1. 1 IS6600 – 8 Information, Knowledge and Strategy “We don’t do IT projects at JetBlue. We do Business Projects” – CIO Joseph Eng

2. 2 Learning Objectives What is the role of the CIO? CKO? How can IS be strategised? The value of alignment. From alignment to agility and accountability The Balanced Scorecard – a strategic tool for action in organisations

3. 3 Story One The CEO of an insurance company wonders why a key competitor seems so much more innovative and responsive to customer needs. “How do they manage to initiate, customize, and support such a variety of insurance products so quickly?” she asks. “We could not cope with the complex information processing that must be required! What are they doing differently with their people and technology? Our systems personnel are always bogged down with last year’s priorities…” Chan, MISQE, 1, 2, 97-112.

4. 4 Analysis The competitor: –has developed core competence in the application of IS to business needs. –has developed the ability to respond to business conditions effectively (business intelligence + KM) –has employees who can apply relevant knowledge efficiently & effectively. are focused on today’s tasks –has identified information as a critical resource –ensures that the IS fits and supports the business –has, in consequence, a better Business-IS alignment

5. 5 Story Two A CIO wonders when he will be accepted at top management meetings. Although he has won a long, hard battle to be present at these meetings, to understand new business directions better, he senses that his presence is merely tolerated. His ideas have little clout. His colleagues acknowledge that IT is becoming increasingly important to business operations, but their thinking and behavior stifle innovation. Chan, MISQE, 2, 1, 97-112.

6. 6 Analysis The organisation itself barely recognises the importance of information The CIO is marginalised –perhaps useful as someone important for operational support, but not strategic planning. The organisation is probably failing to align its overall business direction with its IS policies, skills, capabilities

7. 7 Story Three The CEO of a luxury goods retailer asks you, the CKO, to propose a new KMS that will will ‘grab’ knowledge from global buyers about fashion trends to inform retail sales staff who can then answer customer queries better. The sales staff are not interested in using such a boring and un-interactive KMS. How will you react to the CEO?

8. 8 Story Four The CEO says to his board “we need a new kind of CIO; someone who understands our whole business, someone whose career is *not* over [laughter], someone who can help drive this company in these turbulent times. Do people like this exist?”.

9. 9 Analysis What do you think? –Do these people exist? –What kind of background would a person like this have? –What changes have occurred in the firm – changes that inspire a CEO to talk like this?

10. 10 CISCO’s CIO IT budget of US$1billion/year The CIO returns 50% to the business functions –“Its really your money. Tell me how to spend it in a way that helps you” –But system integration and compatibility are important Procurement process control Business unit managers own their own projects The CIO is the service provider but not the project owner Users get more value from IT when they are responsible for it Maturity of both IT and users is critical to develop trust

11. 11 Questions to Ask about Organisational IS & KM Does IS or KM drive an organisation’s competitiveness? What role does IS/KM play in corporate strategy? –Mission critical, integral? –Peripheral, supporting? Now? Five years later? Are significant resources devoted to IS/KM, or just a few $$ here and there? Are IS/KM people deeply engaged in many aspects of the business?

12. 12 The Consequences of Poor Business-IS Alignment? IT Competencies are not developed, promoted or managed. IT and Business risks are poorly assessed (if at all). Business executives cannot clearly articulate their IS needs and don’t really understand what IS is for. IS people have limited business vision or knowledge. IS investments are expensive and yield low returns. Good ideas are not developed

13. 13 Then What is (IS) Alignment? “the degree to which the IT mission, objectives and plans support and are supported by the business mission, objectives and plans” »[Reich & Benbasat, MISQ, 24, 1, p.82] “fit” & “integration” among business strategy, IT strategy, business infrastructure, and IT infrastructure. »[Henderson & Venkatraman, IBMSJ, 32, 1, 4-16] Effective IS management requires a both a balance and effective alignment across four domains. Note: Its co-alignment, not one-way alignment

14. 14 Henderson & Venkatraman’s Strategic Alignment Model Strategy Alignment Process (Linkage & Automation) IS/IT Infrastructure and Processes IS/IT Strategy IS/IT Transformation Organisational Infrastructure and Processes Business Products and Services IS/IT Products and Services Internal Business Transformation External Business Strategy Business Domain IT Domain Adapted from Henderson & Venkatraman, 1992

15. 15 Problems and Possibilities How can we align IS, KM and the Business? Should KM be on the right or the left of the diagram? How can we balance and align these different business and technical activities? Can we also be agile in reacting to opportunities? How might the Balanced Scorecard help?

16. 16 Beyond Alignment is Agility & Innovation Strategic IT investments that will change the enterprise –Web 2.0 and Interactive platforms A climate of continuous change is more powerful than globalisation –Project requirements will change (long) before the project is complete. Agile Enterprise Management is needed to thrive in an environment of continuous change

17. 17 What is Enterprise Agility? The ability to respond to market challenges and opportunities fast enough so as to enhance or maintain enterprise value. –Is it better to focus on efficiency or value- added? Rapid decision making is a key to agility Agile management is a critical part of an agile enterprise.

18. 18 Agile Management Structures Have highly distributed power coupled with the authority (and willingness) to make decisions –Information must be readily available –Clear rules and lines of responsibility –Instant access to knowledge and communities of experts –When change is the competitive driver, nothing is sacred

19. 19 In an agile enterprise… Leadership must be collaborative Strategic planning and action are no longer solely the prerogative of the CxOs –Business unit managers and business developers must be involved too Reliance on Web 2.0 social networking applications will become commonplace The right IT must be in place (not just EIS) where IT complexity is managed and Web 2.0 is leveraged at the enterprise level.

20. Imagine… That you are the CKO in QR, a local logistics firm. The CMkO has identified a major new customer who needs guaranteed capacity, minimal bureaucracy, tight deadlines, and offers small profit margins. Gaining this contract will cause QR to expand 20% with up to 35% more profit. The CMkO will make the decision, but needs your support in determining if QR can do it. Moreover, there is little time – the decision must be reached in 6 hours. Who do you need to talk to? Where are these people located? Can you collect the information needed and satisfy the CMkO that QR should or should not work with the new customer? You need to be certain that you are correct – if you argue in favour but later the details are shown to be false, you will be fired. 20

21. 21 Alignment and Accountability Ten years ago, CIOs were expected NOT to understand the business Today, if you don’t understand the business, you can’t be a CIO/CKO. If a new system/product that the CIO delivers does not achieve the expected business value, it is the CIO’s fault (no one else’s). The CKO is accountable for knowledge-related decisions in the firm. IT-KM-Business Alignment also means IT-KM- Business Accountability

22. 22 Innovation at Haier Haier prides itself on innovation Each employee, individually, is encouraged to be innovative, to be responsible for a personal contribution to the firm’s success This requires a very special organisational culture –That rewards individual initiative

23. 23 The Balanced Scorecard One way to achieve alignment, accountability and agility is to use the Balanced Scorecard (BSC) (Kaplan & Norton, 1996). The BSC was designed, in recognition of the limitations of financial accounting measures: They provide a narrow and incomplete picture of business performance They hinder the creation of future business value They are lagging not leading measures

24. 24 Financial Perspective Are we meeting the expectations of shareholders? Customer Perspective Are we delighting (or at least satisfying) our customers? Internal Process Perspective Are we doing the right things? Are we doing things right? Learning and Growth Perspective Are we prepared for the future? Adapted from Kaplan & Norton (1992) Perspectives & Relationships in the Balanced Scorecard

25. 25 Translating the Vision into Desired Outcomes VISION Intended Direction/Destination Balanced Scorecard What do we want to achieve? STRATEGY How will we achieve “success”? Strategic Initiatives What do we need to do? Personal Initiatives What do I need to do? DESIRED OUTCOMES Satisfied Shareholders Delighted Customers Effective & Efficient Processes Motivated & Prepared Workforce Martinsons, 2005

26. 26 From Desired Outcomes to Initiatives Motivated & Prepared Workforce Motivation Preparation What initiatives will improve employee motivation? better prepare employees? but also what initiatives will create more efficient / effective processes? delight customers? Martinsons, 2005

27. 27 MTR Corporate Strategy Map Revenue Operating Cost Shareholder Value Satisfaction Index Market Share Patronage Safety Index Service Pledge Talent Leadership Manpower & Succession Strategic Alignment Partnering & Teamwork Employee Satisfaction Culture Organisational Capability Customer Processes Financial Learning & Growth © MTR, 2005

28. 28 Southwest Airlines Southwest uses a different balanced scorecard layout to achieve the same kind of planning objective. Note the detailed objectives, measures, targets, and initiatives. This is a general BSC – not IS specific – but note that IS will play a critical support role, e.g. in data collection/analysis.

29. 29 Airline Scorecard Parameters Objectives Fast ground turnaround Objectives: What the strategy is trying to achieve Targets 30 Minutes 90% Targets: The level of performance or rate of improve- ment needed Cycle time optimization Initiatives: Key action programs required to achieve targets InitiativesMeasures On Ground Time On-Time Departure Measures: How success or failure is monitored Strategic Theme: Operating Efficiency Profits and RONA Financial Learning Ground crew alignment Lowest prices Fewer planes Customer Internal Fast ground turnaround Strategy Map On-time Service Attract & Retain More Customers Grow Revenues Wagner, 2003

30. 30 % Ground crew trained % Ground crew stockholders The Scorecard is a Programme for Action ObjectivesMeasures # Customers FAA On Time Arrival Rating Market Survey On Ground Time On-Time Departure Strategic Theme: Operating Efficiency Initiatives Cycle time optimization Ground crew training ESOP Customer loyalty program Quality management Targets 30% CAGR 20% CAGR 5% CAGR 12% growth Ranked #1 30 Minutes 90% yr. 1 70% yr. 3 90% yr. 5 100% Profitability Grow Revenues Fewer planes More Customers Flight is on-time Lowest prices Fast ground turnaround Ground crew alignment Strategic Theme: Operations Excellence Profits and RONA Financial Learning Ground crew alignment Fewer planes Customer Internal Fast ground turnaround Strategy Map Attract & Retain More Customers Grow Revenues Lowest prices On-time Service Wagner, 2003

31. 31 IS dept is an internal service supplier IS projects are carried out for end- users and the organisation Four Perspectives for IS –business value –internal processes –user orientation –future readiness What About a Balanced IS (or KM) Scorecard?

32. 32 Business Value Perspective Are we satisfying management? Are we adding value? User Perspective Are we delighting (or at least satisfying) our users? Internal Process Perspective Are we doing the right things? Are we doing things right? Future Readiness Perspective Are we ready for the emerging technologies & practices? The Balanced IS Scorecard

33. 33 Extension to the BSC –innovation and learning (future readiness) –the specifics of monitoring and control (key measures ) Measuring and evaluating business value –short-term cost-benefit evaluation cost control, selling to third parties –long-term perspective (based on information economics) business value of IT project, strategic options and risks business value of IT department/functional area Measuring and Evaluating IS (1)

34. 34 Measuring and evaluating user orientation –metrics for being the preferred supplier of applications and operations –metrics for building and maintaining relationships with users –metrics for satisfying end-user needs Measuring and Evaluating IS (2)

35. 35 Measuring and evaluating internal processes –The planning and prioritization of IS projects –The development of new IT applications –The operation and maintenance of current IT applications Measuring and evaluating future readiness –Improving the skill set of IS specialists –Updating the applications portfolio –Putting effort into researching emerging technologies –Ensuring knowledge is central to future work Measuring and Evaluating IS (3)

36. 36 Develop awareness of the BSC/IS concept Collect and analyse data Define company-specific objectives & goals Develop preliminary BSC/IS Solicit stakeholder comments and feedback Reach a consensus on BSC/IS Communicate both BSC/IS and its underlying rationale to all stakeholders Building a Balanced IS Scorecard (1)

37. 37 Three principles for BSC –Cause-and-effect –Performance drivers –Linkage to financial measures Three criteria for BSC/IS metrics –quantifiable –easy to understand –cost-effective to measure One over-riding concern –Ensure that the BSC/IS is aligned with the corporate BSC Building a Balanced IS Scorecard (2)

38. 38 PerspectivesObjectivesMeasuresTargetsInitiatives Business ValueIncrease profit $10% CAGR UserDelighted users from other departments User satisf- action index 95% satisfied by 2010; 99% by 2011 Involve users in systems design Internal Process ???? Future Readiness Highly Skilled IT staff Professional & Academic Qualifications 100% with MSc by 2009; 75% with PhD by 2012 Unlimited training budget BSC for the IS Support Unit of a Global Airline

39. 39 Activity Questions for Slide 38 1.Suggest suitable internal process objectives, measures, targets and initiatives. 2.Explain why the user perspective initiative may not result in the the intended objectives being achieved. 3.Why is it so critical that the IS support unit establish relationships between initiatives and objectives in its BSC? 4.How should this BSC/IS be aligned with the corporate BSC?

40. 40 Errors to Avoid –failure to include specific long-term objectives –failure to relate key measures to performance drivers by means of cause-and-effect relationships –failure to communicate the contents of, and rationale for the BSC/IS –failure to integrate the BSC/IS with a corporate BSC All employees should be encouraged to use the BSC to gain a holistic understanding of the organisation Lessons 1

41. 41 Lessons 2 Critical Success Factors –Identify key cause-effect relationships, performance drivers and measures This is very hard for non-financial/quantifiable measures –Make measures simple and measurable Very hard to collect reliable data, but IS can help –Maintain intra-organisational communication –Link BSC/IS to performance appraisal criteria for individual IS specialists –Ensure staff awareness of the BSC and its value. –Think about the impact of cultural and institutional factors

42. 42 And Now… –Time for you to create a BSC for the IS or KM function of a company with which you are familiar It could be a company from your project In fact, you could use the BSC in your project! –Use the blank sheet available from the course web page – and when you are done, email it to me. –Feel free to adapt the blank sheet to your own needs, design, etc.

43. 43 References Chan, Y.E. (2002) Why Haven’t We Mastered Alignment? The Importance of the Information Organizational Structure, MIS Quarterly Executive, 2, 1, 97-112. Davis, G.B. and Davis, M. (1984) Management Information Systems, McGraw Hill. Henderson, J.C. & Venkatraman, N. (1993) Strategic Alignment: Leveraging Information Technology for Transforming Organizations, IBM Systems Journal, 32, 1, 4-16. Kaplan, R. and Norton, D. (1992) The balanced scorecard ‑ measures that drive performance, Harvard Business Review, 70, 1, 71 ‑ 79. Kaplan, R. and Norton, D. (1993) Putting the Balanced Scorecard to Work, Harvard Business Review, 71, 5, 134 ‑ 142. Kaplan, R. and Norton, D. (1996) Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review, 74, 1, 75 ‑ 85. Kaplan, R. and Norton, D. (1996) The Balanced Scorecard: Translating Strategy into Action, Boston: Harvard Business School Press. Martinsons, M.G., Davison, R.M. and Tse, D. (1999) A Foundation for the Strategic Management of Information Systems, Decision Support Systems, 25, 71-88. McFarlan, F.W., McKenney, J.L., Pyburn, P. (1983) Information Archipelago: Plotting a Course, Harvard Business Review, 61, 1, 145-156. Reich, B. & Benbasat, I. (2000) Factors that influence the social dimention of alignment between business and information technology objectives, MIS Quarterly, 24, 1, 81-113.