IT Architecture IT Infra- structure Strategies Business Application Needs IT Investment Monarchy IT Feudal Federal Duopoly Anarchy Don’t Know Domain Style Input Decision Input Decision Input Decision Input Decision Input Decision 27 6 7 1 12 1 30 1 18 20 73 10 59 8 9 3 1 2 1 18 3 83 14 46 4 59 6 81 30 93 27 15 36 34 15 30 23 17 27 6 30 Source: MIT Sloan CISR Figure 2-7 Which Governance Style for each Key IT Decision What are the components of top level IT governance? A matrix can be used to depict governance arrangements by listing the six governance styles on the vertical and map them to the five IT domains on the horizontal. The MIT Sloan CIST and Gartner EXP study identified how 250 enterprises made major decisions - who had decision rights and who had input about each of the five IT domains. 1 1 3 1 1 2 1 2 2 © MIT Sloan CISR

Governance Arrangements Matrix Evidence to date shows that there are typical IT governance input and decision rights patterns. The federal style dominates, with IT making infrastructure and architecture decisions IT Principles IT Architecture IT Infra- structure Strategies Business Application Needs IT Investment Monarchy IT Feudal Federal Duopoly Anarchy Don’t Know Domain Style 3 3 3 2 3 1 1 2 2 1 3 1 2 2 1 Source: MIT Sloan CISR Figure 2-7 Which Governance Style for each Key IT Decision What are the components of top level IT governance? A matrix can be used to depict governance arrangements by listing the six governance styles on the vertical and map them to the five IT domains on the horizontal. The MIT Sloan CIST and Gartner EXP study identified how 250 enterprises made major decisions - who had decision rights and who had input about each of the five IT domains. © MIT Sloan CISR