Enterprise Architecture Course Case Study

ModMeters

 

Synopsis

 

When the CEO launches two new strategic initiatives requiring integration across all business units, the organization – whose IT decisions have been largely delegated to its business units in proportion to their revenue generating capacity – now faces the dilemma of how to prioritize its IT projects in order to support the new strategic “enterprise” vision.

 

Key Issues

 

  1. IT is integral to implementing two new business strategies but there is little recognition by the executive team of its value. Each executive appears to have a different concept of IT value.

 

  1. The lack of attention to refurbishing the infrastructure means that the bulk of IT spending is now focused “keeping the lights on”. There is little foundation for building up new ventures and everything that is added increases the operational risk of failure – at major cost to the company.

 

  1. The business strategy was developed without really involving IT in an effective strategy development process. As a result, IT strategy is clearly “mis-aligned” with what the CEO now wants to do for the enterprise.

 

  1. While the CIO recognizes that investment in infrastructure and architecture will create a capability that will enable IT to be more responsive to the organization’s changing business strategy, this is not recognized by the CFO or the business unit executives.

 

  1. There appears to be no enterprise level prioritization process.

 

  1. IT is seen primarily as a cost center. There is no recognition of non-financial measures – such as improved business capabilities, reaching new markets, or flexibility – might be important for the longer-term success of the enterprise.

 

  1. The IT budget process is undermining the effective implementation of business and IT strategy.

 

 

Discussion Question

 

Develop an IT planning process for ModMeters to accomplish the demands as set out above. The first step in this process is to clarify the demands on IT and the resources that will be needed to accomplish them. “Programs” of work should be developed to specifically connect with the business value they will deliver (e.g., enabling the company to go global, developing the new customer channel, complying with government regulations).

Each program should identify the value to be delivered, the business sponsor and stakeholders involved, the IT resources that are needed, and any prerequisite work that must be done. Conflicting work should also be identified (e.g., if Tompkins wants to do something in manufacturing that would conflict with the work being done in one of the enterprise projects.) IT should also be asked to identify the internal projects it must undertake to ensure the infrastructure, info-structure, and architecture to support these new initiatives. The goal should be to identify “chunks” of value that can be delivered to support the business in meeting its objectives.

 

The second step is to align business and IT work with the company priorities. Here, it is important that all stakeholders be involved in deciding which programs of work should be done first. At this stage, using some sort of balanced “bucket” system of prioritization is effective. That is, different types of projects (e.g., business-enabling, infrastructure, business improvement) should be prioritized first against each other and then relative to the top priorities in the other buckets. Wherever possible, compliance projects should be integrated with other desirable programs of work. However, there may be a residual that simply must be completed and this should be identified. A steering committee consisting of the CEO, CFO, CIO and all business unit heads needs to be created to make these decisions. In this way, responsibility for business priorities is placed in the hands of the business. Next, the business must also decide how much it wants to spend on IT. This will, in turn, determine where to “draw the line” on which projects get accomplished.

 

Part of the process of understanding the value of each program and prioritizing will involve identifying the success metrics for each program. What are these metrics?

These should be framed in business terms (e.g., number of global sites up and running etc.). Again, these metrics will vary according to the type of value that will be delivered. Ideally, successfully achieving these metrics should be the joint responsibility of the IT program leader and the business sponsor and they should be jointly held accountable for results. Within IT, internal metrics should monitor and address IT’s success in reducing the “spaghetti” and progress in developing and implementing an IT architecture. A “strategic imperatives” approach to metrics will likely help to align IT and the whole company behind the new enterprise strategies.

 

It is important to recognize that the enterprise strategy cannot be accomplished without some internal IT and infrastructure work being done. Similarly, there could be some high value, short-term, business improvement projects that will be highly desirable to complete for the business units.

How will you balance which projects will get done against each other is an art, not a science, and requires the participation of all business leaders and the CIO to get it right.

 

From this prioritization and general level of spending on IT,

How will you determine the actual IT budgets?

Since at ModMeters, budgets are allocated by business unit according to size, a proportion of the enterprise and IT project costs must accordingly be allocated to each business unit. The alternative is to change the budget process, which will likely cause more upheaval than this company is ready for.  Since all business leaders have participated in this process, and since some business unit-specific spending will still be allowed, a proportional approach will likely dampen, if not eliminate business complaints about the process. The key is to make the entire process transparent and to ensure that business decisions are made by the business.

 

Finally, how will your team outline a plan to reduce its operational spending by developing a technology roadmap?

that will eliminate or replace outdated technology and applications. Application simplification, shared services and a stable infrastructure should all be part of this plan. The incentive for aligning business leaders behind this program could be increased IT spending for the individual business units for business improvement projects.

 

 

Issues Discussion

 

Developing and Delivering on the IT Value Proposition

 

ModMeters has two new business strategies and IT is integral to implementing both of them.

 

  • The first value issue is that, while the CEO John Johnson sees significant value in these new strategies, the CFO is still committed to “keeping the lid on IT spending”, and the Head of Manufacturing, Fred Tompkins only sees value in the IT that is spent in his business unit.

 

The key value question to ask is therefore: Is IT going to be used for strategic, enterprise top line growth, or to improve a major business unit’s effectiveness, or is IT a cost center? There is clearly significant potential for misunderstanding between the executives involved. At ModMeters, it appears there are several different concepts of the value of IT.

 

  • The second value issue is that developing systems on a piecemeal basis has meant that the overall value of IT is reduced or declining. The lack of attention to refurbishing the infrastructure means that the bulk of IT spending (80%) is now focused on “keeping the lights on”. There is little foundation for building up new ventures and everything that is added increases the operational risk of failure – at major cost to the company.

 

IT is not able to be flexible or agile because its foundation is not strong. Value is also problematic because of the increased complexity and risk involved.

 

All of these elements of value must be prioritized and combined with the regulatory requirements which IT and the company must meet. Here, value is keeping the CEO and CFO out of jail! Timing is also an important consideration. Tompkins needs some improvements now; the regulators will only wait so long; refurbishing infrastructure and information must be carefully timed to support the new longer-term strategic initiatives; and this year’s budget can only stretch so far.

 

Developing IT Strategy for Business Value

 

This case also illustrates some of the challenges involved in aligning IT and business strategy.

 

  • While it is obvious that IT plays a major role in delivering the new capabilities desired by ModMeters, the business strategy was developed without reference to the IT strategy. The CEO is “consulting” IT without really involving IT in an effective strategy development process. As a result, IT strategy is clearly “mis-aligned” with what the CEO now wants to do for the enterprise. At ModMeters, IT strategy has been aligned with individual business units and what gets worked on is not based on value or enterprise strategy, but on the size of the business unit involved and therefore, its political and economic clout.

 

  • The clamor of the business units for IT work, combined with IT’s operational and compliance responsibilities, means that there is a significant danger of having too many and conflicting IT priorities.

 

  • The CFO is compounding this problem by focusing only on the cost of IT and by having an IT budget process that allocates IT resources by business unit (see also the issues discussed around Chapter 7 below). This means that there is no budget for enterprise strategic initiatives requiring IT and that the individual business unit leaders will have to agree to give up some of their resources to accomplish the CEO’s strategic goals – a challenge at best.

 

  • While the CIO recognizes that investment in infrastructure and architecture will create a capability that will enable IT to be more responsive to the organization’s changing business strategy, this is not recognized by the CFO or the business unit executives.

 

Key strategic issues in this case are therefore how to: a) prioritize IT initiatives – across enterprise, business unit, regulatory, and internal IT projects and b) how to better allocate IT budgets appropriately. A longer-term issue is how to better connect the development of business and IT strategy so that the challenges faced by Brian Smith in this case are better anticipated and planned.

 

Linking IT to Business Metrics

 

The biggest challenge in this case with regard to metrics is that the focus of the organization appears to be only on financial performance. The CFO emphasizes cost savings in IT and IT resources are allocated according to the business unit that brings in the most cash. There is no recognition that other types of measures – such as improved business capabilities, reaching new markets, or flexibility – might be important for the longer-term success of the enterprise.

 

While the company has two new business strategies, it has not developed any metrics for assessing their success or for assessing IT’s contribution to their success. There appears to be no recognition that: a) IT’s performance metrics might in some way be linked to the success of these strategic imperatives or b) that IT might in some way contribute to measures of organizational health other than financial returns e.g., customer satisfaction, process improvement, top line growth. Furthermore, there is no apparent connection between the measure used to evaluate IT, i.e., keeping IT costs down, and what the business wants to do. This lack of partnership is contributing to a significant disconnect between IT and the business.

 

The IT Budgeting Process

 

This case also illustrates some of the pitfalls in IT budgeting that often cause frustration and misalignment between IT and the business. Since IT budgeting is a corollary to IT strategy development, many of the issues identified in the discussion of Chapter 2 above apply. ModMeters illustrates how the institutionalization of IT budget processes can undermine the effective implementation of business and IT strategy. It highlights the limited amount of the IT budget which is typically available for strategic development and how uneducated or inappropriate cost-cutting measures, either by the business units being unwilling to share in infrastructure costs, or by the CFO being unwilling to fund infrastructure upgrading, can actually cost the enterprise. These costs come in four forms: a) reduced development resources, b) additional costs simply to “keep the lights on”; c) increased operational risk; and d) inability to change or build on the existing IT foundational applications.

 

The lack of an enterprise-level IT budget illustrates by implication the challenges ModMeters will face in trying to implement its two major new strategic business initiatives with no idea where the IT resources will be coming from. In addition, it also suggests that there will be political challenges to overcome if IT resources are diverted from Tompkin’s manufacturing business unit.

 

The case also shows some of the challenges that are likely with budgeting processes that are built around the structure of the organization. At ModMeters, budgets have been used by the CFO to limit demand for IT resources and the allocation of these resources is not linked to enterprise business strategy or priorities but to individual business unit size and priorities.

 

Furthermore, as this case makes clear, the individual business unit heads, as well as the CEO, have paid little attention to IT’s resources when establishing their plans. They just “expect IT to make it happen”

 

Finally,show how short-term, tactical needs can easily pre-empt strategic ones. In IT, the common practice of routinely allocating a fixed percentage of the IT strategic budget to individual business units makes it almost impossible to easily reallocate resources to higher priority projects at the enterprise level or in other business units and the siloed budgeting processes in this case make it difficult to manage the cross-business costs of strategic IT decisions.

 

Other Issues Addressed in this Case

 

Managing Perceptions of IT. The misalignment of perceptions about where IT value is to be delivered and how to measure it clearly contribute to poor perceptions of IT at different levels and in different business units of the organization. Poor understanding of the IT prioritization and IT budget allocation processes also contribute to lack of trust in what IT is doing and what it is costing.

 

IT in the New World of Corporate Governance Reforms.

This case alludes to the fact that some IT resources must be allocated to achieving regulatory compliance. It also suggests that problems with information and a lack of architecture may be making it more difficult to comply efficiently with regulations. The lack of processes suggests that there is a need for a better understanding of responsibilities and accountabilities (i.e., governance) for delivering value.

 

Creating and Evolving a Technology Roadmap. This case suggests that ModMeters has a patchwork of different technologies and that this is increasing operational costs and limiting what can be spent on strategic development. It also illustrates how planned investment in infrastructure (i.e., a technology roadmap) is part of developing an effective foundation for new business strategies.

 

 

Organization Chart

 

 

 

Last Updated on June 22, 2019 by Essay Pro