Business & Digital alignment – how close is your firm?

Posted on : 28-06-2013 | By : john.vincent | In : General News

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Over recent years we have seen the rise in prominence and status of technology with organisations. If we take the Gartner Hype Curve analogy, we spent much of the mid 1990’s through to mid 2000’s in “The Plateau of Productivity”, with technology being an integral underpinning necessity or enabler, but less frequently an innovator or driver of competitive advantage, outside of stability and speed of execution (although, some business leaders might point to a “Trough of Disillusionment”).

Todays world and, in particular, the relationship between business and technology is much changed with organisations introducing new governance structures and roles to more closely take advantage of digital innovation and their ability to disrupt business models. Indeed, we have seen the introduction of the Chief Innovation Officer and Chief Digital Officer with elevated positions in the corporate structure.

That said, from a company’s board perspective, how can they ensure that the business direction and technology are aligned effectively to capitalise on digital innovation. Below are some themes/questions which are useful as a test of capability:

How is our industry changing as a result of technology innovation?

It is important to understand how new innovations are breaking down the boundaries of business models and reducing the barriers of entry. This is not simply keeping abreast with the latest trends in mobile, cloud, data analytics etc… but how new technologies are being exploited by competition and new entrants which can potential erode business revenues. This is difficult, as often the it is not obvious where the challenges will come from. Some can be predicted, such as trading engines and decision support built from social media sentiment analysis, or the myriad of mobile payment solutions. Others, however, are more difficult to predict like the introduction of gamification techniques across industry or the introduction of big data analytics for operational efficiency/intelligence such as with applications like Splunk.

 

What is our structure and process for nurturing developing digital technologies?

A recent survey by McKinsey showed that organisations are still coming to terms with how to develop, nurture and commercialise ideas within the organisation. From 2240 respondents, 50% stated “We have pockets of successful innovation but it is rarely scaled” and only 36% thought “We have the right balance between good ideas and effective commercialisation”.

So, does your organisation have someone responsible for driving forwards digital advancement? (such as Chief Innovation Officer)…or, is there a way to garner ideas within the grass roots and ensure that they are given enough runway to develop, through incubation mechanisms?

 

Have we the correct governance structure and a defined technology roadmap?

Business and IT alignment is often talked about but not really executed upon. Having the CIO/CTO or IT Director in operational or strategy governance meetings does not provide an optimised solution as often the focus is on efficiency, budgets, risk etc… and very rarely on a close (bi-directional) coupling between business priorities and “technology possibility”.

We see new models emerging where business and technology are brought together under specific “Digital Units” on an equal footing, where the goal is to build a technology roadmap which is completely not only aligned, but in many cases, actually informs and drives business into new customer markets and revenue opportunities.

 

Have we aligned our business operating model and portfolio of change effectively to the underpinning technology investments?

A natural lead in from the previous question. By putting the correct governance in place and removing internal barriers, it is much easier to ensure that the business operating model is driving technology investment and vice versa. Too often, organisations still operate a model from which the business change portfolio is defined and the “handed” to the technology leadership to deliver. And when we talk about large/global IT programmes, how many of these turn into “Black Swans“?

CEO’s need to look at, and question, the cross functional aspects of their business and technology organisations. We often see technology departments “aligned” to business units, but how often are more permanent/product related horizontal structures created?…and do individuals move in both directions through their careers to strengthen and embed competitive business knowledge and drive innovation?

 

What are we doing to increase the commoditisation and agility of technology resources?

The agility objective has been largely “etched into” power-point presentations for many years as they’ve made their way into the board room. “We’ve outsourced and increased agility…”…”Our ratio of perm to contract resource has increased from X to Y allowing us to be more agile.”….(tick in the box then).

What CEO’s need to gauge is truly how fast their internal technology organisation can respond to changes in business services from all aspects be that functionality, new products or volumes? (and the important part of this is whether can they be scaled down or switched off?)

Whilst the move to a more commoditised service model needs to be evolutionary, particularly in terms of risk and compliance, what CEO’s should look for from their technology leadership is a committed multi year roadmap which lays out the resource model for infrastructure, applications and people, with associated metrics/budget. Without this, and with the pressure of day to day efficiency challenges, CIO’s cannot be blamed for maintaining previous models.

 

Business IT Alignment and the 3 ‘R’s – Rationalisation, Regulation and Ring-Fencing

Posted on : 24-06-2011 | By : john.vincent | In : Innovation

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Delivering IT within Financial Services organisations doesn’t get any easier. Just as technology services look to simplify and commoditise through maturity and new innovation, along comes a whole bunch of hurdles to overcome driven by economic, social and political circumstance. For many years we have talked about the alignment of Business and IT but never before has it so been important to step up the engagement to a seamless, symbiotic relationship.

Organisational objectives such as Cost, Risk, Quality and Agility and the associated measurements thereof are scattered liberally in the SMART’s of support functions throughout the industry. And yet, couple that with what is often a disconnected business strategy and a culture of short-term meritocracy and it doesn’t take too much intellectual wisdom to realise that something needs to change. Sound familiar ?

So let’s look at some of the current challenges facing business and technology leadership.

1) Rationalisation – by definition “The process of reorganizing and overhauling a company’s operations, policies, and anything else needed to make the company more efficient”. Within FS we’ve been undertaking this for a number of years. Indeed, objectives have been set top down throughout the technology organisation with a year on year increase in weighting. Headcount has been reduced, delivery organisations merged, Capex spend limited, contracts renegotiated, services moved to “best shore” locations etc… However, this only goes so far before a new approach is required and of course, you can’t “shrink yourself to success”.

2) Regulation – as we meet with different organisations one thing is very clear – the increase in regulation and their impact on business and underlying technology services is a constant challenge for organisations. We’ve already been through numerous regulatory and compliance implementations in the past and it isn’t slowing down. We will need to understand the implications of Basel III, Dodd-Frank and FACTA ( Foreign Account Tax Compliance Act ), to name but a few. All of these are being introduced for good reasons and it is vital that the business and technology organisations are closely aligned to determine what are the key implications for systems and processes.

3) Ring-Fencing – it is a matter of opinion as to whether the Independent Banking Commission went far enough with its interim report around future requirements to segregate the business activities of investment and retail banking. What is clear is that again business and technology organisations need to jointly determine the impact now that it seems almost certain they will be endorsed later this year. In order to facilitate ‘retail ring fencing’ there will need to be significant operational and systems changes that would need to be undertaken by each individual bank. As the Commission sets out, there are some functions that should not be ring fenced (related to investment bank) and those that should (relating to retail banking) – the challenge is that there are many shared services across universal banks that service both these areas and would need to be separated if retail banking activities are to be ring fenced. The greater the costs and complexity of ring fencing operations, the longer such changes will take and the more potential for disruption to everyday banking services.

Many organisations will have advanced thinking on the 3 ‘R’s but it is worth taking time to consider certain aspects.

In terms of Operating Model, we feel that the following dimensions require special attention:

Business Alignment : is the model in terms of governance and process connected throughout the organisation to the business consumers of services ? Often we have committees for Run The Bank and Change The Bank investments, but do changes in business activities in terms of scope or volume have a predictability in terms of the associated changes ? Understandably there is a large amount of sunk or fixed cost but it is important that the actual “existence” of all technology assets is understood and coupled to business value.

Service Agility : how efficiently can services be reconfigured as a result of an external change in circumstance ? The focus around costs has led many Financial Services technology organisations to realign operational services from a vertical to horizontal model for internal synergies. Clearly some services are common and therefore this rationalisation move makes sense. However, there is also a risk of making any future Ring-Fencing requirements more complicated and costly. Considering the Business Alignment imperative in conjunction with Service Agility should be the cornerstones of future operating models.

Strategy and Architecture : all organisations have a strategic roadmap for technology and services. However, there are two important questions to ask. Firstly, how mature are we in terms of Enterprise Architecture and the governance thereof ? Often, EA is a pseudonym for Infrastructure or Application Architecture. True Enterprise Architecture considers all aspects of an organisations business activities and can drive innovation, reduce risk and deliver efficiencies if placed in close proximity to the strategic business model.

Secondly, how far out does the strategy look ? In a recent conversation a senior banking leader discussed the need for FS organisations to look much further ahead, akin to the way that Shell does it’s Scenario Planning. Is it feasible to look 5, 10, 25 years in advance ? Conventional wisdom says not in terms of technology… but by considering all environmental, political and economic influences and overlaying the technology aspects then the different paths can be drafted in terms of “Signals and Sign-Posts” for the future operating model.

Risk Management : Disaster Recovery and Business Continuity Planning are well embedded and typically mature with FS. The journey to Service Recovery is understood. However, similar to the Scenario Planning, an increased awareness and vision is required throughout the organisation in terms of the myriad of external impacts to the world we live in and subsequent organisational response. We don’t have to list the surprises of the past 5 years…can we predict what’s next ?

Sourcing : where are services sourced from, whether internal or external, is driven by a number of factors including culture, compliance, cost and innovation. As we think about a more long term and holistic operating model, not just about technology or operational services, how does the way we deliver services mirror the 3 ‘R’ influencers ? Shared Service models or Joint Ventures may be key providing they have the correct construct in terms of commercial, flexibility and partitioning of delivery. Technology advances can help in this, with cloud computing well on its journey along the “Gartner Hype Curve”. The ability to source services in a more on-demand / scalable way provide choices for application provisioning for business consumers, notwithstanding the well known attention areas.

In summary, perhaps it’s time to step back and think about the future. The 3 ‘R’s are, of course, only the basic foundations.