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

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IS6600 – 8

Information, Knowledge

and Strategy

“We don’t do IT projects at JetBlue. We do Business Projects” – CIO Joseph Eng

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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

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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.

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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

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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.

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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

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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?

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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?”.

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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?

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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

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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?

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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

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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

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Henderson & Venkatraman’s Strategic Alignment Model

Strategy Alignment Process(Linkage & Automation)

IS/ITInfrastructure

and Processes

IS/IT Strategy

IS/ITTransformation

OrganisationalInfrastructure

and Processes

Business Productsand Services

IS/IT Productsand Services In

tern

al

BusinessTransformation

Ext

erna

l

Business Strategy

Business Domain IT Domain

Adapted from Henderson & Venkatraman, 1992

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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?

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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

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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.

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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

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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.

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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.

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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

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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

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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

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Financial PerspectiveAre we meeting the

expectations of shareholders?

Customer PerspectiveAre 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

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Translating the Vision into Desired Outcomes

VISIONIntended Direction/Destination

Balanced ScorecardWhat do we want to achieve?

STRATEGYHow will we achieve “success”?

Strategic InitiativesWhat do we need to do?

Personal InitiativesWhat do I need to do?

DESIRED OUTCOMES

Satisfied Shareholders

Delighted Customers

Effective & Efficient

Processes

Motivated & Prepared Workforce

Martinsons, 2005

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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

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MTR Corporate Strategy Map

Revenue OperatingCost

ShareholderValue

Satisfaction Index

Market Share Patronage

Safety Index Service Pledge

Talent LeadershipManpower & Succession

StrategicAlignment

Partnering & Teamwork

Employee Satisfaction

CultureOrganisational

Capability

Customer

Processes

Financial

Learning & Growth

© MTR, 2005

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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.

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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 RONAFinancial

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

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• % Ground crew trained

• % Ground crew stockholders

The Scorecard is a Programme for ActionObjectives Measures

• # 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• 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 RONAFinancial

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

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• 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?

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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

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• 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)

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• 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)

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• 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)

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• 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)

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• 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)

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 Perspectives Objectives Measures Targets Initiatives

Business Value Increase profit

$ 10% CAGR

User Delighted 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

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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?

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• 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

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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

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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.

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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.