Charles A. Araujo, Jr.

New Post on 'Transforming IT': The Myth of IT Transformation?

I just posted a new entry on our CastlePointe Blog, "Transforming IT."  It's called, "The Myth of IT Transformation?" and I just realized that I'm getting into a bad habit of posting questions as titles.  Anyway, it's in response to a year-old blog post and its comments that I thought it raised some good questions and which deserved an answer - especially from the guys who are all about IT Transformation!  Check it out here: The Myth of IT Transformation?

The Maslow Adoption Model for ITIL

There appears to be a bit of 'Maslow Mania' taking root in the business press these days.  I've been a fan of his straight forward approach to understanding human psychology since I was introduced to his concept of the "hierarchy of human needs" by my dad as a kid.  But I really hadn't thought much about it or him until recently.

Over the past few weeks, I've been reading "Peak: How Great Companies Get Their Mojo from Maslow" by Chip Conley, the CEO of Joie De Vivre hotels.  As you might guess, he has used Maslow's theory as the basis for both his book and for how we runs his chain of hotels.

Then a couple of days ago, I read a great article from Baseline Magazine entitled, "Multiple Online Personas: The Choice of a New Generation."  In it, it discusses how marketers must start a new type of conversation if they are going to break through with what Gartner is dubbing "Generation V" - for Virtual.  The gist of it is that Generation V is not defined by age or geography, but by their desire for belonging, esteem and self-actualization, realized in online communities - the top three layers of Maslow's "needs pyramid."

So how can stories about a chain of hotels and retail marketers selling to an online generation and how they are using a 50+ year old psychology theory apply to the world of IT?

Applied to business, Maslow's theory is really about understanding a customer's needs. And let's face it, this is something that has not always been IT's strong suit.  But perhaps the most important thing that it can do is to frame an ITIL adoption effort.  One of the greatest challenges that an IT organization must overcome to succeed with an ITIL adoption program is to answer the question why?  Why is this project being undertaken?  Why is the investment of human and capital resources worthwhile?

These questions can only be answered by understanding the needs of IT's customers.  And Maslow's theory can help frame those needs.  Maslow basically said that humans (and therefore your customers) need five layers of needs to be met (paraphrasing a little): Physical, Safety, Belonging, Esteem, and Self-Actualization.  Chip Conley in PEAK boiled this down further into his Customer Relationship Model and identified three distinct stages in the relationship with your customer: Meets Expectations, Meets Desires and Meets Unrecognized Needs.

At it's core, ITIL is really about understanding and meeting a customer's base set of expectations and needs.  According to Maslow, until we've satisfactorily met that need, we cannot have a meaningful conversation with our customer about meeting any of their other needs.  So, why should you adopt ITIL?  First, because it is a key way in which you will help your IT organization meet the core, underlying needs of your customer.  Second, until you do that, you will be unable to move up the pyramid and find success with your customer at any higher level.

At the same time, when you begin an ITIL adoption it's also important to realize that adopting ITIL is also not enough.  While meeting their base set of needs is the first step, it's not what the customer really desires.  They are looking for solutions that will drive business value and help them succeed (personally and professionally).  The goal must be to enable IT to meet the "customer's desires" by enabling transformative uses of technology and ultimately identifying innovative ways that technology can provide competitive and differentiating advantage to the business ("unrecognized needs").

But none of this can happen until their basic, operational needs are met first.  So Maslow provides an incredibly useful framework for ITIL adoption: use it to meet the base needs of your customer, but only in the context of achieving a larger goal of business transformation that leverages technology for the betterment of the enterprise.  Not bad for a 50 year old theory.

An Altered View of IT

Two recent articles, talking about IT from two very different perspectives, paint an altered view of IT that I believe is compelling. 

InfoWorld published an article on April 2nd entitled, "IT heresy revisited: Let users manage their own PCs."  The article poses a simple, yet radical idea - why not let the increasingly tech savvy workforce choose and manage their own workplace environments?  Having started on the infrastructure and ops side of the house, I'm well armored with all of the canned responses: non-standard environments increase support costs, user managed desktops create an unmanageable security risk, etc., etc.  These are surely valid concerns, but I believe that in the end we will find that they are outweighed by the benefits to be realized by empowering users to employ the tools best suited to their jobs and by simultaneously relieving IT of a high resource, low value responsibility.  The article discusses the first steps that companies like Google and BP are taking in this direction and what they are finding.

In truth, I believe that most of the canned resistance you hear on this and related topics is driven more by a sense of fear and job security than anything else.  The thinking goes, if the users are handling this by themselves, then what will we do?  The irony is that the significant amount of resources, energy and attention that IT has paid to these "lights on" operational duties is the very thing that inhibits IT's ability to truly leverage technology to drive value for the business.

Another article in Baseline Magazine entitled, "IT Really Does Drive Business Value" reports on the findings of a study to be release on Monday (April 7th) by the Hackett Group.  It finds that those organizations that best manage IT business value significantly "outperform their competition across a wide range of financial and profitability measures."  It's common sense, really.  Focus your IT investments in those areas that are going to drive business value and create competitive advantage - and the results will follow. 

The article identifies four key practices that are key to maximizing the business value of an organization's IT investments:

• Investment allocation:  Top performers reallocate investment from infrastructure and utilities to innovation and improvement.
• Project pipeline: Top performers weed out questionable project proposals early, minimizing the project backlog.
• Delivery performance:  Leading IT BVM companies deliver far more projects on budget and realize projected benefits more often than peers.
• Application portfolio management:  Top performers actively manage their application portfolio to drive out complexity.

But while this sounds perfectly reasonable, putting it into action within an IT organization can be very difficult.  Which leads us back to the first article.

The real challenge is that IT needs to create a new self image.  It needs to be willing to step away from those areas that no longer provide strategic value to the enterprise and focus its energy in those areas that will.  It means that IT needs to get over the idea that anything to do with "technology" must fall within their domain and identify those areas where they can provide significant differentiation.  According to the Baseline article, doing so is a key indication that you're moving in the right direction:

Companies that are leaders in IT management also spend a substantially smaller fraction of their capital expense on infrastructure and utilities, leaving more investment for improvement and innovation. While the largest part of the peer groups’ IT investment is earmarked for infrastructure refresh, the top group invests the majority of its capital on “innovation and improvement,” most often in the form of discretionary projects.

This transformation is not easy.  Moving away from the day-to-day tasks that have been the staple of IT operations (infrastructure and applications) is tough because it takes people out of their comfort zone and into uncharted waters.  But the rewards are real and substantial - both for IT professionals and for their organizations.  It just takes a willingness to alter your view of IT.

Caretakers or Innovation Leaders?

Following the theme of my last post, Kevin Efrusy of Accel Partners has recently made some comments about the types of companies his firm is funding today.  In it, he says that his VC firm is making investments in companies who are skipping IT and selling technology directly to workers.  Most important is his statement that he believes that this is how most software will enter the enterprise in the future.

I'm not sure if I completely agree, but it is certainly a sign of where things are going.  I believe that we will always have a need for a central IT organization that oversees standards and enterprise integrations.  But the question is really whether or not IT will become mere caretakers of the plumbing or innovation leaders.

I believe that the harder IT holds on to rigid standards and a big project approach to software implementations, the more that innovation will be driven from outside the organization and by the business itself.  We will see the emergence of two distinct classes of IT organization: maintenance organizations, with their bureaucracy and rigid approach to IT - and what I call Market Driven IT organizations - innovators who break down barriers, create highly flexible and adaptive IT architectures and are constantly looking for ways to drive revenue growth, employee productivity, competitive advantage and market share through technology.

The Problem with IT

Eric Chabrow of CIO Insight recently posted an entry on his blog Parallax View (IBM to CIOs: Who Needs You?) about a comment made by an IBM Vice President.  In it, the VP admitted that he was beginning to bypass CIOs and sell directly to business users.  This shouldn't come as a shock to many people.  We have increasingly seen major vendors take this tack over the last few years. 

What I found most interesting was the comments (there were only 3) that seemed somewhat indignant.  One said something about buying $1.3MM in hardware and that IBM better beware because users can't tell the difference between hardware manufacturers.  But that's the whole point!  The IBM VP isn't selling "hardware" - he is selling a business solution that fills an unmet business requirement.  And until CIOs understand this, vendors will HAVE TO continue selling directly to the business.

This relates to what I've begun working on with the Market Driven IT concept (www.MarketDrivenIT.com).  The basic challenge is that IT needs to stop acting like a "department" and start truly acting as a business.  IBM and every other vendor would much prefer to be able to sell to the IT organization, but only if IT truly understands the customer better than anyone else and can identify and position solutions that will propel the business forward.  But when IT organizations spend all of their cycles focused on technical elements, the business focus is lost and vendors have no choice. 

To me, the issue is not that vendors are going directy to the business - the issue is that IT isn't.  When is the last time someone in IT made a "sales call"?  Actually came to the business proactively with a solution to a business problem?  This happens in the best run organizations, but for most, IT is a reactive organization that waits for the business to come to them with a "project" and then focuses on the technical requirements needed to implement it.  In this environment, let me ask you - if you were IBM (or any other vendor who had a business focused solution), where would you sell?

Emerging Trends in IT

I recently wrote part one of a three part series on emerging trends in IT and posted it on the CastlePointe website.   As IT organizations come under inceased pressure, they are increasingly focusing their energies and resources in three key areas: Data Optimization, Data Center Optimization and Application Optimization.  In this series, I will be reviewing and exploring each of these key focus areas.  If you get a chance, check it out.  I'd love to know what you think.

Are You an Operator or an Innovator?

Following is an article I originally published on castlepointe.com in June of 2005.  It is still very much relevant today and I thought it was worthy of reprinting.

__________________________________________________________________________________

Is your IT organization more like a building architect or a building maintenance crew? Both are very important. Without the architect, nothing gets built in the first place. But without the maintenance crew, the great building will begin falling apart almost as soon as it is built.

Most IT organizations are maintenance crews. We spend the vast majority of our time "keeping the lights on." We work very hard at maintaining and extending our systems and applications - and it takes a lot of very smart people a lot of time to do it.

Finding Balance
But to be truly effective, IT organizations must live in both realms. They need to be part maintenance crew and part architect. In a recent study, 72% of respondents, including 60% of IT management, felt that the best ideas for leveraging technology to a business advantage come from groups other than IT! Sixty percent of IT management felt this!

There is no organization better equipped to "connect the dots" between business needs and technology that can meet those needs than IT. But too often, IT organizations allow themselves to be relegated to the role of maintenance crew.

There are really two reasons for this. First, keeping systems and applications running efficiently is no easy task in and of itself. Many IT organizations feel that to do it well is enough. Second, moving into a role of "technology innovator" requires a new, strategic perspective and political element that IT executives don't always find tasteful. But the IT organization that reliquinshes the role of technology innovator to other groups in the company leaves itself open to strategic irrelevance, never-ending budget battles and the ever present specter of outsourcing.

Making the Transition
Ironically enough, the first step to fully embracing an "innovators role" is to become highly efficient at your "operators role." The goal should be to require no more than 70% of your resources (both financial and human) to be consumed maintaining operations - leaving at least 30% available for innovative initiatives. (Many organizations have been able to reduce operational costs to as little as 45-65% of their IT budget!)

The first step may be the most mundane - understand exactly what you do. Document, organize, validate and improve every process, policy and procedure that you use to manage your day-to-day operations. You will inevitably find redundancies and inefficiencies. Eliminate them and roll those resources into innovative functions.

The next step is to stabilize your systems. Ensure the highest level of redundancy and plan your reactions to outages. How much of your team's time is presently spent putting out fires? What would happen if you could instead utilize those resources on your "innovative initiatives"?

The final step is to start communicating everything that IT does in business terms. Forget "5 9's reliability" - that's IT speak. Start talking about the reliability of your organization's financial transactions. Begin building SLA's that tie IT's performance to the ability of the business units to do their job. Understand what your "customers" care about when they assess IT's performance and then measure yourself against those metrics.

Becoming an Innovator
Once you have streamlined and refined your operations and begin to communicate to your business unit "customers" in their terms, you will begin to be seen as your organization's technology innovator. They will turn to you during the early stages of strategic business planning and will rely on you to provide strategic business advantage through the effective use of technology. And after you have proven that you can deliver sustained business value to the organization, you will no longer be viewed as merely the maintenance crew - a mere afterthought to business operations. You will have a seat at the table, your strategic relevance will be understood and you will find much greater budget support for all of your efforts.

But perhaps most importantly, you will be contributing real value to your organization and you and your team will have a great time helping to lead your organization into a new and brighter future.

The Abolition of the IT Allocation

There's an old saying that goes something like this,

"Don't tell me what you value.  Let me see how you spend your money and I'll tell you what you value."

It's a very true observation that we can apply to IT and its relationship to the business.  In most businesses, IT is 'funded' as a cost center through some form of a cost allocation.  So for most companies, a quick look at their budget will tell you how they value IT - as a non-strategic, ill understood cost line item.

In part, this is because this is the way that IT has always wanted it.  Just take all of those costs, bundle them together and spread them across the enterprise.  It was easy and expedient, but hopelessly flawed.

The concept of an IT allocation has two primary flaws:

1. It disconnects the payment from the service being provided
2. It disconnects the service from the value being provided

In the first case, the budget allocation process disconnects the payment for services from the recipient of those services.  In most cases, the person "paying the bill" has only a fleeting understanding of what those payments or costs represent.  While they may be ultimately responsible, they are likely to be at the top of the food chain and therefore have little direct interaction with the services they are paying for.  It's like if I'm providing services to Joe, but Sue is paying the bill.  Because allocated costs get bundled together at such a high level, they become disconnected from the services they represent and that will always create an environment in which those costs are not understood and are undervalued.

In the second case, allocations completely disconnect the service being provided from the value being received by the recipient of the service.  If IT was a restaurant, using the allocation model makes IT the "All You Can Eat Buffet."  And at the "All You Can Eat Buffet" the quality is generally sub par and your customers are driven to take everything they can because they're paying the same no matter what.  The 'buffet' of services become commoditized with all services having the same cost basis irrespective of the value they may provide to the user of the service.

These two flaws are a major cause of the 'dysfunction' often found in the relationship between IT and the business.  They lead to the feelings often expressed in IT shops that IT doesn't get the respect it deserves, that IT is being commoditized and that IT has to fight tooth and nail for every budget dollar.  So, why doesn't it change?

The challenge is that in order to fix this, IT has to fundamentally change how it does business.  It needs to take a service oriented approach to its operations and it must develop financial rigor around everything it does.  Doing so will enable IT to calculate, defend and 'charge' specific costs for specific services - which are described and measured in terms the business understands.  (This is the Service Catalog concept as presented in ITIL.)

This change isn't easy.  It means that every person in IT must focus as much on finance as they do on technology.  It means that everything that IT does must be measured in dollars.  And it will require significant financial and process rigor to make it work.  But the IT shop that can successfully complete this transformation will be able to abolish the IT allocation model forever and deliver value-driven services to its customers.