IT: Can You Strategically Support the 2008 Business Plan?
The Board of Directors is getting ready to review the 2007 Business Plan. As the Senior Executive, you are preparing to present the Plan and your executive management team is gathered to discuss it. Finance has approved the numbers and Human Resources has reviewed the personnel, benefits and employee associated issues. Sales has forecasted the new business needed to support the number. Then, it strikes you that IT is going to play a key support role for the 2007 Business Plan. There are open issues that have to be addressed.
Can the IT Plan support the new Business Plan? Is the infrastructure and IT support organization prepared to meet Sarbanes Oxley compliance reporting requirements?
Can the pending acquisition of a competitor be facilitated by IT at current proposed budget levels? Suddenly, there may be obstacles that will not permit adequate IT support in the accomplishment of the 2007 Business Plan.
Information Technology is always one of a company's top five budget items. Capital costs have given way to operational costs through consolidated insourcing, outsourcing and offshore services. The "hot" new IT acronym is SOA (Service Oriented Architecture), which can mean just IT applications - or we can think of it as a "combination" of insourcing, outsourcing, offshore services and enterprise applications utilization. The results underscore more effective IT, at cost effective rates. This is not a new approach; it's been used in well - managed companies for years. More efficient use of IT to control costs and manage resources is absolutely necessary in today’s highly competitive global market place.
Information - “A Big Advantage” ...
IT can be the competitive differential in achieving bottom-line results and "competitive edge". Information is the primary ingredient necessary in managing any business. If you can make an informed business decision quicker than the competition and the associated information can be disseminated faster into your organization, it's a big advantage.
The Difference - Winning and Losing ...
Information Technology has evolved into a key business resource, supporting all aspects of the business as well as the company's Business Plan. IT has become a competitive discriminator in the global market place. Key management decisions, which are timely and accurately based, make the difference between winning and losing. Today's CIO and IT organization are critical success factors in most corporations, especially those having information based businesses (such as banks, insurance companies, financial companies, law firms, pharmaceutical and health care hospitals).
For years, IT represented a major expenditure or budget item and it frequently failed to support the business information needs of the company. A few years ago, the company's computer(s) were always "down" when "crunch time" occurred, usually at quarter-end, fiscal year-end or whenever some special report had a deadline.
"IT is Always Broken and Costs Too Much” ...
If you interviewed a CEO or CFO and asked about their impression of IT, a variety of answers would be provided. Remember, these executives probably worked up the management ladder. Twenty years ago, IT was often impacted with computer equipment outages, such as DASD head crashes, power surges or network outages. Older computers had less sophisticated electronics - even tubes and wiring harnesses. The executive in one interview session stated his perception of IT was that it was always "broken down" and it "cost too much". Thinking back, quarterly, fiscal year, and year-end reporting put heavy work loads on computers and the entire IT department. This is the memory many senior executives have frequently carried forward.
In reality, today's IT is reliable, much more advanced and functional from management, speed and reliability perspectives. But - IT still "costs a lot" and it should be well managed in order to provide its best advantages to the business or outside assistance.
Role of CIO ...
IT organizations are expected to enhance business processes and to contain costs. Today's CIO has to be adept in information technology, management, finance, human resources and administration. Many CIOs and IT organizations are required to make revenue contributions and provide market differentiation for the company. In mid-sized companies, IT is often very challenging because there are usually smaller IT budgets and fewer IT people to address tactical and, especially, strategic IT issues. Computer equipment has gotten much more reliable, and now it's usually a budget shortage that affects the availability of computer resources in companies of all sizes.
New Application Initiative ...
Over the past 10 years, many companies have implemented enterprise based applications suites of software to more efficiently provide IT support across the entire corporate population of end users. ERP and CRM have been prominent initiatives that have greatly enhanced the use of information to competitively differentiate companies. Major suites of commercially provided software, such as SAP, and Oracle, have been implemented to manage processes and applications across enterprises. Tying together in-house applications, expensive third party applications and new enterprise software requires highly talented systems engineers and a skilled IT management team.
IT Outsourcing - A Viable Alternative ...
In-house IT costs and reliability problems provided the entry point for outsourcing services in the late 1980s. IT infrastructure requires expensive support and constant upgrading in order to deliver effective and useful information. Outsourcing offered a tactical solution that not only saved money, it also permitted capital budget relief to companies negatively affected by the economic and business downturns. By utilizing a services approach, IT has now become an operational budget item as opposed to a capital budget item, which has been accounted for differently on the books. Outsourcing also enables companies to sell off computing hardware, displace expensive IT personnel to the outsourcing vendor, and reduce environmental costs associated with conditioned floor space (air conditioning, electrical service and computing redundancy).
Costly third party application and operational software also became the responsibility of the outsourcing vendor(s). Outsourcing contracts are usually five (5) to ten (10) years in length, and should provide an average annual cost savings of 15% to 20%, as compared to most in-house IT operations.
Governance - A Profound Effect on the Success of Outsourcing ...
The outsourcing alternative has grown from a tactical to a strategic business approach in information technology for many Fortune 500 companies, as well as major global corporations. Most of the difficulties once experienced in outsourcing have dissipated, and now the services approach is highly reliable and cost effective. Governance (relationship management and control) has had a profound and positive affect on the success of outsourcing. Just like in-house information processing operations, outsourcing requires good management, too.
The International Association of Outsourcing Professionals (IAOP) recently conducted a survey that clearly pointed out that Governance is the top challenge faced in outsourcing in 2006. This indicates many companies that outsourced in the past have not planned adequately for post-contract management of the outsourcing relationship. As this aspect of outsourcing is addressed, the success ratio will greatly improve. Companies entering into outsourcing agreements now are including Governance as a key element in their contracts.
BPO ...
The current IT focus area is on Business Process Outsourcing (BPO), which enables companies to cost effectively source applications such as Finance and Accounting, Procurement Indirect Spend and Human Resources, in addition to associated backroom labor-intensive support, to service providers in the US or off shore. Labor rates off shore are only 20% to 30% of those in this country, which can amount to big savings for many companies. Outsourcing and BPO are readily accepted business practices that save money and more importantly, these services are working for most of the best-managed companies in the United States.
Business Culture Changed ...
American business culture has undergone major transformation in recent years. People are less inclined to be "loyal" to their employers and more loyal to their professions, due to company changes such as cancellation of pension benefits and modifications to employee insurance coverage. Plus, job and people mobility are more prevalent than ever before. In 2002, Forbes published an article that forecasted college graduates that year would change jobs seven times during their years of employment, three of those job changes were expected to be disparate to their fields of study or degrees earned in undergraduate colleges.
Recruiting, Training and Retention of IT People ...
Supply and demand of specialized IT personnel is an issue because of availability and cost of labor. This is especially a problem for companies located in remote areas and it is further exacerbated if IT technology is not state-of-the-art. Good IT people like the latest technology because it adds value to their resume and work experience. Of course, salary and benefits are important job considerations as well. Recruiting, training, and retention of IT personnel are both a CIO and a Human Resources responsibility that has to be effectively managed in all companies.
Security Required ...
A more mobile work force requires new levels of security and security administration. Remote access to confidential company information forces new and improved security practices and more management effort. Third Party auditors, as well as internal audit staff, have required additional levels of data security and frequent password identity changes to protect the integrity of company and competitive confidential information.
h2 style=" font:bold 10pt taboma;color:green;">Planning - An Imperative ...Merger and Acquisition activities will substantially affect IT departments and technology. Determining staffing and management alignment, which systems architecture best serve the business, data center and infrastructure consolidations, network redundancies; and new budget issues all require capable management leadership and tough decision making. Often, advisory consulting firms are engaged to assist in transition management decision making. Redundant or mismatched IT resources cost money and impact the balance of computing resources required to meet important business information needs. Good pre-merger acquisition planning is imperative in meeting the business and financial expectations of senior management and the justification for the M&A activities.
A Vital Resource ...
Whether IT is supported in-house or outsourced, it is one of the most vital resources in nearly every company, in almost every industry. Strong management and strategic investments in information technology are key to the overall success of the company. We are in a tough, globally competitive business atmosphere that requires powerful tools just to compete, let alone win. Tactical and strategic business planning must be effectively coordinated in order to facilitate a successful Annual Business Plan. IT is the tool or vehicle required to accomplish this objective.
IT Assessments Needed ...
In order for the IT Plan to adequately support the Business Plan, it takes skilled management, good planning and adequate resources. This does not infer spending more money is the answer. However, a professionally assisted IT assessment will provide an objective view of your company's posture in meeting its information needs. In fact, it is a "best practices" recommendation that a third party IT assessments should be conducted at least every five years to ensure planning and budgeting accuracy, compliance and audit ability. IT advisory consulting firms offer more specialized measurements and metrics as well as benchmarking capabilities, than your in-house financial advisors or outside audit companies.
IT Outsourcing Contract Reviews ...
It is prudent to have a third party outsourcing advisory consulting firm assess outsourcing services contracts and vendor performance to determine if pricing is competitive with industry standards and to assist in properly adjusting terms and conditions to meet current business requirements. It should be noted that computing costs have come down, while labor rates have increased. According to IDC, a recognized IT industry research firm, nearly 300 outsourcing contracts will be due for renewal in the next 24 months. Outsourcing growth is forecasted at 15% to 20% over the next five years. Strong management and governance grow in value and importance with outsourcing.
Information - Can be the Difference between Winning and Losing ...
Are you sure your Company's IT organization has planned adequately to meet business information needs? In companies of all sizes, IT is a major budget area, but it's also a major management "tool". Think of IT as an asset that must be accounted for and well managed. No matter what size company, IT has to be an important element in the success of the business. Globally competitive markets force the need for timely and accurate information upon which management business decisions can be quickly based in order to win new business and grow the company. Often, the difference between winning and losing major competitive business opportunities is good and timely information. It is for this reason the Business Plan must be supported by a strong IT Plan, a talented IT management team and an IT organization capable of the task.
NOW IS THE TIME …
Most well managed, industry leading companies utilize insourcing, outsourcing, BPO and off shore services to control cost and obtain effective business results from their IT investments. Is your company's IT function capable of meeting 2007 Business Plan requirements? Perhaps now is the time to assess IT performance to really determine if it is an asset or liability.