Collaborative IT Management Driving IT Investment Performance

Scenarios for Successful IT Management Reforms

CONTENTS

Introduction 1. Summary 2. The Need for Collaborative IT Management 2 - 1. Reasons for Possible Failures in IT Investment 2 - 2. About the Survey on Successful IT Investment 2 - 3. Involvement of Top Executives 2 - 4. Involvement of Business Units 2 - 5. Capabilities of IT Department 2 - 6. The PDCA Cycle for IT Investment: Advance Assessment and Follow-up Assessment 2 - 7. Conclusion: The Need for Collaborative IT Management 3. Undertaking IT Management Reform Initiative 3 - 1. Overview of CIO Interviews 3 - 2. Efforts Common to Companies Succeeding in IT Management Reforms 3 - 3. Reshaping Awareness in the Three Parties through Investment Management Structure 3 - 4. Achieving Overall Optimization through Interaction at the Planning Stage 3 - 5. Establishing a Structure of Responsibilities through System Ownership Scheme 3 - 6. Developing Business-savvy IT Staff through Job Rotation 4. Conclusion: Critical Factors of Success in IT Management Reforms

1 2 4 4 6 8 11 14 17 19 24 24 25 26 27 28 29 30

Appendix: Case Studies of Successful IT Management Reforms

32

INTRODUCTION
How can a company increase the returns on its information technology investments? To answer this question, we undertook a survey two years ago on the degree of success companies saw from their IT investments*. A look at the evaluations of IT investment results from this survey showed that some 30% of respondents reported the results of their IT investments had been "as expected." This figure was unchanged from the previous survey, indicating that the issue of increasing returns on IT investments has yet to be fully resolved.
* "Successful IT Investment: Best Practices for IT Investment Management" (ABeam Consulting Ltd., March 2004)

The previous survey focused on IT investment process and pointed out the significance of a company establishing and continually improving an investment process suitable for its own position. A companys inability to achieve this goal was largely due to problems in its IT management organization, structure, or system. Increasing returns on IT investments requires that top executives, business units, and IT department all work together to resolve related issues, rather than leaving them solely to the IT department alone. This survey, in addition to providing data to back up this view on the involvement of these three parties and on the success of IT investments, provides reform scenarios for achieving a structure making the most of IT investments through joint efforts among these three parties. In this report we address three separate themes of organizational management and structures for improving performance of IT investments. First, we describe the results of a survey on the ways these three parties take part in IT investment and the results of such investment. Next, we describe four common efforts by firms successful in IT management reforms, efforts that became clear in interviews with the CIOs of such firms. Finally, we address three key points concerning the implementation of these efforts in view of real transformations. This survey clearly shows that what is needed to ensure the success of IT investment is not IT department reforms but IT management reforms. For this reason, this report is intended to be read not just by IT managers but also by top executives and business leaders.
To conclude, we would like to take this opportunity to express our gratitude to the CIOs and IT leaders who cooperated in the survey and interviews conducted for the preparation of this report.

1. Summary

Factors impeding the success of IT investment include limitations on local optimization, ambiguities in responsibility structures, and an insufficient development of business-savvy IT staff. Companies that aim to derive full value from IT investments, they must address these three issues through the establishment of a collaborative IT

Companies achieving the mean score or higher for all three categoriestop-executive involvement, business-units involvement, and IT-department capabilitieshad the highest rate of success in IT investment: 68 percent. Conversely, it was found that the success rate declined sharply even with only one party scoring low. In fact, although the success rate was 43 percent in companies whose business units and IT departments both scored highly, all others had success rates of 20 percent or less. Furthermore, this survey confirmed that companies with low scores in terms of ITdepartment capabilities were unable to increase their success rates no matter how high the other two parties scored. The results of this survey show that in order to improve performance of IT investments it is vital to establish col-

management--in which top executives, business units,

and IT department each fulfill their own responsibilities, as well as work together to ensure that IT investments have the greater impact.. But how do these three parties take part in IT investment in individual companies, and how do these ways of involvement relate to the results of IT investment? The results of our survey show that firms making successful IT investments share certain characteristics, as described below.

laborative IT management, with high scores for all

three categories. But what kinds of changes are needed in IT management in order to establish such collaborative

Top executives at successful firms place importance

on IT investment and grasp the complete picture of the investment. In addition to communicating to employees throughout the organization both the importance of and the companys policies for the use of IT, they also provide specific instructions when making decisions on IT investment and ensure alignment of IT investment with management strategies. Furthermore, such companies have appointed CIOs. Business units also place importance on making effective use of IT and proactively participate in projects. The right personnel are appointed as project team members and their efforts are evaluated accordingly. Moreover, the IT department in such firms can proactively make proposals to business units or discuss IT-related matters with business units as an equal partner. At least 40 percent of the personnel in their IT departments have experience working in business units, and at least one percent of IT staff are transferred to business units each year. Such companies also choose and manage vendors appropriately.

IT management? Our interviews with the CIOs of seven

firms that had made IT management reforms real showed four types of efforts shared by successful firms.

(1) Reshaping awareness in the three parties through investment management structures
Successful firms provided opportunities for top executives and business units to participate in discussions on IT investment and had established structures for managing IT investment that encouraged active involvement of top executives and business units. By adopting such structures, these companies not only get their top executives and business units more deeply engaged in IT initiatives, but also make their IT departments more accountable for IT investment and more closely in line with the rest of the organization.

(2) Achieving overall optimization through interaction at the planning stage

Successful companies emphasized the interaction at the planning stage between top executives, business units, and IT departments, thus leading to better IT alignment with management and business strategies. This enabled them to realize overall optimization of IT investment.

(1) Top-executive involvement in IT reforms (2) Preparation of a road map for change (3) Appointment of a CIO to take leadership in making changes Enforcement of a Japanese equivalent of the SarbanesOxley Act would further increase the importance of overall optimization in group management. In IT investments, the enforcement would also lead to growing demand for an overall, group-wide optimization. For this reason, the initial focus should be to establish collaborative IT

(3) Establishing a structure of responsibilities through system ownership scheme

Successful firms have adopted the scheme of system ownership, clarifying the roles and responsibilities of system owners, and standardizing IT-related procedures, standards, and rules across the life cycle of IT investment. Those deployments helped raise awareness of the system owner to business units and helped business units fulfill their respective roles and responsibilities.

management at the level of individual companies, and then work toward development of collaborative group IT management by expanding these efforts to a groupwide level.

(4) Developing business-savvy IT staff through job rotation

Successful firms encouraged IT staff to be rotated to business units for a set of period. Job rotation between business units and IT department enables IT department to develop business-savvy IT staff who have not only IT skills but also business knowledge and understand the operations of business units. On the other hand, such rotation enabled business units to develop IT-savvy business staff who are capable of planning IT-enabled operational reforms and are also capable of developing and evaluating business and system requirements. These interviews showed what companies need to do to formulate IT management reforms. The issue is how to put such reforms into practice. With this in mind, the following three key points should be noted:

2. The Need for Collaborative IT Management

2 - 1. Reasons for Possible Failures in IT Investment

How can companies derive more value from their investment in IT? A wide range of suggestions have been proposed to this question, and companies have worked hard to make smarter IT investments. Despite such efforts, the hoped-for improvement failed to occur: the proportion of companies succeeding in IT investment remains unchanged from a survey conducted two years ago.* Why is this issue of improving performance of IT investments still unsolved?
* "Successful IT Investment: Best Practices for IT Investment Management" (ABeam Consulting Ltd., March 2004)

(2) Ambiguities in responsibility structures

To derive full value from IT investments, companies should make business units more involved in IT projects and more accountable for the return on IT investments, more than just making IT requests. In many cases, however, the separation of roles, authority, and responsibility between business units and IT department is not clearly defined in terms of IT planning and promotion. Such ambiguous structures of responsibility hinder the companys ability to get more benefit from IT investments.

The failure to improve performance of IT investments stems from overlooking three fundamental factors at the root of the problem, or from an inability to address these factors even once they are understood.

(3) Insufficient development of business-savvy IT staff

To ensure that IT investment has a strategic impact, companies must follow the three steps: they make business concepts, create structures and processes to realize the concepts, and finally develop IT necessary for these purposes. This requires IT personnel who understand both business operations and IT and who can bring ideas for ITenabled business innovation and implement them. However, in most cases it cannot be said that such business-savvy IT staff have been sufficiently developed, as no progress has been made in the exchange of personnel between IT departments and business units. On these points, here we would like to consider the case of a hypothetical Company X.

(1) Limitations on local optimization

Many IT investment projects begin with proposals from business units. Such bottom-up type system proposals can easily lead to the adoption of IT without a sufficient review of operations. Furthermore, it can lead to problems such as duplication of efforts in system development and a lack of collaboration and integration between systems. An accumulation of such bottom-up IT projects result only in local optimization, not in overall optimization.

Case study

consumer goods manufacturer Company X

For a consumer goods manufacturer like Company X, IT awareness is generally low in the executive level, including the top executives. There is neither an atmosphere for executive involvement in the discussion on IT strategies, nor is there sufficient interest in requesting a report on progress of IT investments. Furthermore, in recent years the number of large-scale IT projects to be decided at the top-executive committee has declined, so it is rare that IT projects come up to their agendas. As a result, there is a great degree of distance between top executives and the IT department. In addition, business units take a passive approach to IT-enabled business innovation. Although they do make a request to the IT department for systems development, they show a strong tendency to leave the rest to the IT department, lacking a sense of ownership regarding costs and results. At Company X, when making a request for IT development, business units are asked to specify the purpose of the investment and its anticipated results. Although it is likely that their self-assessed results have some bias, the results of IT investments are not verified. Furthermore, as a result of cost reductions over the past several years, even the IT department has been subject to restrictions on investment and reductions in numbers of personnel. Although the IT department has strived with limited budgets and staffing to meet the needs of business units, they are incapable of devoting energy to strategic planning and investment management for IT.

The circumstances in which Company X finds itself are definitely not desirable. However, the business units feel no major dissatisfaction with the IT department that fills their requests. The top executives as well may see the IT department as performing well with limited resources. Only the IT department feels unable to take on their assigned missions and authorities, vexed by the inability to advance IT-led business innovation. You have probably heard the example of the "boiling frog." A frog is in a pot of water. As the temperature of the water rises slowly, the frog is not impelled to jump out, as it is not suddenly alarmed by the heat. However, since

the temperature keeps rising, eventually the frog is boiled to death. Under its current circumstances, Company X too risks the fate of the frog if it fails to take steps to improve the situation. Breaking out of these circumstances requires that top executives, business units, and IT departments work together to take on the three fundamental causes referred to above. The three parties also need to work in tandem through the IT investment management cycle to establish collabora-

tive IT management, with each party fulfilling its own

responsibilities. (See Figure 1.)

Figure 1: The IT investment management cycle, with top executives, business units, and IT departments working in tandem

Management Top executives strategies Approval

Business units

Approval
IT Formulating coherenet departIT strategies ments

Business strategies

IT strategies

Top executives

Project requests
Business units Top executives

Approval
IT departments

Development requests Reporting on status of IT operations

Reporting on results
Business units

P A C
Top executives

D
Business units

Progress reports Participation Development

IT departments

IT depart- Confirming ments

Cooperation Improvements

status of IT operations

Vendor management

Reporting
Business units

Reporting
IT departments

Vendors

Operation Verifying results Project assessment

2 - 2. About the Survey on Successful IT Investment

Although the case of Company X may be an extreme example, it is likely that many companies could not say their top executives, business units, and IT departments each participate sufficiently in IT investment. How do these three parties participate in IT investment in real-life companies? Is there a relationship between the way of their involvement and the results of IT investment? We conducted a survey to examine elements related to top-executives involvement, business-unit involvement, and IT-department capabilities, as shown in Figure 2.

Figure 2: Elements surveyed for each section

Top executives

Top-executive involvement

Top-executive involvement Degree of importance given to IT investment Degree of understanding status of IT investment In-house communication concerning use of IT Way of involvement in key IT projects Alignment of IT investment and management strategies Appointment of CIO

Business units
Involvement of business units

IT departments
Capabilities of IT departments

Degree of importance given to use of IT in operations Degree of involvement in IT projects Degree of appropriateness of project team members Personnel evaluations of project team members

Adequacy of required resources Degree of understanding business-units' operations Exchange of personnel with business units Vendor management

This survey was conducted in February through March 2006, with subjects primarily consisting of CIOs and IT department general managers in listed firms. Responses were received from 141 companies. To begin, we will provide an overview of firms subjected to this survey.

How did these firms assess the results of IT investment? Figure 6 shows the results of questioning concerning assessment vs. initial expectations for IT investment over the past three years, both overall and by purpose of use. A number of respondents reported that the results met their expectations for the purpose of "strengthening information security and ensuring compliance" and "reducing operational costs and automating and improving operations". On the other hand, many respondents also indicated that their expectations were not met for the purposes of "speeding up decision-making and visualizing and sharing information" and "increasing sales, improving products and services, and realizing new business models." In terms of overall assessments, 30 percent of respondents reported that their expectations had been met, 56 percent reported results that were somewhat inadequate, and 10 percent reported results that were clearly inadequate.

Figure 3: Overview of firms subjected to the survey (by industry)

Other 4% Electricity and gas 1% Transportation, telecommunications, and other services 11% Finance 15% Manufacturing 46% Distribution 13% Construction 10%

Figure 4: Overview of respondents (by no. of employees) Figure 6: Results of IT investment

10,000 or more 12% 5,000 ~ 9,999 10% 3,000 ~ 4,999 12% Less than 1,000 38%

Exceeded expectations Met expectations Somewhat inadequate Clearly inadequate Don know 't
39%

No applicable investment made

45% 11%3%1%

Reducing operational costs and automating and improving 2% operations Increasing sales, improving products and services, and 1% 16% realizing new business models Speeding up decision-making and visualizing and sharing 0% 27% information Strengthening information security and ensuring 1% compliance

48%

18%

7% 10%

1,000 ~ 2,999 28%

42%

20%

6% 6%

Figure 5: Overview of respondent firms (by annual sales)

47%

38%

9%2%4%

No answer 1% More than 500 billion 18% Less than 50 billion yen 30%

Overall assessment 0% 0%

30% 20% 40%

56% 60% 80%

10% 4% 0% 100%

300 billion ~ 500 billion yen 13% 50 billion ~ 100 billion yen 10% 100 billion ~ 300 billion yen 28%

2 - 3. Involvement of Top Executives

This section introduces survey results for each element shown above in regard to top-executive involvement, business-unit involvement, and IT-department capabilities. It categorizes firms whose overall assessment of the results of IT investment met expectations as successful and those reporting results that were somewhat inadequate or clearly inadequate as unsuccessful and examines the differences in responses between successful and unsuccessful firms.

(1) Degree of importance given to IT investment

Of successful firms, 93 percent reported that top executives placed clear importance or some importance on IT investment, while 83 percent of unsuccessful firms reported the same. Only 28 percent of unsuccessful firms reported that the top executives placed clear importance on IT investment, versus 44 percent for successful firms. Of unsuccessful firms, 14 percent reported placing little importance on IT investment. Figure 7: Degree of importance given to IT investment
Unsuccessful
0% 28% 55% 14% 3%

Top executives place clear importance on IT investment Top executives place some importance on IT investment Top executives place little importance on IT investment Top executives place almost no importance on IT investment

Overall

33%

54%

11% 2%

Successful

44%

49%

7% 0%

50%

100%

(2) Degree of understanding status of IT investment

Of successful firms, 79 percent reported that top executives had a strong understanding or some understanding of the status of IT investment, while 57 percent of unsuccessful firms reported the same. A large percentage of unsuccessful firms (43%) reported that top executives had little understanding of the status of IT investment. Figure 8: Degree of understanding status of IT investment
Unsuccessful 4%
0% 20% 53% 43%

Top executives have a strong understanding of the status of IT investment Top executives have some understanding of the status of IT investment Top executives have little understanding of the status of IT investment

Overall 9%

55%

36%

Successful

16%

63%

21%

40%

60%

80%

100%

(3) In-house communication concerning use of IT

A look at whether top executives communicate the importance of and the companys policies for the use of IT within the organization showed that the most common response at both successful and unsuccessful firms was top executives communicate "from time to time". While 77 percent of successful firms reported that top executives communicate "frequently" or "from time to time," 63 percent of unsuccessful firms reported the same. A large percentage of unsuccessful firms (37%) reported that top executives "almost never" communicate such information.
0% 20% 40% 60% 80% 100%

Top executives frequently communicate such information Top executives communicate such information from time to time Top executives almost never communicate such information No answer

Overall 6%

60%

33%

1%

Successful 7%

70%

21%

2%

Unsuccessful 6%

57%

37%

0%

Figure 9: In-house communication concerning use of IT

(4) Way of involvement in key IT projects

At both successful and unsuccessful firms, large percentages of respondents reported that top executives were involved in key IT projects by "providing direction" and "making comments." However, while 19 percent of successful firms reported that top executives "provide specific instructions," 12 percent of unsuccessful firms reported top executives were "rarely" or "almost never involved." Simply put, it could be said that top executives at successful firms are more deeply involved in key IT projects. Figure 10: Top-executive involvement in decision-making on key IT projects
Unsuccessful 6%
0% 20% 42% 39% 9%

Top executives provide specific instructions Top executives provide direction Top executives make comments Top executives are rarely involved Top executives are almost never involved No answer
40% 40% 7% 2% 1% 2% 0% 3% 1% 100%

Overall 11%

Successful

19%

37%

42%

40%

60%

80%

(5) Alignment between IT investment decision-making and management strategies

This survey examined the degree to which top executives consider alignment with management strategies when making IT investment decisions. Of successful firms, 91 percent reported their IT investment decision-making was "fully aligned" or "somewhat aligned" with management strategies, while 78 percent of unsuccessful firms reported the same. While 44 percent of successful firms reported "full aligned," a large percentage of unsuccessful firms (22%) reported "little aligned." These results imply that a large number of successful firms have better aligned IT investment decision-making with management strategies. Figure 11: Alignment between IT investment decision-making and management strategies
0% 20% 40% 60% 80% 100%

Fully aligned Somewhat aligned Little aligned Almost no aligned

31% 50% 18% 1%

Overall

Successful

44%

47%

9% 0%

Unsuccessful

25%

53%

22%

1%

(6) Appointment of CIO

Next, the survey examined whether a CIO was appointed. While 53 percent of successful firms reported a "CIO of managing director rank or higher" or a "CIO of another rank," 30 percent of unsuccessful firms reported the same. These results show that the percentage of successful firms that have appointed CIOs is nearly double that of unsuccessful firms. Figure 12: Appointment of CIO
Successful
35% 19% 47%

CIO of managing director rank or higher appointed CIO of other rank appointed No CIO appointed
24% 13% 63%

Overall

Unsuccessful
0%

19%

11%

70%

20%

40%

60%

80%

100%

Furthermore, a look at the percentages of the activities of persons appointed as CIOs actually devoted to CIO duties shows that while 22 percent of successful firms reported that their CIOs spent 100 percent of their time on CIO duties (i.e., were full-time CIOs), only 7 percent of unsuccessful firms had full-time CIOs. The percentage of unsuccessful firms reporting that their CIOs devoted less than 30 percent of their time to CIO duties was very high, at 71 percent. Simply put, more than half of successful firms had CIOs and these CIOs had spent more time on CIO duties, while only 30 percent of unsuccessful firms had CIOs and they spent less time on CIO duties. Figure 13: Percentage of CIOs time spent on CIO duties
0% 20% 40% 60% 80% 100%

Less than 30% 50% ~ 80% 100% (full-time)

30% ~ 50% 80% or higher No answer

15% 6% 6% 13% 0%

Overall

60%

Successful

48%

22%

4%4%

22%

0%

Unsuccessful

71%

7% 7% 4% 7% 4%

Requests from CIOs and IT leaders to top executives

This survey asked respondent CIOs or IT leaders to indicate any requests they had for the top executives in order to improve performance of IT investments. Particularly notable in this survey were responses concerning requests for top executives to encourage active involvement by business units in IT investment projects. This shows the importance of reshaping awareness in business units and the sense of crisis resulting from limitations on what IT departments can achieve in this area.
"Business units should be guided to be better owners of IT." (Manufacturing) "The importance of business units involvement should be communicated to business-unit leaders." (Manufacturing) "Communicating the use of IT to business units is inadequate." (Manufacturing) "Proactive communication with business-unit should be encouraged." (Distribution) "Business units should be instructed to get more involved in IT projects." (Manufacturing) "Business units should be asked to monitor the expected benefits after implementation." (Finance) "Management direction to business units and IT department should be presented on the understanding that business units have responsibility for generating value from IT investment." (Manufacturing) "Business units should be asked to make a firm commitment to target results and to take the lead in making improvements on the basis of post-implementation evaluation." (Manufacturing) "Participants should be motivated to get more involved in the development process and business units should be motivated to use the newly developed systems in cutover." (Miscellaneous)

We thus see the need to strengthen IT governance, for example by clearly defining the separation of responsibilities between business units and IT department across the IT investment process.
"Decision-making process and decision-makers should be defined more clearly." (Manufacturing) "It should be clarified who take responsibility for generating value from IT investments." (Manufacturing) "A strong support from the top executives is needed to strengthen IT governance." (Manufacturing) "Generating greater value from IT investments requires reviewing both operational processes and rules and procedures. Since the latter depends heavily on management leadership, strong support is needed here." (Manufacturing)

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2 - 4. Involvement of Business Units

With regard to the involvement of business units, this survey inquired about the degree given to the use of IT in operations, the degree of involvement in IT projects, the degree of appropriateness of project team members, and personnel evaluations of project team members.

(1) Degree given to the use of IT in operations

What do business units think about the use of IT in operations? Of successful firms, 100 percent reported that business units placed clear importance or some importance on the use of IT in operations, while 87 percent of unsuccessful firms reported the same. While 56 percent of successful firms reported that business units placed clear importance on the use of IT, only 33 percent of unsuccessful firms did. Of unsuccessful firms, 12 percent reported that business units placed little importance on the use of IT. Thus, business units in successful firms placed more importance on the use of IT in operations. Figure 14: Business-units awareness of the use of IT in operations
Unsuccessful
0% 33% 20% 40% 54% 60% 80% 12% 1% 100%

Business units place clear importance on the use of IT Business units place some importance on the use of IT Business units place little importance on the use of IT Business units place almost no importance on the use of IT
40% 51% 8% 1%

Overall

Successful

56%

44%

0%

(2) Degree of involvement in IT projects

This survey asked about the degree to which business units proactively participate in IT projects that they planned or proposed. Of successful firms, 86 percent reported getting involved "proactively" or "somewhat proactively," while only 62 percent of unsuccessful firms reported the same. The percentage of unsuccessful firms that reported participating "somewhat passively" stood out at 34 percent. These results indicate that business units in successful firms more proactively participate in IT projects than do those of unsuccessful firms. Figure 15: Degree of business-unit involvement in IT projects
Unsuccessful
0% 15% 20% 47% 40% 60% 34% 80% 3% 100%

Proactively Somewhat proactively Somewhat passively Passively

19% 50% 28% 2%

Overall

Successful

30%

56%

14%

0%

11

(3) Degree of appropriateness of project team members

This survey asked about the degree to which business units assign appropriate personnel to IT projects that they planned or proposed. Of successful firms, 86 percent reported assigning appropriate personnel "most or all of the time" or "in the majority of cases," while only 57 percent of unsuccessful firms reported the same. The percentage of unsuccessful firms that reported not assigning appropriate personnel "in the majority of cases" was markedly high at 37 percent. These results indicate that business units in successful firms assign appropriate project team members to a higher degree than do those of unsuccessful firms. Figure 16: Degree of appropriateness of project team members
Unsuccessful 3%
0% 20% 54% 40% 60% 37% 80% 6% 0% 100%

Appropriate personnel assigned most or all of the time Appropriate personnel assigned in the majority of cases Appropriate personnel not assigned in the majority of cases Personnel assigned could not be considered appropriate No answer
61% 26% 5%1%

Overall 6%

Successful

14%

72%

7% 2% 5%

(4) Personnel evaluations of project team members

Whether business units assign appropriate personnel to IT projects is also related to the personnel evaluation system. A look at the results of the survey on this point shows that while 86 percent of successful firms reported personnel evaluations of "appropriate" or "appropriate to some degree," a somewhat smaller percentage (70 percent) of unsuccessful firms reported the same. While 30 percent of successful firms reported personnel evaluations of "appropriate", a markedly smaller percentage (8 percent) of unsuccessful firms did. In addition, the percentage of unsuccessful firms that reported personnel evaluations "unfavorable to some degree" was high, at 25 percent. These results indicate that successful firms made more appropriate personnel evaluations on project members than did unsuccessful firms. Figure 17: Personnel evaluations of business-unit personnel involved in projects
0% 20% 40% 60% 80% 100%

Appropriate Appropriate to some degree Unfavorable to some degree Unfavorable No answer

15% 60% 18% 2%4%

Overall

Successful

30%

56%

5%0%9%

Unsuccessful 8%

62%

25%

3% 2%

12

Requests from CIOs and IT leaders to business units

CIOs and IT leaders have a wide range of requests to business units to get greater benefit from IT investments. Most notable among requests for business units were those seeking more business-unit involvement in IT investments.
"Business units should take more responsibility for generating value from IT investments, instead of relying on the IT department for everything." (Manufacturing) "Business units should emphasize using IT to innovate their operations and bring new ideas IT-enabled business innovation, instead of relying excessively on the IT department for everything." (Manufacturing) "Business units should get more involved in IT projects with sense of ownership, instead of having IT department take care of everything." (Manufacturing) "Business units should have more sense of ownership and take more responsibility." (Finance) "Business units should take responsibility for the return on IT investment." (Manufacturing) "Business units should be more accountable for the outcome of IT investments." (Distribution) "Business units should have a strong will to realize the benefits of IT investments." (Manufacturing) "Business units should view IT as a means to an end and thoroughly ascertain the purpose of IT investment and how such investment leads to benefits." (Manufacturing) "Business units should firmly deploy measures to make the most of IT investments." (Manufacturing)

In addition, many CIOs and IT leaders mentioned that project requests submitted by business units should promote IT-enabled business innovation, instead of being oriented only toward running the current operations more efficiently.
"Business units should stop submitting project requests intended to achieve short-sighted results centered on matters of convenience." (Manufacturing) "Business units should minimize project requests aimed at improving convenience." (Finance) "Business units should request development projects to realize IT-enabled business innovation, instead of requesting projects based on existing operations." (Manufacturing) "Business units should promote IT investments coupled with business innovation and business process engineering (BPR), rather than submit requests based on simply continuing or improving efficiency under the status quo." (Manufacturing) "Business units should start with through BPR in advance of IT initiatives." (Manufacturing) "Business units should make proposals based on projects impact on business, rather than simply improving day-to-day operations." (Manufacturing) "Business units should realize IT-enabled new businesses through partnering with organizations both inside and outside the company, instead of focusing solely on operational efficiency inside the company." (Distribution) "Business units should propose projects that are aligned with strategic goals and directions of the organization." (Manufacturing, Finance)

Moreover, a number of respondents admit the insufficient involvement of their business units in project implementations including requirements analysis, review, and testing. Thus, they need more business-unit involvement in the system development phase.
"Business units should be more deeply engaged in IT projects." (Manufacturing, other) "Business units should be more strongly involved from the planning and design stages." (Manufacturing) "Business units should share the tasks of systems development." (Manufacturing) "Business units should proactively participate in the requirement analysis and testing phases." (Manufacturing) "Business units should get more involved in project implementation, including requirements analysis and testing." (Finance)

With regard to the personnel from business units involved in projects, there are strong demands for assigning key personnel and highly skilled personnel who can take leadership in planning and promoting IT initiatives.
"Business units should assign key personnel who are capable of planning and requirement analysis in the planning phase." (Manufacturing) "Highly capable personnel should be involved in IT projects." (Manufacturing) "Competent team members should be chosen and assigned for IT project." (Distribution) "Personnel who can discuss projects in detail should be assigned to participate in meetings." (Finance) "Personnel capable of implementing operational reforms and who do not consider their involvement to be a temporary assignment should be chosen as project team members." (Manufacturing)

In addition, capability to conduct a thorough post-investment verification was deemed desirable.

"Results should be measured thoroughly, with a heightened awareness of responsibility." (Distribution) "Efforts to verify investment performance should be strengthened." (Finance) "A thorough follow-up assessment is desirable." (Distribution) "The performance of IT projects should be verified thoroughly after the projects are implemented." (Finance)

Furthermore, there were also requests from the business units for greater executive involvement and leadership in IT matters and for guidance in reshaping the awareness of the entire business unit.
"Executives in business units should participate more proactively." (Manufacturing) "General managers of business units should take active part in realizing IT investment performance, rather than leaving things to their subordinates or the IT departments." (Manufacturing)

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2 - 5. Capabilities of IT Department
With regard to IT departments capabilities, this survey inquired about the adequacy of required resources, the degree of understanding of their operations, exchange of personnel, and management of outside resources.

(1) Adequacy of required resources

A look at the percentage share of IT department personnel in the entire workforce shows that the most common response among successful firms was "1.0% or more but less than 2.0%," given by 37 percent of respondents. Of unsuccessful firms, the response "less than 0.5%" and "1.0% or more but less than 2.0%" were each given by 31 percent of respondents. In general, it can be said that the percentage share of IT department personnel in the entire workforce is lower at unsuccessful firms. Figure 18: Percentage share of IT department personnel in the entire workforce Next, the survey asked about the degree of adequacy of the numbers of IT department personnel. For both successful and unsuccessful firms, approximately 90 percent of respondents reported that numbers were "somewhat inadequate" or "clearly inadequate." However, a somewhat larger percentage of successful firms (9 percent) than unsuccessful firms (5 percent) reported that numbers were "inadequate." While no successful firms reported that the numbers were "excessively inadequate to a degree that hinders operations," 6 percent of unsuccessful firms reported such. It can be derived from this observation that while numbers of IT department personnel are inadequate overall, such inadequacy appears to be somewhat more marked among unsuccessful firms. Figure 19: Adequacy of required resources
Less than 0.5% 2.0% ~ 3.0% 5.0% or higher 0.5% ~ 1.0% 3.0% ~ 4.0% No answer
20% 34%

1.0% ~ 2.0% 4.0% ~ 5.0%

Overall

26%

7%2%6%4%1%

Successful

16%

21%

37%

9% 5% 5% 5% 0%

Unsuccessful
0%

31%

20%

31%

5%1%6% 3%1%

20%

40%

60%

80%

100%

Clearly adequate Somewhat inadequate Clearly inadequate Excessively inadequate to a degree that hinders operations
45% 45% 4%

Overall 6%

Successful 9%

44%

47%

0%

Unsuccessful 5%
0%

42%

46%

6%

20%

40%

60%

80%

100%

(2) Degree of understanding of business units operations

To what degree do IT departments understand business units operations? Of successful firms, 19 percent reported having the ability to "proactively make proposals," while 5 percent of unsuccessful firms reported the same. Also, 72 percent of successful firms reported having the ability to "discuss relevant matters as equals," while 54 percent of unsuccessful firms reported the same. While 9 percent of successful firms reported having "little understanding" of business units operations, 41 percent of unsuccessful firms reported the same, indicating that unsuccessful firms had relatively lower degrees of understanding of business units operations. Figure 20: Degree of understanding of business units operations
Can proactively make proposals Can discuss relevant matters as equals Little understanding
9% 60% 30%

Overall

Successful

19%

72%

9%

Unsuccessful 5%
0% 20%

54%

41%

40%

60%

80%

100%

14

(3) Exchange of personnel with business units

Since IT department personnel need specialized technical abilities, it is said to be difficult for IT departments to exchange personnel with business units. A look at the percentage of IT department personnel with experience working in business units shows that the most common response among both successful and unsuccessful firms was "less than 20%." However, while the response "40% or more" was given by 42 percent of successful firms, it was given by only 15 percent of unsuccessful firms. These results show that the percentage of IT department personnel with experience working in business units is relatively higher at successful firms. Figure 21: Percentage of IT department personnel with experience working in business units Next, the survey asked about percentages of personnel transferred from IT departments to business units. The response "less than 0.5%" was given by an overwhelmingly high percentage of unsuccessful firms (70 percent), while only 23 percent of such firms gave the response "1.0% or higher." From these results, it can be seen that exchange of personnel between IT departments and business units is virtually nonexistent at unsuccessful firms. At the same time, the response "less than 0.5%" was given by only 42 percent of successful firms, while 44 percent of such firms gave the response "1.0% or higher." Although exchange of personnel between IT departments and business units is difficult, more successful than unsuccessful firms are making such efforts. Figure 22: Percentages of personnel transferred from IT departments to business units
Less than 0.5% 1.0% ~ 3.0% 5.0% or higher
61%

Less than 20% 40% ~ 60% 80% or higher

64%

20% ~ 40% 60% ~ 80%

Overall

13%

11% 5% 7%

Successful

51%

7%

21%

12%

9%

Unsuccessful
0% 20%

69%

16%

8% 2%5%

40%

60%

80%

100%

0.5% ~ 1.0% 3.0% ~ 5.0% No answer

7% 13% 9% 7% 2%

Overall

Successful

42%

12%

26%

9%

9% 2%

Unsuccessful
0% 20%

70%

5% 8% 9% 6% 2%

40%

60%

80%

100%

(4) Management of outside resources

Use of outside resources such as IT vendors has become commonplace. In this survey as well, the number of companies using no outside resources was extremely small. A look at the tasks in which such resources are used shows no major differences between successful and unsuccessful firms, with such resources used in the areas of development, operation, and maintenance. Figure 23: Use of outside resources by task
Overall Successful Unsuccessful

Planning Design Development Operation Maintenance Not used

0%

11% 9% 12% 43% 44% 42% 74% 59% 53% 70% 84% 89%

70% 67% 70% 4% 7% 2% 20% 40% 60% 80% 100%

15

Although both successful and unsuccessful firms use outside resources such as IT vendors widely, whether such use is successful depends on whether the outside resources are managed appropriately. On this point, this survey asked about the level of respondents enforcement of vendor-selection criteria, those who prepare requests for proposals (RFPs), enforcement of development rules and documentation standards, and conclusion of service-level agreements (SLAs).

(4) - 1. Enforcement of vendor-selection criteria

When asked about the degree to which standardized selection criteria are enforced when choosing vendors, 26 percent of successful firms reported "always" enforcing such criteria, while 33 percent reported enforcing such criteria "more often than not." In contrast, the most common response among unsuccessful firms was "no standardized vendor-selection criteria," given by 57 percent of such firms. Figure 24: Enforcement of standardized vendor-selection criteria
Unsuccessful 1%
0% 30% 12% 57% 0%

Always enforced Enforced more often than not Not enforced very often No standardized vendor-selection criteria No answer
30% 10% 49% 1%

Overall 9%

Successful

26%

33%

5%

35%

2%

20%

40%

60%

80%

100%

(4) - 2. Preparation of requests for proposals (RFPs)

When asked about those who prepare RFPs, 56 percent of successful firms reported that RFPs are "prepared inhouse," while 35 percent reported that "summaries of RFPs are prepared in-house and details prepared by vendors." In contrast, the most common response among unsuccessful firms was "summaries of RFPs are prepared in-house and details prepared by vendors," given by 47 percent of such firms, while 15 percent of such firms reported that RFPs are "prepared by vendors." Figure 25: Preparation of RFPs
Successful
56% 35% 5%5%

Prepared in-house Summaries of RFPs are prepared in-house and details prepared by vendors Prepared by vendors No answer

Overall

43%

43%

13%

1%

Unsuccessful
0%

38%

47%

15% 0%

20%

40%

60%

80%

100%

(4) - 3. Enforcement of development rules and documentation standards

With regard to enforcement of the companys development rules and documentation standards to vendors, there were no major differences between responses from successful firms and those from unsuccessful firms. However, percentages of successful firms reporting that such development rules and documentation standards are enforced "always" or "more often than not" were somewhat higher than those of unsuccessful firms. Figure 26: Enforcement of development rules and documentation standards
Unsuccessful
0% 16% 33% 22% 29% 0%

Always enforced Enforced more often than not Not enforced more often than enforced No company development rules or documentation standards No answer

Overall

18%

33%

20%

28%

1%

Successful

23%

35%

16%

23%

2%

20%

40%

60%

80%

100%

16

(4) - 4. Conclusion of service-level agreements (SLAs)

With regard to conclusion of SLAs on projects related to operations, 26 percent of successful firms reported "always" concluding such agreements. In comparison, only 8 percent of unsuccessful firms reported "always" concluding SLAs, and 68 percent reported that SLAs were not concluded "more often than concluded." Figure 27: Conclusion of SLAs on projects related to operations
Successful
26% 21% 44% 9%

Always concluded Concluded more often than not SLAs not concluded more often than concluded No answer

Overall

14%

23%

59%

4%

Unsuccessful 8%
0%

25%

68%

0%

20%

40%

60%

80%

100%

2 - 6. The PDCA Cycle for IT Investment:Advance Assessment and Follow-up Assessment

We mentioned earlier that running through the PDCA cycle for IT investment is required to improve returns on such investment. In running through the PDCA cycle for IT investment, advance assessment and follow-up assessment are both vital. Figure 28 shows the state of implementation of advance assessment and follow-up assessment at respondent firms. Of successful firms, 56 percent implemented both advance assessment and follow-up assessment, and 35 percent implemented only advance assessment. At the same time, only 34 percent of unsuccessful firms implemented both advance assessment and follow-up assessment, while 54 percent implemented only advance assessment. These results show that while most successful firms implemented both advance assessment and follow-up assessment, most unsuccessful firms implemented only advance assessment with no follow-up assessment, showing that such firms do not run through the PDCA cycle.

Figure 28: State of implementation of advance assessment and follow-up assessment

Both implemented Only advance assessment implemented Neither implemented

Overall

40%

49%

11%

Successful

56%

35%

9%

Unsuccessful
0%

34%

54%

12%

20%

40%

60%

80%

100%

17

In addition, at unsuccessful firms the process of assigning priorities based on advance assessment does not function adequately (see Figure 29). When asked why, although the number of such firms citing "no clear standards" was overwhelmingly high, among unsuccessful firms the responses "business units have strong influence," "no personnel capable of making related decisions," and "IT department has weak influence" stood out. The numbers of successful firms giving such responses were extremely small.
0%

Functional Somewhat dysfunctional

Somewhat functional Mostly dysfunctional

Overall

27%

50%

20%

3%

Successful

44%

8% 49%

8% 0%

Unsuccessful

17%

51%

27%

5%

20%

40%

60%

80%

100%

Figure 29: Internal assessment of effectiveness of priority-assignation processes

Overall

Successful

Unsuccessfu
72% 77% 71%

Figure 30: Reasons why priority-assignation processes do not function adequately

No clear standards Inadequate materials for making judgments No personnel capable of making related decisions Depends on capabilities of business units IT department has weak influence
9% 5% 5% 17% 20% 20% 25% 15% 18% 30% 32% 29%

CIO has weak 2% authority 0% 3% Decided on the quick thought of top executives Other
3% 5% 9% 16% 14% 17%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

18

2 - 7. Conclusion: The Need for Collaborative IT Management

Fifteen characteristics of successful firms
With regard to involvement of top-executives, involvement of business units, and capabilities of IT departments, a comparison of successful and unsuccessful firms shows marked differences between these two categories on the 15 items shown in Figure 31. These 15 points can be referred to as characteristics of successful firms. Categorization of these points shows that successful firms in terms of IT investment fit the following description.

Top executives at successful firms place importance on IT investment and grasp the complete picture of the investment. In addition, they communicate to employees throughout the organization both the importance of and the companys policies for the use of IT. In making decisions on IT investment, they provide specific instructions and ensure alignment of IT investment with management strategies. Furthermore, such companies have appointed Chief Information Officers (CIOs).

Figure 31: Profile of successful firms (summary)

Successful Unsuccessful firms firms
Importance attached to IT investment The complete picture of IT investment grasped

93% 79% 77% 19% 91% 53% 100% 86% 86% 30% 91% 42% 44% 59% 56%

83% 57% 63% 6% 78% 30% 87% 62% 57% 8% 59% 15% 23% 31% 38%

Involvement of top executives

Matters concerning use of IT communicated frequently or from time to time Specific instructions provided in decision-making on IT investment Alignment of IT investment with management strategies ensured A CIO has been appointed

Importance attached to use of IT in operations

Involvement of business units

Proactive participation in projects Personnel from business units involved in projects are mostly appropriate Personnel evaluations of project team members are appropriate

Can make proposals to business units or discuss IT-related matters as equals At least 40% of IT department personnel have experience working in business units

Capabilities of IT departments

At least 1% of IT department personnel are transferred to business units each year Vendor-selection criteria are enforced more often than not RFPs prepared in-house

Notes: Scores for item and item represent ratios of companies that reported placing much weight or some weight on the relevant matter. Scores for item represent ratios of companies that reported strong understanding or some understanding of the realities of IT investment. Scores for item represent ratios of companies that reported fully aligned somewhat aligned or with management strategies. Scores for item represent ratios of companies that reported participating proactively somewhat proactively proposed projects. Scores for item represent ratios of or in companies that reported assigning appropriate personnel most or all of the time in the majority of cases. or

19

Business units at successful firms also place importance on making effective use of IT in operations
and proactively participate in projects they have planned or drafted. Furthermore, right personnel from business units are appointed as project team members and their efforts are evaluated appropriately.

IT departments in successful firms can proactively make proposals to business units and can discuss IT-related matters with them as an equal partner. At least 40 percent of IT department personnel have experience working in business units, and at least one percent of IT staff are transferred to business units each year. In addition, many such firms apply standardized vender-selection criteria when choosing vendors and prepare RFPs in-house. The following radar chart (Figure 32) summarizes the profile of successful firms.

Figure 32: Profile of successful firms (radar chart)

Importance attached to

IT investment

RFPs prepared in-house Vendor-selection criteria are enforced more often than not
At least 1% of IT department

1 15 100% 80% 2

The complete pictures of

IT investment grasped

Matters concerning use of IT

14

personnel are transferred to business units each year

Capabilities of IT departments

60% 40% 20% 0%

communicated frequently or from time to time

Specific instructions provided

13

in IT investment decisionmaking

Involvement of top executives

At least 40% of IT department

personnel have experience working in business units

Can make proposals to

12

Alignment of IT investment

with management strategies ensured

business units or discuss IT-related matters as equals

11 10 7 9 8

6
A CIO has been appointed

Personnel evaluations of

project team members are appropriate

Personnel from business

Importance attached to use of

IT in operations

Involvement of business units

Proactive participation in

units involved in projects are mostly appropriate

projects

Successful firms Unsuccessful firms

20

Collaborative IT management and success rates

These fifteen characteristics of successful firms comprise six characteristics related to involvement of top executives, four related to involvement of business units, and five related to the capabilities of IT departments. Grading each of these makes it possible to calculate scores on degree of involvement by top executives, degree of involvement by business units and capabilities of IT departments. (See Figure 33.) A comparison of section scores and average scores for degree of involvement by top executives, degree of involvement by business units, and capabilities of IT departments makes it possible to separate companies into two groups:

those with scores equal to or above the average and those with scores lower than the average. Figure 34 shows the percentages of successful firms (success rates) among firms whose sections are in the high-scoring group and those whose sections are in the low-scoring group. A look at this table shows that the success rate for firms whose IT department capabilities scored high was highest at 53 percent. On the other hand, the success rate at firms with high scores on degree of involvement by top executives was only 38 percent. These results show that even firms with high scores on degree of involvement by top executives were unable to increase their success rates if their scores on degree of involvement by business units and capabilities of IT departments were low.

Figure 33: Scores by section for measuring degree of collaborative IT management

Degree of importance attached to IT investment Degree of understanding of the complete picture of IT investment Degree of communication on importance of and policies for use of IT Degree of involvement in key IT-investment projects Degree of alignment of IT investment with management strategies Whether a CIO has been appointed Degree of importance attached to use of IT in operations Degree of involvement in projects Degree of appropriateness of project team members assigned from business units Degree of appropriateness of personnel evaluations of project team members assigned from business units Degree of understanding of business units operations Percentage of IT department personnel with experience working in business units Percentage of IT department personnel transferred to business units Degree of enforcement of vendor-selection criteria Main entity in charge of preparing RFPs

4 4 3 5 4 3 4 4 4 4 4 3 3 4 3

Degree of involvement by top executives

Degree of involvement by business units

Capabilities of IT departments

Note: Figures at right indicate the highest scores for each item.

Figure 34: Section scores and success rates

Score Successful firms Unsuccessful firms Subtotal Success rate

Degree of involvement by top executives Degree of involvement by business units Capabilities of IT departments

High Low High Low High Low

33 5 35 3 33 5

54 36 45 45 29 61

87 41 80 48 62 66

38% 12% 44% 6% 53% 8%

21

Although the success rate for firms whose IT department capabilities scored high was 53 percent, success rates vary by degree of involvement by business units and by capabilities of IT departments. For this reason, success rates need to be analyzed by combining the scores for degree of involvement by top executives, degree of involvement by business units, and capabilities of IT departments. When categorizing firms into four groups (those in which all three sections have high scores, those in which only two sections have high scores, those in which only one section has a high score, and those in which no sections have high scores), the breakdown of respondent firms is as shown in Figure 35. Firms in which all three sections have

high scores accounted for 32 percent of the total, those in which only two sections have high scores for 26 percent, those in which only one section has a high score for 31 percent, and those in which no sections have high scores for 11 percent of the total. A look at the success rate for each group shows that firms in which all three sections have high scores had the highest success rate, at 68 percent. The success rate for firms in which only two sections have high scores fell all the way to 24 percent. Furthermore, the success rates at firms in which only one or no section has a high score were extremely low at 4 percent.

Figure 35: Section score combinations and success rates

Successful firms All three sections have high scores Unsuccessful firms

All three sections have low scores

11%

All three sections have high scores

32%

Subtotal

Success rate

28 8 2 38

13 25 52 90

41 33 54 128

68% 24% 4% 30%

Only one section has a high score

31% 26%

Only two sections have high scores Only one or no section has a high score Total

Only two sections have high scores

Figure 36: Success rates for each of the eight groups

All three sections have high scores Top executives Business units IT departments Pattern Successful firms Unsuccessful firms Subtotal Success rate

High Low

High High Low High Low High Low Low Total

High High High Low High Low Low Low

HHH LHH HLH HHL LLH LHL HLL LLL

28 3 1 4 1 0 0 1 38

13 4 5 16 7 12 20 13 90

41 7 6 20 8 12 20 14 128

68% 43% 17% 20% 13% 0% 0% 7% 30%

Only two sections have high scores

High High Low

Only one section has a high score

Low High

All three sections have low scores

Low

22

Figure 36 represents combinations of scores of the three types of sections and success rates in more detail. This table shows that success rates among firms in which two sections have high scores varied according to which sections these were. The success rate for firms in which both user and IT departments had high scores was 43 percent second only to the rate for firms in which all three sections have high scores. At firms in which only one section has a high score, if that section was the IT department the success rate was 13 percent, while it was zero when that section was top executives or business units. When all three sections had low scores, the success rate was 7 percent. Although success rates for groups with small sample sizes should be used only for reference purposes, these results can be said to be very interesting.

As we have already seen, the success rate when the IT department had a high score was 53 percent. If the other two sections also had high scores the success rate increased to 68 percent, while if the other two sections had low scores the rate decreased all the way to 13 percent. (See Figure 37.) The results of the above analysis imply that in order to improve results of IT investment it is vital to establish collaborative IT management, by achieving high scores in terms of all three of the following: degree of involvement by top executives, degree of involvement by business units, and capabilities of IT departments.

Figure 37: Success rates and combinations of IT department scores and other sections scores

Degree of involvement by top executives

High

HLH

HHH

IT department capabilities high

Success rate

17%
LHH

68% 43%
High

53%

Low

LLH

13%
Low

Degree of involvement by business units

23

3. Undertaking IT Management Reform Initiative

Chapter 2 discussed the need for collaborative IT management in which top executives, business units, and IT departments each participate in IT investment in an active and integrated manner in order to improve performance of IT investments. In this chapter, we examine transformation scenarios culminating in IT management reforms, with the goal of evolving toward collaborative IT management.

3 - 1. Overview of CIO Interviews

From firms that responded to this survey, we interviewed CIOs or IT leaders at seven companies that had achieved high performance on IT investments and had high scores in terms of degree of involvement by top executives, degree of involvement by business units, and capabilities of IT departments. Our interviews focused on how these firms have brought about IT management reforms. Although each of these companies can be considered a successful case study, the level to which each had achieved collaborative IT management varies widely. Companies A and B were at the stage of having established structures for managing IT investment that encouraged active involvement of top executives and business units (early stages of transformation). Companies C and D were at the stage of enhancing the involvement of business units in addition to having IT-investment management structures (middle stages of transformation). Companies E, F, and G were at the stage of achieving high performance on IT investments through collaborative IT management, having overcome the three difficulties of achieving overall optimization, establishing a structure for responsibility, and developing business-savvy IT staff (later stages of transformation).

Figure 38: Positioning of the seven companies whose CIOs were interviewed

High

Later stages of transformation

Degree of involvement of top executives

Middle stages of transformation Early stages of transformation

E C

G F
Company A : Homebuilder Company B : Household-goods manufacturer Company C : Food-products manufacturer Company D : Food-products manufacturer Company E : Pharmaceuticals manufacturer Company F : Insurance company Company G : Travel agency

High

Degree of involvement of business units

24

3 - 2. Efforts Common to Companies Succeeding in IT Management Reforms

The results of our interviews with CIOs make it clear that the following four efforts are common to companies that have implemented IT management reforms working toward achieving collaborative IT management. (See Figure 39.) (1) Reshaping awareness of the three parties through investment management structures (2) Achieving overall optimization through interaction at the planning stage (3) Establishing a structure of responsibilities through system-ownership scheme (4) Developing business-savvy IT staff through job rotation

Figure 39: Efforts required for IT management reforms

Reshaping awareness of the three parties through investment management structures

Top executives

Achieving overall optimization through interaction at the planning stage

Top Management executives strategies

A
Business units

P C

D
IT departments

Business strategies

Overall optimization

IT strategies IT departments

Four efforts required for IT management reforms

Business units

Top executives

Top executives

Business units

Roles

IT departments

Business units

IT human resources

IT departments

Establishing a structure of responsibilities through system-ownership scheme

Developing business-savvy IT staff through job rotation

25

3 - 3. Reshaping Awareness in the Three Parties through Investment Management Structures

In order to improve performance of IT investments, it is important to run through the PDCA cycle for IT management, with top executives, business units, and IT departments working in tandem. For this reason, it is desirable to provide opportunities (meetings) for top executives and business units to participate in discussions on IT investment. In fact, successful firms have created structures for managing IT investment that encourage active participation of top executives and business units. Adopting such structures makes it possible not only to get top executives and business units more deeply engaged in IT investment but also make IT departments more accountable for IT investment and more closely in line with business units. To ensure the success of such meetings, it is vital that communication tools be prepared and that the office in charge make meticulous preparations in advance. In particular, in meetings with top executives present, pertinent information must be communicated in a shared language understandable to them. Successful firms use tools such as IT strategy maps and IT-investment performance metrics to effectively communicate with top executives. However, at many companies IT departments are so busy with their day-to-day operations that they are unable also to serve as the operational office for these meetings. In such a case, it would seem necessary to prepare an organizational structure in addition to securing the personnel needed to run through the PDCA cycle in IT investment

B C
projects.

At Company B, in order to educate top executives on ITs

strategic impact, an IT strategic plan was formulated to meet their midterm management goals and presented to the board together with the companys IT vision, investment amounts and other matters. Furthermore, in order to develop a sense of ownership among business units, an IT committee was established in which business-unit leaders participate. This committee meets quarterly to discuss key

At Company C, an IT planning section was established

separately from its existing IT department. This newly created IT planning section was led by the general manager of the corporate strategies division who also served as the CIO. The company also proceeded with preparations for implementing the PDCA cycle for IT investment, with such efforts centered on the IT planning section. Specifically, business units were asked to submit an application for IT project, which specified information such as the need for new systems and anticipated results. Furthermore, a committee made up of the IT planning section, business units, and IT departments was established. In this committee, the purposes and effects of proposed systems are discussed thoroughly, based on the content of the applications.

A
26

management.

At Company A , in order to increase business units

awareness of IT investment, management adopted an approach three years ago that allows IT investments to be managed systematically rather than leaving all IT-related matters up to the IT department. In addition, three committees were established simultaneously, as follows: IT strategy committee, IT investment assessment committee, and IT asset assessment committee. Over the past three years, both top executives and business units have gradually reshaped their IT awareness and have developed an interest in use of IT and return on IT investment.

E F
tive results. cutover.

At Company E, IT investment projects other than infrastructure projects are submitted by business units. Investment projects are deliberated by the IT leadership committee, where project candidates are evaluated and prioritized in light of benefits of the investment, including quantita-

At Company F , an operational efficiency promotion

committee was established five years ago. This committee gathers business-unit executives and discusses all IT investment projects monthly. The results of its deliberations are reported to the board meeting. The operational efficiency committee prioritizes projects and approves for funding, based on the IT plans prepared by business units, and it verifies the results of projects after six months of

3 - 4. Achieving Overall Optimization through Interaction at the Planning Stage

When IT projects are approved on the basis of bottom-up system proposals, overall optimization cannot be realized even when running through the PDCA cycle. Successful firms embrace the approach of thorough interaction between top executives, business units, and IT departments at the planning stage, thus leading to better alignment between corporate, business, and IT strategies. In addition, all three parties formulate a common understanding on business concepts, structures and processes to realize the concepts (i.e., operational reforms), and IT necessary for these purposes. The investment management cycle is repeated for individual investment projects within this framework.

B C E

At Company B, the companys IT plan is broken down

by business unit and both corporate and business-unit IT plans are explained at the first meeting of the IT committee every fiscal year. Efforts are also made to ensure closer alignment between midterm corporate plans, IT plans, annual plans, and individual projects.

At Company C, instead of bottom-up system proposals

by business units, the system plans are designed to meet the midterm management objectives and they are compiled into an IT strategy map to foster communications with business-unit executives and leaders. This is intended to achieve better IT alignment with management strategies as well as overall optimization.

Company E develops IT plans in addition to midterm

management plans. In formulating IT plans, each business unit and the IT department work together to identify IT needs and initiatives for the next five years. Once IT plans have been approved by the executive committee, they are broken down into business-unit IT plans. In this way, the company is able to formulate IT plans that are properly aligned with its management plans.

27

3 - 5. Establishing a Structure of Responsibilities through System Ownership Scheme

In order to derive full value from IT investments, business units should proactively participate in projects as system owners and take responsibility for realizing the benefits of the investments. However, business units often lack the sense of ownership and do not fulfill their expected roles and responsibilities. For this reason, in such a case management structures must be changed to ones in which business units perceive themselves as system owners and can fulfill their expected roles and responsibilities. Many successful firms have improved results by adopting the scheme of system ownership and clarifying the roles and responsibilities of system owners as shown in Figure 40, as well as standardizing IT-related procedures, standards, and rules. Furthermore, successful firms are also characterized by appointing business-unit executives as system owners and having them take responsibility for the whole cycle of IT investment from proposing IT investment through realizing the benefits of such investment.

C D

Company C has adopted a system ownership structure

and a business-unit executive was asked to take on the responsibility of the system owner. In this way, the company attempted to make business units more accountable for the return on IT investments and to enhance their commitment to improving the performance.

Company D has changed the structure and process of IT project implementation. Under the new structure, business
units were asked to take the project leadership. This was intended to ensure that the business units were responsible not only for making project requests but also for developing and overseeing their systems, and for deriving full value from their investments. At the same time, corporate policy and guideline for IT use was developed to better align IT with management plans and was communicated to business units. This helped achieve overall optimization. Furthermore, project leaders were appointed from business units and the IT department provided support on technical aspects of the project. Responsibilities are made clear by appointing leaders on a full-time basis, and in principle results must be achieved within two years.

Figure 40:Roles of system owners (business units) and IT departments

System owners (business units)

Clarifying anticipated results Proposing system projects Requesting development Appointing project team members, etc. Finalizing operational requirements Confirming external requirements Implementing test and verification Conducting user training, etc. Utilizing the system Comfieming the stratus of utilization Verifying and reporting on the results of investment, etc.

IT departments
Estimating approximate costs Studying development structure, etc.

Projects requests

System development

Finalizing system requirements Finalizing schedule, budget, and structure Preparing of external requirements Providing test environment, etc. Assessing and reporting on development quality, cost, and delivery (QCD) Providing operation services Managing operational service levels Verifying and reporting on operation deliverables Identifying and examining issues Proposing and implementing improvements Measuring and reporting on results of improvements, etc.

Cutover /operation

Improvements

Identifying and examining issues Proposing and implementing improvements Measuring and reporting on results of improvements, etc.

28

F
expectation.

At Company F, business units were requested to share

the responsibility and ownership of projects with the IT department. In this way, the company adopted a system ownership structure and specified the roles and responsibilities of the system owners (business units) and those of the IT department across the IT investment lifecycle--from proposing IT projects through their development, operation, verification, and improvement. As the system owner, the business-unit executive should be accountable for the results of IT investment. The system owner was asked to verify the results after cutover and to implement measures to improve the performance when the results fall short of

G
efforts.

At company G, a system-ownership scheme was adopted

and an IT strategy committee was established to reshape the awareness of business units. The system owner takes responsibility for all aspects of the project--from concept development through project definition, development, and utilization. For projects involving costs of a certain amount or more, a member of the executive team is appointed system owner. The IT strategy committee not only examines IT investment projects and submits them to the executive committee but also supports the system owners

3 - 6. Developing Business-savvy IT Staff through Job Rotation

Despite the need for IT personnel who can understand both operations and IT and can plan and promote IT-enabled operational reforms, few firms make deliberate efforts to develop such business-savvy IT personnel. One method of developing business-savvy IT personnel is to rotate the staff between IT department and business units. However, as our survey showed, such job rotation between IT department and business units happens rarely. Successful firms encourage IT staff to be rotated to business units for a set of period. Job rotation between IT department and business units enables IT department to develop business-savvy IT staff who not only have solid IT skills but also understand the operations of business units. On the other hand, such rotation also enables business units to develop IT-savvy business staff who can plan IT-enabled operational reforms and also can develop and evaluate business and system requirements. effect. For this reason, staff members transferred to business units always return to the IT department three years later.

Company D proactively promotes the exchange of IT per-

sonnel with business units in order to help IT staff develop a deeper understanding of business-unit operations. However, if personnel transferred from IT department to business units do not return to the IT department, the benefits of this exchange of personnel cannot be expected to take

F G
operations. the future.

Company F reports that insufficient communication be-

tween business units and IT department are caused partly by IT department staff: the IT department lacks personnel with an acute sense of business. Furthermore, staff members also need to develop the ability to recognize issues, the ability to propose solutions, and the skills to manage projects. The company has implemented job rotation and other staff development methods to develop personnel with experience both in system development and in business

Company Gs IT department (an IT subsidiary) had been

virtually in the position of an IT vendor. This position was changed to one in which the subsidiary would support and promote the parent companys IT strategies. A member of Company Gs IT strategy committee was appointed IT subsidiarys executive, and the operational office of the IT strategy committee was left to the IT subsidiary. In addition, the company plans to exchange personnel between its business units and the IT subsidiary more proactively in

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4. Conclusion: Critical Factors of Success in IT Management Reforms

In conclusion, we will discuss three critical factors needed to ensure the success of IT management reforms.

(1) Top-executive involvement in IT reforms

At the beginning of this report, we pointed out the following three fundamental factors impeding the success of IT investment: limitations on local optimization, ambiguities in responsibility structures, and insufficient development of business-savvy IT staff. Progress stalls in addressing these factors when only few members of top executives view IT investment as a management issue and take IT reforms seriously. No IT management reform will succeed if the companys top executives are unaware of the demand for reforms and if they do not express their commitment to actively enact such reforms. The first step toward a companys success in this area is to examine the present situation of its IT investments and to make top executives deeply involved in IT management reforms.

articulate IT visions, and leading IT investments toward overall optimization. Leadership is vital to making these changes real. Even if IT-department general managers are able to strengthen the capabilities of their sections, it will be difficult for them to persuade top executives and business units to become deeply engaged in IT investments. An effective means of addressing this challenge is by appointing a CIO to take leadership in making changes. A CIO that can take leadership in making changes does not need to be well-versed in IT, and in fact need not even have any experience in the IT field. The key ingredients are a trusted relationship with top executives, strong influence on business units, and a wealth of managerial experience. In fact, many CIOs at firms that have succeeded in IT management reforms have experience as company presidents at subsidiaries or have backgrounds as general managers in charge of management planning or operational reforms. It must not be forgotten that close behind this pressing need for establishing collaborative IT management is the enforcement of a Japanese equivalent to the SarbanesOxley Act. Such a law would require companies to improve their internal controls, with the goal of ensuring the reliability of financial reports. The proposed law explicitly mentions IT as one of the fundamental elements of internal controls. The Japanese equivalent to the Sarbanes-Oxley Act would assume reporting on a consolidated basis, with all consolidated subsidiaries subject to internal controls. Implementation of this Japanese equivalent to the Sarbanes-Oxley Act would lead to further increases in the importance of overall optimization in group management and the same holds true for IT investment. For this reason, it is necessary first of all to establish an IT investment management cycle at the level of individual companies, through coordination between top executives, business units, and IT department, and then to work toward development of

(2) Preparing a road map for change

The road to the goal of collaborative IT management differs depending on a companys situation regarding IT management. For this reason, the company needs to develop a correct understanding of the present situation and to prepare a reform road map, one that will take the company from its current starting point to the goal of collaborative IT management. As discussed in this report, an effective means of examining the present situation of a companys IT management begins by breaking down and assessing it in terms of three parties: top-executive involvement, business-unit involvement, and IT department capabilities. Next, the company must decide with which party to begin reforms. For example, if a companys IT department capabilities are low, it should initiate the IT department reforms. (See Figure 41.) However, we must bear in mind that IT department reforms are only the starting point of IT management reform.

(3) Appointment of a CIO to take leadership in making changes

IT management reforms mean many changes: strengthening IT department capabilities, restructuring the relationship between IT department and business units, making business units taken responsibilities as system owners, educating top executives on IT-related matters, helping them

collaborative group IT management by expanding

these efforts to the groupwide level. Responding to a Japanese equivalent to the Sarbanes-Oxley Act will provide an excellent opportunity for companies to proceed with IT management reforms.

30

Figure 41: Steps toward IT management reforms

IT department capabilities

High
IT department capabilities are high
High

Increasing involvement of business units and top executives, in accordance with each company's position

Top-executive involvement
High

HLH 17%

HHH 68% LHH 43%

High Low

LLH 13%
Low

STEP2
Low High

STEP1
If IT department capabilities are low, the IT department must be strengthened
Low

Top-executive involvement

Business unit involvement

High

HLL 0%

HHL 20% LHL 0%

High

Low

LLL 7%
Low

Business unit involvement

Figure 42: Overview of a road map for change

Assessing present situation Ensuring alignment between Achieving shared perception corporate, business, and Raising awareness of need for Expressing commitment IT strategies reforms Appointing a CIO Communicating to business Motivating business units Redefining the IT department's units and IT departments continuosly missions

Top executives

Business units

Assessing present situation Developing sence of ownership Establishing unified Encouraging proactive partici- responsibility structures Raising awareness of need for through system ownership pation in the project reforms Improving personal evaluations scheme Adjusting business and IT of project team members strategies Planning and proposing IT-enabled operational reforms Visualizing IT costs Reporting on actual state of IT operations Achieving transparency in IT department operations Improving IT service level Improving skills of IT staff Standardizing project management Improving vendor management Establishing an IT-investment Restructuring the functions of management cycle and fulfill- IT departments ing project accountability Formulating IT strategies Formulating IT staff aligned with management development plans and business strategies Implementing exchange of personnel (rotations) with business units Reshaping awareness of IT department staff

IT departments

Early stages of reforms

Middle stages of reforms

Later stages of reforms

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Appendix: Case Studies of Successful IT Management Reforms

The following case studies are based on interviews of seven firms that have succeeded in IT management reforms.

Case study

Company A (homebuilder): Improving the IT investment management structure through activities centered on committees
this committee. The management team in the IT department provides materials used in deliberations in the IT strategy committee, based on various analyses of the companys IT investments and IT assets. For example, analysis was conducted to identify how much IT investments had been made in each value activity of the companys value chain and where future investments should be directed. The results was reported to the IT strategy committee. The IT strategy committee can thus be said to function effectively in improving communications between top executives and IT department. Although the IT investment assessment committee is staffed by general managers from business units and administration departments, at first the opinion was expressed that it was difficult to determine what should be discussed. However, as a result of its continued diligent activities over three years, business units, which used to leave everything to the IT department, have reshaped their IT awareness and have developed an interest in IT use and return on IT investment. In the third year of this system, some issues remain despite the establishment of an IT investment management structure. For example, the IT asset assessment committee tried to evaluate IT assets by conducting survey on IT use by business units, the survey results were the same for all systems: although the systems were assessed as necessary for operations and contributing to business performance, they were difficult to use. As such, the results of this survey were not very useful. Through such trial-and-error experiences, Company A is working to improve the PDCA cycle itself.

Company A, a homebuilder, has an IT department with a relatively short history. Its business units had low levels of awareness regarding computer systems and its IT department took the lead in advancing IT projects. In addition, at the time top executives also had a strong tendency to leave system-related matters to the IT department. In order to change these trends, three years ago Company A adopted a systematic IT investment management structure. The IT department was in charge of all aspects of IT budgeting and its IT budget lacked transparency from the perspective of top executives and business units. For this reason, the company needed to make the IT investment process more transparent. In addition, since it was unclear who took responsibility for the results of IT investments, the company needed to make it clear that the business units were responsible for realizing hoped-for benefits from these investments. To achieve these two goals, the company established three committees simultaneouslyIT strategy committee, IT investment assessment committee, and IT asset assessment committeeas well as applying the PDCA cycle to IT investment management. The IT strategy committee meets twice annually: once before formulating the budget and once six months later. As a subordinated committee of the IT strategy committee, the investment assessment committee examines IT project proposals each month. The asset assessment committee meets annually, before the IT strategy committee meeting. The IT function executive chairs the IT strategy committee, and general managers from business units also take part in

Case study

Company B (household-goods manufacturer): Implementing IT investment management involving top executives and business units
sion, investment amounts and other matters. Furthermore, the company also established an IT committee staffed by businessunit leaders to deliberate on key projects quarterly. In addition, at the first committee meeting in each fiscal year the companys IT plan is broken down by business unit and explained to each unit, and efforts are also made at that point to ensure closer alignment between midterm corporate plans, IT plans, annual plans, and individual projects. Individual projects are classified into business-unit development projects, infrastructure projects, and risk-management projects. Performance metrics are devised for anticipated results of business-unit development projects, and a post-cutover review is conducted to determine whether the anticipated results have been achieved.

Company B is a household-goods manufacturer. In the past, its top executives could not be said to have a high level of interest in IT, and they had a strong tendency to leave IT-related matters to the IT department. Rather than playing a proactive role as the CIO, the director in charge of IT performed the simple function of submitting projects to the board of directors for approval. IT projects proposed by business units were submitted for the IT departments approval and, if projects involve costs over a certain amount, they were subject to approval by the board of directors. For these reasons, Company B felt the need to educate top executives on ITs strategic impact and to develop a sense of ownership among business units. For this purpose, an IT plan was formulated to meet their midterm management goals and presented to the board together with the companys IT vi-

32

Case study

Company C (food-products manufacturer): Building a PDCA cycle for IT investment and adopting a system-ownership structure
vestment, with such efforts centered on the IT planning section. Specifically, business units were asked to submit an application for IT project, which specified information such as the need for new systems and anticipated results. Furthermore, a committee made up of the IT planning section, business units, and IT department was established. In this committee, the purposes and effects of proposed systems are discussed thoroughly, based on the content of applications. In addition, Company C has adopted a system ownership structure and a business-unit executive was asked to take responsibility of the system owner. In this way, the company attempted to make business units more accountable for the return on IT investments and to enhance their commitment to improving the performance. In addition, instead of bottom-up system proposals by business units, the system plans are designed to meet the midterm management objectives and they are compiled into an IT strategy map to foster communications with business-unit executives and leaders. This is intended to achieve better IT alignment with management strategies as well as overall optimization.

Company C is a food-products manufacturer. Previously, its IT department focused on how to develop systems requested by business units cheaply and efficiently. A staff member in each business unit would submit project requests, and communication between the business unit and IT department was conducted via this staff member. For this reason, system development advanced as guided by the needs of individual units, with neither alignment with management strategies nor companywide optimization taken into account. In addition, the company did not know how systems were actually used or whether the hoped-for results were achieved. For these reasons, Company C saw the need to adopt a structure to manage IT investments through the PDCA cycle. To this end, a IT planning section was established separately from its existing IT department. This newly created IT planning section was led by the general manager of the corporate strategies division who also served as the CIO. The company also proceeded with preparations for implementing the PDCA cycle for IT in-

Case study

Company D (food-products manufacturer): Implementing projects under the leadership of business units
units were asked to take the project leadership. However, simply having business units take leadership involved not just technical difficulties but also losses in terms of overall optimization. Therefore, the companys IT planning and promotion section developed corporate policy and guideline for IT use to better align IT with management plans and then communicated the policy and guideline to business units. Thus multiple projects were initiated in accordance with the companys overall direction. Furthermore, project leaders were appointed from business units and the IT department provided support on technical aspects of the project, and in principle results must be achieved within two years. These bold efforts have transformed the awareness of business units and developed a sense of ownership. However, in practice there are varying levels of enthusiasm among business units, and the company reported that the pace of reshaping awareness in the sales and manufacturing sections was relatively slow. In addition, since IT department staff needed to develop a deeper understanding of business unit operations, the company proactively promoted exchange of personnel with business units. However, the benefits of such exchange of personnel cannot be expected to take effect if personnel transferred from IT department to business units do not return to the IT department. For this reason, staff members transferred to business units always return to the IT department after three years.

Company D is a food-products manufacturer. When the IT department was first established, it had an important presence within the company; other sections often depended on the IT department for operational matters that they couldnt understand. Later, the IT department came to be seen as a cost center, with its staffing reduced and controls placed on renewed investment amounts. Its primary task then shifted to operation of IT systems. As a result, the IT department was encouraged to adopt a passive posture, with its operations becoming increasingly dependent on personal qualifications. Also the company gradually lagged behind its competitors in the use of IT. Acknowledging the risks inherent to these circumstances, five years ago the top management ordered a review and promotion of IT use. However, at the time the IT department was not capable of fulfilling this role, so the management planning section took leadership in planning and promoting IT use. An IT use committee was established to evaluate and prioritize IT projects, and the results were submitted to the executive committee for approval. However, since both top executives and business units had low IT awareness, it was difficult to produce tangible results through adoption of such structure. In the end, the committee was dissolved after several years, having never obtained the understanding and cooperation of business units. The reason these first efforts did not succeed was the tendency among business units to rely on the IT department. The company needed to get business units to understand that they bear responsibility for realizing benefits from IT investments. For this purpose, the company has changed the structure and process of IT project implementation. Under the new structure, business

33

Case study

Company E (pharmaceuticals manufacturer): Formulating IT plans through joint efforts by business units and the IT department
also develops IT plans together with these midterm management plans. However, with regard to projects other than infrastructure projects, coordination with business units is essential. Whats more, since many topics involve multiple business units, it must coordinate among the interests of all of the relevant organizations when formulating plans. In formulating IT plans, each business unit and the IT department work together to identify IT needs and initiatives for the next five years. Once IT plans have been approved by the executive committee, they are broken down into business-unit IT plans. In this way, the company is able to formulate IT plans that are properly aligned with its management plans. At Company E, in principle IT investment projects other than infrastructure projects are submitted by business units. Investment projects are deliberated by the IT leadership committee, in which project candidates are strictly evaluated and prioritized in light of expected benefits, including quantitative results. Projects involving costs over a certain amount are submitted to the executive committee for consideration. Although the company had considered using such metrics as ROI upon advance assessment of projects, it concluded that doing so would be difficult. Instead, the company focuses on whether projects are properly aligned with the direction and mission objective of the organization. At the same time, it caps IT investment amounts to a certain percentage of sales. The capping helps enhance top-executive confidence in IT investment amounts.

Company E is a pharmaceuticals manufacturer. In this company, business units were originally close to the IT department. Business units include R&D, SCM, and sales. In the past, system-development requests were met with efforts that included assigning personnel from the IT department to the R&D department. Sending personnel from the IT department to business units worked to narrow the gap between the two parties. However, there were concerns that the IT department might be preoccupied with taking orders from the business units and that IT infrastructure might disintegrate as a result. Furthermore, there were also concerns that IT alignment with management strategies might be inadequate, that project requests might not be examined sufficiently, and that investment performance might not be adequately verified. To tackle these concerns, Company E made massive changes to the way it handled IT investment. It gathered together the IT department personnel sent to business units and assigned personnel in business units to serve as liaisons with the IT department. For these liaisons, it chose personnel who had a good grasp of business-unit operations and had solid IT knowledge as well. The IT department was divided into two main categoriesIT planning and IT promotionand IT staff gathered from business units took the role of IT promotion among R&D, SCM, and sales. Company E formulates midterm management plans for the next five years and review them every year on a rolling basis. It

Case study

Company F (insurance company): Clarifying the division of roles by adopting a system-ownership structure
Specifically, the company clarified the roles and responsibilities of business units and those of the IT department across the IT investment lifecycle -- from proposing IT projects through their development, operation, verification, and improvement. Although these clarified details include some efforts that have already been implemented, the company says that defining them in this manner led to enhancing the effectiveness of these efforts. In addition, as the system owner, the business-unit executive reported to the operational efficiency promotion committee on the results of IT investment. The system owner was asked to verify the results after cutover and, when the results fell short of expectation, the owner was also asked to implement measures to improve the performance . At Company F, it seems that insufficient communications between business units and IT department are caused partly by IT department staff. The IT department lacked personnel with an acute sense of business. Furthermore, staff members also need to develop the ability to recognize issues, the ability to propose solutions, and the skills to manage projects. For this purpose, the company has implemented job rotation and other staff development methods to develop personnel with experience both in system development and in business operations.

Company F is an insurance company. The company says that it has always had a corporate culture that encouraged top executives, business units, and IT department to work together to promote IT activities. Five years ago, it established an operational efficiency promotion committee. This committee gathered business-unit executives to discuss all IT investment projects monthly and the results were reported to the board meeting. The operational efficiency promotion committee prioritized projects and approved for funding, based on the IT plans prepared by business units, and it verified the results of projects after six months of cutover. However, Company F felt a need to strengthen cooperation further between business units and IT department. The IT department felt this need confronted by seemingly endless system development problems, which had decreased in number than before but still remained a major concern. Such troubles stemmed largely from insufficient communications between business units and IT department. To avoid troubles, business units not only submitted project requests but also needed to get more proactively involved in cost management and quality improvements. For these reasons, the company adopted a system-ownership structure and specified the roles and responsibilities of system owners (business units requesting systems) and IT department.

34

Case study

Company G (travel agency): Establishing unified responsibility structures by adopting a system-ownership scheme
Company G also made efforts to transform the passive awareness of its IT department (subsidiary). The IT department had been virtually in the position of an IT vendor. This position was changed to one in which the subsidiary would support and promote Company Gs IT strategies and the operational office of the IT strategy committee was left to the IT subsidiary. A member of the IT strategy committee was appointed IT subsidiary s executive and was asked to train the subsidiarys staff to fulfill new missions. Furthermore, the company has reviewed the operations of its IT subsidiary and separated these into proactive operations and routine tasks, while studying the possibility of outsourcing the latter. In addition, the company plans to exchange personnel between its business units and the IT subsidiary more proactively in the future

Company G is a travel agency. At this company, the corporate IT department took the role of IT planning, while development was conducted by its IT subsidiary. However, the company experienced problems such as the failure to meet specifications, cost overruns, and the delay of the schedules At the time, the company was proceeding with management structural reforms. Top management pointed out the need to revamp the IT governance as well. Furthermore, as proposed by top management, the general manager of the general planning office was assigned to serve as CIO as well, and this person was asked to handle matters from management strategies through IT in a unified manner. A project team led by IT planning staff was organized to examine IT-governance issues and it turned out that communications and coordination between business units and the IT department (subsidiary) were dysfunctional. Business units just made project requests and they felt no responsibility for the results of their investments. At the same time, the IT department tried to develop systems in accordance with the requests, to satisfy business units. At company G, a system-ownership scheme was adopted and an IT strategy committee was established to reshape the awareness of business units. The system owner bears responsibility for all aspects of the project--from concept development through project definition, development, and utilization. For projects involving costs of a certain amount or higher, a member of the executive team is appointed system owner. The IT strategy committee not only examines IT investment projects and submits them to the executive committee but also supports the system owners efforts. In this way, the scheme can function properly even if the system owner doesnt have a strong IT background.

35

About ABeam Research

ABeam Research is the internal think-tank arm of ABeam Consulting. Focusing on the key business issues faced by top executives, we provide practical opinions supported by data from our original research.

About ABeam Consulting

ABeam Consulting is one of leading business consulting firms, providing professional services in the areas of strategy, BRP, information technology, and outsourcing through its global network. About 2,600 consultants serve companies in a wide range of industries, such as manufacturing, financial services, consumer business, energy, telecommunications and the media, as well as the public sector. Consolidated sales for the financial year that ended in March 2006 were 32.4 billion JPY (in conformance with U.S. accounting standards).

Authors:
Kimiaki Kimura Director, ABeam Research

Ichiro Hara Principal, Strategic Business Transformation

Iwao Yoshioka Senior Manager, International Client Services

Satoko Kashiwada Consultant, International Client Services

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Corporate Marketing japan@abeam.com Tel. +81-3-3501-8355 (main line)

Yurakucho Building, 1-10-1 Yurakucho, Chiyoda-ku, Tokyo, 100-0006 Japan Tel : +81-3-5521-5555 Fax : +81-3-5521-5563 http: //jp.abeam.com

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