Understanding the Relationship between your IT Function and Your Business What’s Driving Your IT...

Understanding the Understanding the Relationship between your IT Relationship between your IT Function and Your BusinessFunction and Your Business

What’s Driving Your IT ROI?What’s Driving Your IT ROI?

1

FEI National Breakfast SeriesVancouver Edmonton Calgary Toronto Montreal Halifax

March 5 – 20, 2008

BROUGHT TO YOU BY:

Understanding the Understanding the Relationship between Your Relationship between Your IT Function and Your IT Function and Your Business: Business: What’s Driving Your IT ROI?What’s Driving Your IT ROI?

Jim McKeen, PhDJim McKeen, PhD

Queen’s School of BusinessQueen’s School of Business

[email protected]@business.queensu.ca

A Brief History of the A Brief History of the Relationship between IT and Relationship between IT and the CFOthe CFO

In the beginning, the CFO owned ITIn the beginning, the CFO owned IT

and now they don’tand now they don’t

IT ROI needs to be a “3-legged stool” whereIT ROI needs to be a “3-legged stool” where

1.1. The The ITIT function takes ownership of the function takes ownership of the technology technology

2.2. The The businessbusiness takes ownership of the takes ownership of the organizational transformationorganizational transformation

3.3. the the CFOCFO takes stewardship of the benefitstakes stewardship of the benefits

A New Model of EngagementA New Model of Engagement

AgendaAgenda

Understanding IT ROIUnderstanding IT ROI

What about your IT ROI?What about your IT ROI?

Two case studies – success vs. failure – Two case studies – success vs. failure – hindsight is 20:20 visionhindsight is 20:20 vision

IT ROI starts with project selectionIT ROI starts with project selection

Ten steps to an improved IT ROI – Ten steps to an improved IT ROI – reengaging the CFO in IT investmentreengaging the CFO in IT investment

Assessing Your IT ROIAssessing Your IT ROI

Everyone uses the same set of tools to Everyone uses the same set of tools to select IT projects (payback, NPV, BSC, select IT projects (payback, NPV, BSC, alignment with corporate goals)alignment with corporate goals)

Everyone uses common industry indicators Everyone uses common industry indicators (IT as % of revenue)(IT as % of revenue)

Existing measures aren’t perfect but they Existing measures aren’t perfect but they are good enoughare good enough

There is no “silver bullet” hereThere is no “silver bullet” here

What about What about youryour IT IT ROI?ROI?

Do you know your IT ROI? Do you know your IT ROI? (Yes/No)(Yes/No)

Are you satisfied with it? Are you satisfied with it? (Yes/No)(Yes/No)

Most CFOs don’t know their Most CFOs don’t know their ROIROI

I kn

ow

my

IT R

OI

My IT ROI is satisfactory

74%

26%

14% 86%

64%

22%

10%

4%

NoYes

Yes

No

but they know it needs but they know it needs improving!improving!

It seems no one questions It seems no one questions the importance of IT but …the importance of IT but …

… … most senior most senior executives harbour a executives harbour a lingering doubt about lingering doubt about

whether IT is delivering whether IT is delivering what is needed by the what is needed by the

business at a business at a reasonable costreasonable cost

IT project selection is the IT project selection is the key to ROI. Unfortunately ...key to ROI. Unfortunately ...

in many organizations, project selection is in many organizations, project selection is like taking the whole family grocery like taking the whole family grocery shopping …shopping …

... everyone puts things in the ... everyone puts things in the cart that they “need” but, when cart that they “need” but, when you get home, you can’t put a you get home, you can’t put a “balanced” meal on the table“balanced” meal on the table

The company launched a The company launched a $3.5M IT project to replace its $3.5M IT project to replace its collection of underwriting collection of underwriting systemssystems

Underwriters begrudged the Underwriters begrudged the time spent “explaining the time spent “explaining the insurance business” to ITinsurance business” to IT

Case #1: The Missing Case #1: The Missing PartnershipPartnership

Mid-way through, the business made the Mid-way through, the business made the decision to cut functionality in order to meet decision to cut functionality in order to meet their market target their market target

The Outcome?The Outcome?IT celebrated their “on time” IT celebrated their “on time” and “on budget” delivery –and “on budget” delivery –bonuses for all!bonuses for all!

Since going live, an additional Since going live, an additional $2M has been poured into the $2M has been poured into the system to add functionality system to add functionality

The company has yet to “unplug” The company has yet to “unplug” the old systems which the the old systems which the underwriters use to “check” the underwriters use to “check” the new systemnew system

Disaster! Disaster! IT ROI? IT ROI?

The company rolled The company rolled out a new “plant out a new “plant production and production and control” system to all control” system to all its plants across its plants across Ontario and QuebecOntario and Quebec

Case #2: Foundational Case #2: Foundational SystemsSystems

Sponsored by the CFO and CEO, the system was aggressively resisted by the majority of plant managers.

The system was “way The system was “way late” and “way over late” and “way over budget”budget”

The Outcome?The Outcome?

Seven years later, the system Seven years later, the system was delivering benefits “far in was delivering benefits “far in excess of expectations” excess of expectations” according to the CFOaccording to the CFO

Huge! Huge! IT ROI? IT ROI?

So what makes IT ROI So what makes IT ROI difficult?difficult?

Long term … lag effects ... Long term … lag effects ... complementaritiescomplementarities

Consumer surplusConsumer surplus

Difficult to trace infrastructure projects to Difficult to trace infrastructure projects to the bottom linethe bottom line

Few standalone projects today although Few standalone projects today although we try to justify them on this basiswe try to justify them on this basis

Project benefits don’t aggregateProject benefits don’t aggregate

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Ten Steps towards Ten Steps towards Improving your IT Improving your IT ROIROI

Improving Your IT ROIImproving Your IT ROI

1.1. Create a technology renewal programCreate a technology renewal program• Makes maintenance transparent (eliminates Makes maintenance transparent (eliminates

IT’s “dirty little secret”) IT’s “dirty little secret”)

• CFO formalizes the processCFO formalizes the process• Funded centrally (tax on development)Funded centrally (tax on development)

• Administered by CFO and senior executiveAdministered by CFO and senior executive

• IT Director builds the case for technology IT Director builds the case for technology renewal initiativesrenewal initiatives


2.2. Ensure that major IT projects compete Ensure that major IT projects compete with other capital projectswith other capital projects

• Every dollar spent on IT is a dollar denied to Every dollar spent on IT is a dollar denied to other uses ... and vice versaother uses ... and vice versa

• Pre-allocating IT dollars doesn’t guarantee Pre-allocating IT dollars doesn’t guarantee value creationvalue creation

• CFO certifies all business casesCFO certifies all business cases


3.3. Make “internal” IT projects compete with Make “internal” IT projects compete with other IT projectsother IT projects

• IT Director has “needs” for IT tooIT Director has “needs” for IT too

• The IT Director should bring these internal The IT Director should bring these internal projects before the project selection committee projects before the project selection committee so that they compete with all other IT needsso that they compete with all other IT needs

• CFO certifies the business caseCFO certifies the business case

• Eliminates the “coffee can”Eliminates the “coffee can”


4.4. Articulate role expectations with your IT Articulate role expectations with your IT DirectorDirector

• Four archetypical roles (Four archetypical roles (www.cio.com) are:) are:• Business LeaderBusiness Leader• Innovation AgentInnovation Agent• Operational ExpertOperational Expert• Turnaround ArtistTurnaround Artist

• Role discrepancies are highly frustrating and Role discrepancies are highly frustrating and counter-productivecounter-productive

• Have you articulated and aligned role Have you articulated and aligned role expectations with your IT Director?expectations with your IT Director?

5.5. Create a “dynamic auction” for IT projectsCreate a “dynamic auction” for IT projects• All IT projects that have passed detailed All IT projects that have passed detailed

specification but have not yet been specification but have not yet been implemented are considered “in the auction”implemented are considered “in the auction”

• Projects in the auction can be expedited, Projects in the auction can be expedited, frozen or supplanted by other projectsfrozen or supplanted by other projects

• Even after resources have been allocated to a Even after resources have been allocated to a project, the organization does not commit to project, the organization does not commit to delivering the project ... See point abovedelivering the project ... See point above



6.6. Allow managers to “change their mind” Allow managers to “change their mind” and withdraw an IT project from the and withdraw an IT project from the auctionauction

• Balance the benefits of project “sponsorship Balance the benefits of project “sponsorship and commitment” against the costs of and commitment” against the costs of “ownership and ego”“ownership and ego”

• Don’t let the forces of organizational inertia Don’t let the forces of organizational inertia drive you towards delivering questionable drive you towards delivering questionable projectsprojects


7.7. Harvest the benefits for new projectsHarvest the benefits for new projects• ““Stage gate” your benefits (revise/revisit Stage gate” your benefits (revise/revisit

benefits as well as costs through project benefits as well as costs through project development)development)

• CFO organization monitors benefits for all CFO organization monitors benefits for all new IT development projects (“stewardship new IT development projects (“stewardship role”role”

• Benefit transparency – tracked for 3 years by Benefit transparency – tracked for 3 years by CFOCFO

• Harvesting benefits builds accuracy and Harvesting benefits builds accuracy and confidence in IT ROI assessmentconfidence in IT ROI assessment


8.8. Encourage “enterprise” systemsEncourage “enterprise” systems• Go where the greatest value existsGo where the greatest value exists

• Eliminate barriers that work against enterprise Eliminate barriers that work against enterprise systemssystems

• Chargeback mechanisms (“first on the bus ... buys the bus”Chargeback mechanisms (“first on the bus ... buys the bus”

• Decentralizing IT decisions to business unitsDecentralizing IT decisions to business units

• Develop “Robin Hood” funding models Develop “Robin Hood” funding models

• ““100 percent plus” buy-back plan for first 100 percent plus” buy-back plan for first moversmovers


9.9. Fund “programs” instead of “projects”Fund “programs” instead of “projects”• Bucket funding offers better alignment with Bucket funding offers better alignment with

many new business initiativesmany new business initiatives

• For example, if you wish to open a new web For example, if you wish to open a new web channel, put all the required projects in a channel, put all the required projects in a “bucket” and fund (or don’t fund) the whole “bucket” and fund (or don’t fund) the whole bucket.bucket.

• Also, then harvest the benefits on the basis of Also, then harvest the benefits on the basis of the new channel launchthe new channel launch


10.10. Eliminate the “us-them” through Eliminate the “us-them” through “responsibility partnering” :“responsibility partnering” :

• ArticulateArticulate the responsibilities of all partners the responsibilities of all partners

• Gain Gain acceptanceacceptance of these responsibilities of these responsibilities

• Commit necessary Commit necessary resourcesresources to fulfill responsibilities to fulfill responsibilities

• AgreeAgree on what “success” looks like on what “success” looks like

• Commit to achieving success – Commit to achieving success – togethertogether

• Recognize and Recognize and celebratecelebrate joint successes joint successes

• HarvestHarvest the benefits the benefits

© 2006 Microsoft Corporation and Capgemini U.S. LLC 27

Understanding the Understanding the Relationship between Your IT Relationship between Your IT Function and Your Business: Function and Your Business: What’s Driving Your IT ROI?What’s Driving Your IT ROI?

ChangeChange your Relationship your Relationship with Your IT Function and with Your IT Function and DriveDrive Your IT ROI up!Your IT ROI up!

This morning we spoke about

This afternoon you can

THANK THANK YOU!YOU!

Jim McKeen, PhDJim McKeen, PhD

Queen’s School of BusinessQueen’s School of Business

[email protected]@business.queensu.ca

© 2006 Microsoft Corporation and Capgemini U.S. LLC 28

Understanding the Understanding the Relationship between your IT Relationship between your IT Function and Your BusinessFunction and Your Business

What’s Driving Your IT ROI?What’s Driving Your IT ROI?

29

FEI National Breakfast SeriesVancouver Edmonton Calgary Toronto Montreal Halifax

March 5 – 20, 2008

BROUGHT TO YOU BY:

Finance at Microsoft Finance at Microsoft An Inside LookAn Inside Look

Joel FreedmanJoel Freedman

Chief Financial Officer Chief Financial Officer

Microsoft CanadaMicrosoft Canada

Marilee ByersMarilee Byers

Director of ComplianceDirector of Compliance

Microsoft USMicrosoft US

AgendaAgenda

Finance/IT PartnershipFinance/IT Partnership

Leveraging Technology – 2 Case Leveraging Technology – 2 Case StudiesStudies

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B U S I N E S S E X C E L L E N C EB U S I N E S S E X C E L L E N C E

B U S I N E S S I N S I G H TB U S I N E S S I N S I G H T

AttractAttract the bestthe besttalent talent on theon theplanetplanet

BuildBuild your your

skills and skills and those of those of

your your teamteam

DeveloDeveloppstrategic strategic

plans to plans to turnturn

ideas into ideas into actionsactions

ExecuteExecutekey key

financialfinancialprocessesprocesses

ImproveImprovebusiness business

productivity productivity and and

operationsoperations

ThinkThinkstrategically strategically to maximizeto maximize

SVSV

personallypersonally to the success to the success of your team of your team and Microsoftand Microsoft

ContributContributee

PlanPlancurrentcurrent year year

businessbusiness needsneeds

key decisions key decisions to deliver to deliver business business resultsresults

InfluencInfluenceeP P

E E R R S S O O N N A A LL

L L

E E A A D D E E R R S S H H I I PP

Vision: Elevate the role of the finance organization to be leaders in shareholder value creation for Microsoft

Finance/IT PartnershipFinance/IT PartnershipClear definition of roles and responsibilitiesClear definition of roles and responsibilities

Connection to Keynote Rule #7 - CFO organization monitors benefits for all new IT development projects (“stewardship role”Rule #10 - Articulate the responsibilities of all partners

Connection to Keynote Rule #7 - CFO organization monitors benefits for all new IT development projects (“stewardship role”Rule #10 - Articulate the responsibilities of all partners

Strategic Imperatives

Executive Sponsors / IT Partners

Weighting of Drivers via Pair-wise Comparison

(preliminary MBC example)

Defining Strategic Driver & Impact Statements

Weighting of Drivers

ROI10%

Strategic Driver

65%

Risk25%

Data Quality/Data Relevance

Productivity

Plan

Personal Leadership

30%

15%

10%

5%

Project level weighting / development of POR

Business Insight

40%

Connection to Keynote Rule #2 - Ensure that major IT projects compete with other capital projectsRule #6 - Create a “dynamic auction” for IT projects

Connection to Keynote Rule #2 - Ensure that major IT projects compete with other capital projectsRule #6 - Create a “dynamic auction” for IT projects

Case StudiesCase Studies

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Case Study #1Case Study #1

Collaborating to close Collaborating to close faster and betterfaster and better

Close and Reporting Close and Reporting Management: Management: Old WorldOld World

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Financial Reporting and SEC FilingFinancial Reporting and SEC Filing

Leveraged existing technology infrastructure provide by ITLeveraged existing technology infrastructure provide by IT

Technologies used: Technologies used: Microsoft Office SharePointMicrosoft Office SharePoint™™ Server 2007 Web site, Office 2007, InfoPath 2007, SQL Server 2007 Web site, Office 2007, InfoPath 2007, SQL Server 2005, XBRLServer 2005, XBRL

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Connection to Keynote Rule #8 – Encourage “enterprise” systems


Status

Support

Review

Responsibility

SOX Controls

Benefits achievedBenefits achieved

Reduced close by 5 daysReduced close by 5 days

10Q filed with Earnings Release10Q filed with Earnings Release

Clear tasks and accountabilitiesClear tasks and accountabilities

Supporting docs readily availableSupporting docs readily available

Auditor access to documentsAuditor access to documents

Reduction in email pileupReduction in email pileup

Case Study #2 Case Study #2

Managing complex Managing complex compliance processescompliance processes

Phase 1Phase 1

Initial compliance application – Agile Initial compliance application – Agile development with quick solutiondevelopment with quick solution

Second compliance application – Full build Second compliance application – Full build of asp.net application customized for SOX of asp.net application customized for SOX compliancecompliance

Leverage existing tools - Issue Manager, Leverage existing tools - Issue Manager, Consensus, LiveMeetingConsensus, LiveMeeting

Next iteration - a solution to support Next iteration - a solution to support multiple compliance requirements, likely on multiple compliance requirements, likely on SharePoint with some custom buildSharePoint with some custom build

Connection to Keynote Rule #8 – Encourage “enterprise” systemsRule #9 - Fund “programs” instead of “projects”

Connection to Keynote Rule #8 – Encourage “enterprise” systemsRule #9 - Fund “programs” instead of “projects”

Technologies :Technologies : Office 2007 templatesOffice 2007 templates SQL Server 2005SQL Server 2005 SQL Reporting ServicesSQL Reporting Services ASP.NET web servicesASP.NET web services

PurposePurpose Centralized repositoryCentralized repository Integrated risks and control objectivesIntegrated risks and control objectives Visibility to ownership, workflow assignmentsVisibility to ownership, workflow assignments Flexible security modelFlexible security model

SOX DashboardSOX Dashboard

Leverage compliance information; SOX404, SOX302, ERM, FCPA, PCI, HIPAAAutomate assessments and mappingCommon toolLower TCO

Leverage compliance information; SOX404, SOX302, ERM, FCPA, PCI, HIPAAAutomate assessments and mappingCommon toolLower TCO

Connection to KeynoteRule #9 - Fund “programs” instead of “projects”

Connection to KeynoteRule #9 - Fund “programs” instead of “projects”

Case Study #3Case Study #3

Performance managementPerformance management

Silo environment vs. a unified view of financial performance

Inconsistent data definitions and sources

Customized, sometimes offline reporting

Analysis vs. data-gathering

Silo environment vs. a unified view of financial performance

Inconsistent data definitions and sources

Customized, sometimes offline reporting

Analysis vs. data-gathering

Objectives, Guiding Principles & Objectives, Guiding Principles & TenetsTenets

Guiding Principles TenetsIntegrated…

standard reporting across the organization

Right information, right hands, right time

• Consistent performance drivers and accountability

• Stable metrics and reporting

• Information is align to strategy and driving decisions

• Right time processing and availability of reporting

• Take advantage of global time zones and geography

Reliable…

single master data source & taxonomy

Discipline at the core, flexibility at the edge (Enabling agility with discipline)

• Guaranteed data quality and integrity of Financial Reporting

• Define & Implement common control standards

• Centralize governance and change management

• Enterprise consensus around definitions & methodologies

One Source of Management Information

• Single Finance vision aligned to the business

• Single version of the truth for finance reporting

• Common definitions, data accuracy and quality

Powerful…

world-class tools & simple workflow

Role based productivity and satisfaction

• A balanced approach to reporting creating and analysis

• Simplify and automate report generation

• Ability to manage and respond to change efficiently

Leverage Microsoft BI technologies

• Deploy integrated solutions

• Align system investments with strategy

Objectives

Connection to Keynote Rule #10 - Agree on what

“success” looks like

Connection to Keynote Rule #10 - Agree on what

“success” looks like

END USER TOOLS & PERFORMANCE MANAGEMENT APPS

ExcelExcel PerformancePoint ServerPerformancePoint Server

BI PLATFORMSQL Server SQL Server

Reporting ServicesReporting ServicesSQL Server SQL Server

Analysis ServicesAnalysis Services

SQL Server DBMSSQL Server DBMS

SQL Server Integration ServicesSQL Server Integration Services

SharePoint ServerSharePoint Server

DELIVERY

ReportsReportsDashboardsDashboards Excel Excel WorkbooksWorkbooks

AnalyticAnalyticViewsViews ScorecardsScorecards PlansPlans



Personalized dashboard based

on role

Personalized dashboard based

on roleCentral repository

for reportsCentral repository

for reports

Integrated collaboration

Integrated collaboration

Pre-Defined reporting categories

Pre-Defined reporting categories

Unified dashboardsUnified dashboards

Pre-Defined reportsPre-Defined reports

Flexibility to define different parameters

and pivots

Flexibility to define different parameters

and pivots

Integration with existing applications

and tools

Integration with existing applications

and tools

Finance/IT Key Success FactorsFinance/IT Key Success Factors

Collaboration in defining requirementsCollaboration in defining requirements

Solutions delivery roleSolutions delivery role

Good balance between user and IT Good balance between user and IT “development”“development”

Clear budget , cost and benefit information Clear budget , cost and benefit information to make trade-offsto make trade-offs

Clarity and appreciation of expertise and Clarity and appreciation of expertise and rolesroles

CommunicationCommunication

© 2004 Microsoft Corporation. All rights reserved.© 2004 Microsoft Corporation. All rights reserved.This presentation is for informational purposes only. MICROSOFT MAKES NO WARRANTIES, EXPRESS OR IMPLIED, IN THIS SUMMARY.This presentation is for informational purposes only. MICROSOFT MAKES NO WARRANTIES, EXPRESS OR IMPLIED, IN THIS SUMMARY.

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