IT Management

IT Governance is Killing
Innovation
by Andrew Horne and Brian Foster
August 22, 2013

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Recent CEB research shows that work has become much more
interdependent — employees increasingly need to tap a broader
array of internal and external colleagues and partners to be
successful in their jobs. The emergence of this new work
environment has significant implications for how IT should
enable business growth and, more specifically, for the kinds of
investments IT should be making to support employees.

Unfortunately, when it comes to IT’s ability to allocate

investments in response to the new work environment,
traditional governance processes prove grossly outdated. Some of
the key challenges:

Companies don’t identify the very best ideas for investment

because most capital allocation processes start with
business partners’ existing ideas about projects to fund. As
we’ve noted in our previous blog, senior business partners
might not be that knowledgeable about what actually drives
productivity on the front lines.

Companies allocate capital to the wrong investments

because our traditional emphasis on ROI-based business
 cases undermines IT’s ability to invest in high-return-but-
hard-to-measure areas like improving knowledge worker
productivity.

Companies tend to spread their capital allocation bets too

thinly across business groups or functions, often for
political reasons. This practice helps ‘keep the peace’ but
means that often the most transformational opportunities
get short-changed.

Across our year of research into this problem, we have identified a

select group of companies that are rethinking their governance
and investment processes to circumvent the problems outlined
above.

Expand First, Filter Second

Most CIOs will tell you that they have no shortage of ideas to
invest in — the hard part is whittling down to the right ones. Push
that a bit further and what most CIOs say is that those ideas are in
the form of project requests from business partners. The problem
is that these “bottom-up” project requests often miss the big
picture as too many are incremental or uninspiring. Yes, while
most of these requests are vetted for alignment with corporate
strategy, what’s often missing is how these requests fit within a
broader context of how the business overall generates value.
Furthermore, this lack of context prevents organizations from
identifying other investment ideas that have high potential but
haven’t bubbled up organically through project requests.

To address this challenge, a global transportation company we

spoke with is using a strategic lens to expand the list of project
ideas to find the ones with the highest potential corporate value,
before filtering them. They start with a map of the company’s
critical business capabilities — those concrete business activities
that are vital to meeting a strategic goal (e.g. rapid new product
roll-out). Then, they look at the health of the information
available to business leaders who manage those capabilities. They
find this leads them into all sorts of overlooked opportunities and
provides them with a good proxy for where IT investment can
have significant business impact, which can better inform
prioritization decisions.

Prioritize Capabilities, not Projects

The currency of most IT project prioritization meetings is the ROI-
based business case. As mentioned above, this measure works
very well for comparing projects that deliver hard benefits, but
undermine the ability to invest in critical capabilities that have a
long-term payoff horizon or highly innovative capabilities where
the payoff is uncertain.

A global high-tech equipment provider is taking a different

approach. Similar to the transportation company mentioned
earlier, they start with a top down view of critical business
capabilities and pillars required to support long-term business
strategy. Then, using customer preference measurement
methodologies like conjoint analysis, they survey senior business
leaders to determine the relative criticality of each of these pillars.
Based on this — and before any projects are even discussed —
they are able to map out the relative level of IT investment each
capability should receive. So, if the business leadership agrees
that capability A is twice as important to realizing their goals as
capability B, capability A is targeted for twice as much
investment. Projects can then be assessed on contribution to the
needs of that pillar, rather than purely on financial metrics like
ROI.

CIOs are being asked to arm employees with the capabilities

required for success in a new, much more integrated and
interdependent work environment. But to do that requires more
than capital: it requires a different approach to making decisions
and, specifically, rethinking traditional IT project-centric
approaches to identifying and funding capital investment
opportunities.
 Reinventing Corporate IT
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AH
Andrew Horne, a Managing Director at CEB,
works with the CEB’s membership network of
Chief Information Officers, and leads global
research teams in producing best practice case
studies, benchmarks, implementation tools,
and executive education. Brian Foster, a
Managing Director in CEB’s IT Practice,
oversees a global team that provides advice and
consultation to a network of more than 2,500 IT
leaders, including CIOs, enterprise architects,
applications, infrastructure, security, and PMO
executives.

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