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SmartAdvice: Demonstrate IT's Business Value At Budget Time

Justify the budget by showing IT as an asset and highlighting the business value it creates, The Advisory Council says. Also, look for fit with company polices and ease in integration when evaluating message-management systems; and the key for CIO survival is IT asset management.

Editor's Note: Welcome to SmartAdvice, a weekly column by The Advisory Council (TAC), an advisory service firm. The feature answers three questions of core interest to you, ranging from leadership advice to enterprise strategies to how to deal with vendors. Submit questions directly to [email protected]

Question A: How should we justify our IT budget in an "IT as cost center" enterprise culture?

Our advice: Let's face it. An IT organization that has to justify its budget as a "cost center" has lost the respect of the business (or never had it).

Since the business is viewing every dollar spent on IT as one it could save, the imperative for IT is to demonstrate the value lost if the IT budget is cut. By showing the business that the IT organization's goals and objectives are aligned with their own, the resulting goodwill will help mend some of the broken bridges.

To rebuild business confidence in IT, start by eliminating budget items on your own. You know where the expendable items are in your budget. By cutting these yourself, you help establish your credibility with senior management.

Now, you're ready to work on a budget that has a chance of being funded by the business.

Start by splitting the budget items, or initiatives, into areas enabling:

  • Business value creation: These are items that directly and demonstrably address an identified strategic business need. Pick incontrovertible items to set the stage for further discussion.
  • Cost reduction: These items are clearly a net cost to the organization that must be eliminated over time. Pick items and show that you're already taking action to reduce expense in these areas. Be careful not to pick too many items, because that is a tacit admission of guilt.
  • Organizational support: These items are ones that the organization cannot live without. Arguably, their costs can be reduced but never eliminated. Usually, infrastructure items fall under this category.
  • Day-to-day operations: These are "keep the lights on" items that form the core of the IT capability. They're already cost-optimized, and the adverse impact of shutting them down is clear.
  • Cost avoidance: These items do have an associated cost, although it's to reduce a bigger cost or risk. Pick items that clearly show the cost advantage or risk reduction that translates into a cost eventually.
  • Regulatory compliance: These are items that are required to comply with a legal or regulatory requirement. Most businesses will not argue with these costs. The discussion will focus on how to get it done cheaper.
  • Everything else: If there are items left over, then these are the ones that need to be discussed with the business. Be prepared to offer a business-value-driven justification for items in this category. If the business isn't convinced, then be open to eliminating them.
  • The presentation of a message is as important as its content. Start the meeting by showing progress on the cost front:

    • Have the budgets been reduced over the past three years? Showcase the wins.
    • What are the areas in which they have been reduced?
    • What are the areas in which they have increased? Why?

    Be ready to respond to the following questions, or better yet, introduce them head-on in your discussions

    • What's the trend in spending?
    • How does it relate to the company's results?
    • How does it compare with other companies?

    Be firm on items you must have funded, but support your point with business-value analysis, not a "trust me" statement of "fact." More important, be open to eliminate items that don't address a clear business need.

    Remember, this year's budget always sets the stage for the next one. The carryover isn't dollars, but confidence and trust--neither is a replenishable commodity.

    --Sourabh Hajela

    Question B: What issues should we consider when evaluating an E-mail archiving solution?

    Our advice: Compliance with legislation such as Sarbanes-Oxley, Health Insurance Portability and Accountability Act, and Gramm-Leach-Bliley has forced enterprises to address the archiving of E-mail and other electronic messages. This is complicated by the need to integrate with enterprise applications such as CRM and ERP systems, and by the rapid growth in both the volume and variety of electronic messages.

    Fortunately, message-archiving software has matured to meet the challenge. These systems:

    • Enforce company message-retention and privacy policies.
    • Ensure compliance with legal and regulatory requirements.
    • Enable data visibility into E-mail archives for all business functions, including sales and marketing.
    • Provide desktop efficiencies. Users no longer have to deal with E-mail quotas and ad hoc backup and recovery.
    • Reduce IT costs associated with managing disparate repositories of messages across the network.

    Message-management systems are stabilizing, but still evolving. This evolution makes evaluating vendor offerings both easier and more difficult. Easier, in that some offerings clearly won't meet objective requirements, such as support for certain E-mail servers. More difficult, in that subjective evaluation becomes critically important. Regulation and technology trends, and the vendors' vision, direction, focus, and alignment with archiving needs, have a great impact on evaluations.

    Related Links
    Content Pipeline

    Sarbanes-Oxley Compliance Journal

    Microsoft Exchange Server Partners: Archiving and Compliance
    What To Look For
    • Fit with corporate message-retention and privacy policies and procedures
    • Support for legal and regulatory compliance, including industry-specific requirements
    • Seamless integration with corporate E-mail clients and other messaging clients
    • Self-service interface for E-mail users
    • Comprehensive management of messages: local E-mail repositories (e.g., Microsoft Outlook .pst files), mobile message devices, messages manually saved to a local or shared file system, and IM logs
    • Full functionality for meta information: E-mail headers/envelope information such as bcc list, distribution lists, IM participants, etc.
    • Self-service interfaces and utilities for compliance personnel
    • Audit trails and non-tampering mechanisms
    • Extensible indexing and search capability
    • Support for integration to other IT systems via services-oriented architecture or application-programming interfaces
    • Full support for E-mail attachments: Indexing and search, systems integration, auditing, compliance utilities, etc.
    • Vendor stability: Financial, focus, vision, support, and product execution (speed of response and updates)
    • Fit with IT infrastructure standards
    • Scalability: Scalability of volume of data is critical and often underestimated.

    Here's a road map for implementing appropriate systems to enforce message-archiving policies:

    • Determine the extent to which messages are distributed through the enterprise.
    • Update retention policies (including legal requirements), and the policies for updating the policies.
    • Clearly define organizational lines of responsibility for implementing retention policies.
    • Evaluate the current corporate message-archiving processes with regard to compliance to company policies.
    • Determine future processes required to comply with company policies.
    • Evaluate E-mail archiving solutions: vendor, home-grown, ad hoc, for best fit in enabling required future processes.
    • Develop an implementation plan for the resulting best-fit solution.

    --Peter Sorrentino

    Question C: What strategies enable a CIO to consistently exceed business expectations and carry on as a respected member of the senior executive team?

    Our advice: Today, high user satisfaction, low-cost operations, and measurable business-value creation are table stakes. In this era of rising expectations, new IT strategies and management methods are required. IT managers must think and manage the same way that general managers do. General managers use a three-stage strategy to leverage their assets and grow their businesses.

    To succeed in this new environment, IT organizations must develop strategies to leverage their time and talent. The key is IT asset management. The first step is isolating IT assets that can be redeployed to deliver results faster and cheaper than "green field" alternatives. The second step is refining IT management processes so that building and leveraging IT assets becomes standard operating procedure. The final step is aggressively leveraging the company's IT assets to create value.

    Identifying Business-Technology Assets
    Since every IT application has its champions, how can an IT organization identify the few applications that should serve as the asset base for future efforts? In years of field work, I've found that the following criteria are a good starting point:

    Business strategy -- Does performance of the IT asset directly affect strategic goals? For Wal-Mart, the efficiency of its logistics process created a 2% operating-margin advantage against Kmart and Sears during the early 1990s.

    Core operating process -- What percent of business volume touches the IT asset? In the early 1990's, virtually every reservation American Airlines took was processed through Sabre.

    Cost to operate (business) -- Applications that can reduce cost of operation far below competitors are strategic IT assets--for example, in the mid-1990s.

    Adherence to technology standards -- If the company's technical future is Java, question whether Cobol applications should continue to be viewed as assets.

    Cycle-time to adapt -- If technology can't change as fast as the business, new IT assets must be created.

    Related Links
    Capitalizing Software and Creating Business Value
    Integrating Asset Thinking into IT Execution
    To successfully leverage IT assets over the long term, IT organizations must establish a "twofer" discipline. Management must encourage projects that achieve a business result and improve an IT asset simultaneously. Here's a very straightforward example. During the 1980s, Fed-Ex instituted a policy that whenever a code module within its core logistics systems (COSMOS) needed to be changed, the programmer had to identify additional improvements that should be implemented to make that code module more robust and valuable. In other words, improving the asset was just as important as addressing a new business requirement. An important by-product was that ongoing maintenance costs were gradually reduced on a relative basis.

    The key to leveraging business-technology assets is to get business peers to think about IT assets the same way they think about plant and equipment assets, product assets, or brand assets. Most business assets aren't infinitely malleable. Unfortunately, since most CIOs don't talk about their IT capabilities in asset terms, they frequently set themselves up for unrealistic business expectations. The business needs to understand what types of initiatives are easy, and what ones are difficult because of the existing IT asset base. Getting the business to understand your IT assets is an education process. Once understanding is reached, it's much easier to conceive future business IT initiatives in synergistic ways. Synergy and leverage are the keys to consistently exceeding business customer expectations.

    -- Walt DuLaney

    Sourabh Hajela, TAC Expert, has more than 15 years of experience in strategy, planning, and delivery of IT capability to maximize shareholder value for corporations in major industries across North America, Europe, and Asia. He is a member of the faculty at the University of Phoenix, where he teaches courses in strategy, marketing, E-business, and leadership. Most recently, he was VP and the head of E-business with Prudential Financial.

    Peter Sorrentino, TAC Expert, has more than 20 years experience in consulting and software development, with extensive experience in the high-technology and financial industries: trading, cash management and risk management. His specialties include development of business-differentiating software systems and providing consulting to IT organizations with an emphasis on applications. Consulting expertise includes joint business/IT evaluation of software vendor offerings and business-service platforms, application architecture, and development of best practices in support of real-time business opportunities.

    Walt DuLaney, TAC Thought Leader, is an authority on the planning, design, and management of strategic business and technology initiatives. He consults extensively on strategy-alignment, project-management, and performance-measurement methods to assure that strategic initiatives are delivered successfully and operating results are verifiably improved. He is also the chairman of an RFID software-services company.

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