Wednesday, May 27, 2009

Demonstrating the Business Value of IT Infrastructure

A consistent theme in thinking around I.T. strategy is that your I.T. strategy must be aligned with your organizations business strategy. The term I.T. strategy is often used broadly to mean the overall set of activates and projects in which an I.T. organization is engaged. A recent McKinsey article titled “How CIO’s Should Think About Business Value” describes I.T. as adding value to an organization at two complimentary levels. The “core asset value” of I.T. consisting of hardware and software create tangible asset value for an organization. I.T.’s “value in use” varies from organization to organization and is a measure of how well I.T. is leveraged to enable core business strategies. The term “I.T. in use” here again is defined as a holistic set of I.T. activities. The problem with such a sweeping definition is that in most medium to large sized organizations there is usually two parallel streams of strategic thought and planning occurring inside I.T. There is “application strategy” which is the long-term planning of an organizations software landscape. It is the capabilities of software that will serve to enable key business processes. As such, application strategy is often seen by business executives as being synonymous with I.T. strategy. But where will the software run? How cost effective is an organization in its execution of activates required to support software functions? Answering these questions is the goal of “infrastructure strategy”. Infrastructure strategy is the long-term planning of technology investments such as networking, storage and data center design. The infrastructure investment portfolio should be closely aligned with both an organizations business objectives and its long-term application strategy. Collectively, application strategy and infrastructure strategy should coalesce to engender value creation from I.T. Due to the different skill sets between the two I.T. domains, application strategy and infrastructure strategy are generally planned separately. It is up to the I.T. infrastructure leader to ensure that his or her investment plans are geared towards building an I.T. infrastructure that is synergistic with the application and business landscape.

Infrastructure strategy rarely gets discussed at joint planning sessions between business and I.T. leaders. Metaphors such as “The Cloud”, “The Grid” as well as analogies such as “Utility Computing” have all added to the notion that technology infrastructure is a commodity with little intrinsic value. In the McKinsey article “Where I.T. Infrastructure and Business Strategy Meet” the authors suggest that thinking of I.T. infrastructure as a commodity is a mistake. McKinsey suggests that the individual pieces of an infrastructure such as storage devices and networking components may be commodities. However, the manner in which these technologies are designed, integrated and managed combine to form a whole that is greater than the sum of the parts. It is beholden on the I.T. infrastructure leader to help his or her business leaders “see” the vision of how the infrastructure strategy will generate business value. So how can the infrastructure manager clearly represent the relationship between technology investments such as storage arrays and business objectives such as supply chain execution? A good tool for connecting the infrastructure and business dots is the use of “Strategy Maps”.

A strategy map is a tool developed by Harvard Business School professors Robert Kaplan and David Norton. Kaplan and Norton are the developers of the Balanced Scorecard approach to business management. The balanced scorecard evaluates an organizations performance by examining key performance indicators in four perspectives: financial, customer, internal, learning & growth. You can learn more about balanced scorecard here. Strategy maps can be considered a method for visually displaying the set of organizational activities to be executed in each perspective and the impact these processes will have on each other. You can find a detailed discussion of strategy maps in Kaplan and Norton’s book “Strategy Maps. At a high level, strategy maps can provide you a one slide representation of how your I.T. infrastructure strategy ties directly to your business strategy. I will walk through an example strategy map explaining how the various pieces relate. You can download the example map here.

When Kaplan and Norton discuss the placement of I.T. assets on a strategy map they classify systems into four categories: transactional, transformational, analytical and infrastructure. In my example, I focus more on mapping infrastructure investments to business strategies rather than classifying the infrastructure investments into categories. Showing how your seemingly unrelated technology infrastructure and business strategies compliment one another is the goal. At the top of this simplified example you have a clearly stated business goal of growing U.S. market share by 10 percent by 2012. Directly under that goal are four operational initiatives that the business has defined as paramount for achieving that goal. This example shows an application level strategy focused around SAP and the SAP suite of business applications. For each business level objective, a corresponding SAP application is identified as mapping to the features necessary to achieve the goal. For example, in order to leverage a skilled sales force an organization will need a human capital management system for skill development, talent identification, training and performance appraisals. Similarly, excellence in supply chain execution will require a system such as SAP APO to streamline warehouse, production and logistic functions. The concept of mapping systems to business needs can be applied to any vendor suite as well as custom developed applications. The bottom part of the example strategy map serves to connect specific I.T. infrastructure investments to the application and business layers. In this example, certain infrastructure investments such as consolidated storage and virtualization will serve to enable features across the entire application portfolio. For example, in an SAP environment production systems are regularly copied to quality systems in order to accommodate testing of new features against up to date transactional data sets. The inter related nature of SAP e environments often necessitates what is termed a federated system copy meaning that all quality systems (HCM, APO etc..) will need to be refreshed at once. The speed and agility at which this can be done will directly impact the speed with which new development can be tested and moved to production. The time it takes to move new features to production impacts the time it takes the business to realize strategic benefit. Virtualization will have a direct impact on an organizations ability to scale its SAP based operation while maintaining a steady level of OPEX spending on servers. Large ERP landscapes such as SAP and Oracle often result in server sprawl as each landscape requires multiple systems for development, test and production. Virtualization will help provide those landscapes and the business value they create at a competitive cost. Initiatives such as strengthen business relationships and implementing a more integrated supplier network will necessitate targeted infrastructure investments such as enhanced network edge security. Mapping investments in technologies such as intrusion detection systems and firewalls to a strategic business imperative clarifies their relationship.

The decisions you make around your I.T. infrastructure strategy can either serve as a conduit for business value creation or as an impediment to it. It is important that as an I.T. infrastructure manager you help your business leaders understand how seemingly commodity technology investments relate directly to businesses strategy. The use of Strategy Maps provides a clear visual representation of the relationship between business strategy and I.T. infrastructure capabilities. This mapping should also help I.T. infrastructure managers think clearly about their own strategy development focusing on business value rather than bits and bytes.

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