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 / Summer 2005 / Issue 39(originally published by Booz & Company)


In Search of Overhead Heroes

Today, CIOs are once again trying to transform IT departments into businesses, but with one significant difference. This time, the goal is to adopt the strategies, service definitions, product development programs, and customer support techniques of profitable businesses — but not to make money at it.

Two themes are common to this approach. The first is IT alignment with the business, which ensures that IT strategy, objectives, and processes are consistent with the direction that the company is taking. The second is a commitment to cost management, which is not just cost cutting (though that’s always welcome), but also the determination of overall measurements, assessments, and decisions involving budgets and capital investments. Both elements are achievable only if IT executives sit at the senior management table, where they can participate in discussion about the company’s direction, goals, challenges, and expectations.

Some early returns from companies running IT like a business are in, and the results are, once again, underwhelming. Internal clients do not seem to see an appreciable difference, IT management doesn’t feel better positioned within the organization, and IT staffs are frustrated by the confusing cultural changes.

The problem is, the concept of running IT like a business was not ambitious enough. Certainly, IT alignment is important and cost management is critical. But although these initiatives made IT more visible to C-level executives and business unit heads, they did little to improve the effectiveness of IT. To be successful, IT must focus on the customer, and neither alignment nor cost management guarantees that. Neither resolves the decades-old IT question: Who are the customers? Senior managers or the IT end-users?

The answer, actually, is both — something that often is not recognized because these two audiences have very different expectations about IT. As a result, CIOs tend to focus on one or the other — more often than not, senior managers. IT alignment and cost management are prime targets for these clients, but end-users are more concerned about application availability and support.

Who is right? They both are, and to serve one and not the other is a major error.

Out of this realization, in the fall of 2000, we launched Market-Driven Management. Like most IT departments, we had become pretty good at meeting the requirements of senior managers, but we lacked the skills and knowledge to serve our technology consumers. To overcome this, we examined the best consumer-focused technology vendors, companies known for understanding consumer demand. We studied Apple’s development of the iPod, Dell’s distribution model, and IBM’s sourcing strategies. We also interviewed product and account managers at leading technology vendors, learning how they reported success, identified shortcomings, and changed services.

From this research, we asked ourselves a series of critical questions we felt any market-driven business should be able to answer:

  • What is our purpose? Does our organization have a clear mission or charter, and is it being followed?
  • Who are our customers? Segmentation analysis is vital in distinguishing, for example, customers who use IT systems outside the office most of the time from customers who don’t travel at all.
  • What do different customers want and need to be more effective in their jobs? How can we best meet their needs?
  • What services and products should we, and can we, provide? In what instances do we have the competency in-house to perform the task, and when must we rely on external experts?
  • Are we satisfying our customers? Revenue is the ultimate measure of success for a for-profit business, but we needed a different set of performance measures to objectively track the value we delivered to customers based on the type and quality of service we provided.
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