Repositioning the IT Organization to Enable Business Transformation (Practice-driven research in IT...

Repositioning theIT Organization

To Enable Business Transformation

Carol V. BrownIndiana University

V. SambamurthyUniversity of Maryland

Practice-Driven Research in IT Management SeriesTM

Madeline Weiss and Robert W. Zmud, Editorswww.pinnaflex.com/apc

© 1999, Pinnaflex Educational Resources, Inc., Cincinnati, Ohiowww.pinnaflex.com

All rights reserved; no part of this publication may be reproduced, stored in a retrieval system,or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording,or otherwise, without the prior written permission of the publisher.

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ISBN:1-893673-03-0

PREFACE

As scholars keenly interested in practice-oriented research on contemporary information technology(IT) management issues, we teamed with the Advanced Practices Council of the Society for InformationManagement (SIM International) in January 1995 for an 18-month project initially aimed at examiningthe use of IT coordination mechanisms for strategic intraorganizational relationships. However, as ourproject unfolded, it became evident that we were developing useful insights about an even broaderphenomenon: How do firms reposition their IT function to play a heightened strategic role in con-temporary business environments?

This book shares our findings about visions, strategies, and tactics for successfully repositioning ITorganizations to deliver business value in today’s hypercompetitive environments. Our insights arebased on an initial survey of more than 40 organizations and 6 in-depth case studies. Senior IT leadersare our targeted audience, but we think this book will also be of interest to other readers, including ITmanagement consultants and researchers.

Our monograph would not have been possible without the motivation and support of many partnersthroughout this research project. First, we would like to thank our research sponsors, the EnterprisePlus members of the Advanced Practices Council (APC) of SIM International. We are grateful not onlyfor their financial support of the project, but also for their spirited interactions with us in which theytested our interpretations, challenged us to delve deeper, and encouraged us with generous commentsabout the significance of our findings. We are also indebted to the APC research program for providingthe opportunity for the two of us to begin a research collaboration that we expect to endure for someyears to come.

Two individuals who not only made the research process personable, but also intellectually enriched ourresearch agenda, deserve our heartfelt thanks: Madeline Weiss and Robert W. Zmud, program directorand research director respectively for SIM’s APC. These very special individuals spent many hours withus throughout the project, helping us to hone our deliverables, and deserve a great deal of the credit forthe success of our presentations for the APC members.

We also wish to publicly acknowledge our indebtedness to our respective families for their understand-ing as we spent many evenings and weekends communicating with each other rather than with them.Thanks are also due to our respective academic departments and business schools for their administra-tive support.

Finally, we would like to acknowledge the invaluable contributions of the CIOs and other IT and busi-ness leaders from the six companies that we selected for this study. These executives were not only gen-erous with their time, but they were also among the first to reinforce for us the potential value of ourstudy through their genuine enthusiasm and willingness to share their visions, strategies, and tactics,including some bumpy rides along the way. Not all companies willingly open their doors to academicresearchers for a work-in-progress, and not all IT and business leaders make themselves personallyaccessible to academicians. We therefore salute the willingness of these executives to share their experi-ences so that others might learn from their missteps as well as their triumphs.

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Practice-Driven Research in IT Management Series.

Crossing Boundaries: The Deployment of Global IT Solutions (Collins/Kirsch). This book, based onextensive research, addresses the question of implementing and deploying global IT solutions to supportworldwide business activities. It deals with these issues and more by analyzing the unique nature of global(versus domestic) IT solutions and identifying successful practices for deploying them.

Coping With Labor Scarcity in Information Technology: Strategies and Practices for EffectiveRecruitment and Retention (Agarwal/Ferratt). This book is about the effective management of the strategicHR/IT organizational resource. It asks and answers the question, “How can organizations more effectivelyfind and keep productive IT professionals?” It is the culmination of over two years of primary fieldresearch conducted in several large and small corporations and illustrates what can be done to effectivelyaddress the IT labor shortage.

MANAGEMENT 2.0: Managing in the 21st Century (Duening). This book is predicated on the premise thatthe basic assumptions that had formed the foundation for the practice of management have been overturned.The idea that there is “one best way” to manage organizations has been replaced by contingency approaches.The idea that managers are responsible only for the “bottom line” has been replaced by a more expansive viewthat managers must be tactical as well as strategic.

The “age of technology” has introduced a “new economy”, wherein organizations must face the reality thatthey are global entities, must embrace technology and must exist within networks of strategic alliances, somelong lasting, some short term. The book also deals extensively with successes and failures in E-Commerce,the ethical implications of the Internet, E-mail, and other tools of our age that impact managers.

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CONTENTS

Chapter 1: Introduction: The New Business Environment 1The New Business Environment: The Era of Hypercompetition 1The IT Leadership Challenge 4The Upcoming Chapters: A Navigation Guide 4

Chapter 2: Business Transformation Thrusts 7Process Integration: Building Capabilities Through Common Processes 8Knowledge Leveraging: Building a Knowledge Asset 14Competitive Agility: Building Capabilities for Rapid Response 17The New IT Role 19

Chapter 3: Repositioning Strategies for IT Transformation 21Heightened Role of the IT Function 22Dissatisfaction with Current IT Performance 23Desire for New IT Capabilities 24Strategies for IT Transformation 25

Chapter 4: Lateral Coordination Capability 31Taxonomy of Five Coordination Mechanisms 31Lateral Coordination Capability As an IT Transformation Vector 38

Chapter 5: Repositioning IT Organizations for Process Integration 40IT Transformation Strategies 40The IT Transformation Journey at Material-System 45Executive Guidelines 57

Chapter 6: Repositioning IT Organizations for Knowledge Leveraging 59IT Transformation Strategies 59The IT Transformation Journey at Bio-Leverage 62Executive Guidelines 68

Chapter 7: Repositioning IT Organizations for Competitive Agility 71IT Transformation Strategies 71The IT Transformation Journey at Tele-Nimble 75Executive Guidelines 84

Chapter 8: Repositioning IT Organizations: The Navigation Map 87IT As a Strategic Differentiator 87IT Capabilities 88High Performance Designs 90Five IT Transformation Vectors 91The CIO As Transformational Leader 93Closing Thoughts 94

Appendix: Research Methodology 95Phase I: Field Survery 95Phase II: In-Depth Case Studies 95

About the Authors 97

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List of Numbered TablesTable 2.1 Business Transformation Thrusts at Six Case Firms 7–8Table 2.2 Process Integration Thrust: The Case Evidence 10Table 2.3 Knowledge Leveraging Thrust: The Case Evidence 15Table 2.4 Competitive Agility Thrust: The Case Evidence 17Table 3.1 Imperatives for IT Transformation 22Table 3.2 Evidence of Four IT Transformation Vectors 25Table 3.3 Pacing Strategies for IT Transformations 28Table 4.1 Coordination Mechanisms for Lateral Coordination Capability 32Table 4.2 Integrator Roles for Lateral Coordination 33Table 4.3 Group Mechanisms for Lateral Coordination 35Table 4.4 Portfolios of Coordination Mechanisms for New Lateral 4.4 Coordination Capability at Six Case Firms 38Table 5.1 IT Transformation Strategies for Enabling Process Integration 41Table 5.2 Process Integration at Material-System: Background 45Table 6.1 IT Transformation Strategies for Enabling Knowledge Leveraging 60Table 6.2 Knowledge Leveraging at Bio-Leverage: Background 62Table 7.1 IT Transformation Strategies for Enabling Competitive Agility 72Table 7.2 Competitive Agility at Tele-Nimble: Background 75Table 8.1 IT Capabilities and the Three Strategic Differentiator Roles 88

List of FiguresFigure 2.1 Tran-Integrate’s Vision 11Figure 2.2 New Processes at Diverse-Synergy 13Figure 4.1 Iceberg Metaphor for Formal and Informal Mechanisms 32Figure 5.1 New IT Organization at Material-System 48Figure 5.2 Global Process Model and Project Teams at Material-System 49Figure 5.3 Eleven IT Capabilities at Material-System 52Figure 5.4 Six Shared Values for the IT Organization at Material-System 55Figure 6.1 Four Quadrants of Data Sources at Bio-Leverage 65Figure 6.2 The KMA’s Linking Pin Role at Bio-Leverage 65Figure 7.1 Key Groups and Roles for New IT Organization Design at Tele-Nimble 78

CHAPTER 1

INTRODUCTION: THE NEW BUSINESS ENVIRONMENT

Contemporary conversations among business managers and scholars inevitably center around emergingtrends such as cycle time management, mass customization, globalization, electronic commerce, supplychain management, knowledge management, process management, and competing on capabilities. Theseterms describe a new paradigm for the conduct of business strategy proposed by other authors: sense andrespond.1

A sense-and-respond business strategy refers to the realization that business success will be definedby the ability to detect the fleeting windows of opportunity in the marketplace and to respond quicklywith winning products and services. As described by these authors, this is a dramatic reversal of theconventional paradigm that has prevailed for nearly 40 years: make-and-sell. In this new paradigm,firms strive to anticipate market needs, manufacture the products or services desired, and market themto the appropriate market segments. Compared to make-and-sell, the sense-and-respond paradigmfocuses the attention of business firms toward intimate market relationships, capabilities for sustainingproduct innovation to rapidly respond to shifts in consumer preferences, and the use of innovativechannels.

What are the environmental drivers for the sense-and-respond paradigm? And how do firms respositiontheir IT function to play a heightened strategic role for this new environment? To set the stage for our sixIT repositioning stories, we begin with a description of the hypercompetitive environments faced bycontemporary firms.

For those readers anxious to leap ahead to our conclusions, we recommend that you page forward to theend of this chapter, where we provide a navigation guide to the remaining chapters.

The New Business Environment: The Era of Hypercompetition

Experts are describing today’s business environments as hypercompetitive because of the significantincrease in competition within most sectors of the economy.2 The velocity of competitive pressures issevere because globalization increases the number of potential competitors; customers are quick toreward and sanction firms for their market responsiveness and service quality; companies are morecapable of altering the “rules of the game” through innovations; and information technologies enable the execution of new business strategies faster, cheaper, and better than their rivals.

We believe that four characteristics of the hypercompetitive environment are key to understanding thedrivers for today’s business and IT transformations: globalization of business, consumer preferences for“solutions” rather than products or services, the emergence of mass customization capabilities, and therising prominence of information in customer relationships.

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2 Repositioning the IT Organization

Globalization of Business Globalization refers to the ability of firms to operate in different geographic product-markets, to set upoperations and service facilities in different countries, to leverage their comparative costs and proximityto markets, and to tap into the capital and labor markets of different countries to weave together globaloperations. Advances in information and communications technologies have compressed space and timediscontinuities and enabled firms to pursue globalization efforts. Globalization creates pressures onbusiness firms to:

• anticipate competition from new rivals who might have better abilities to extend their reach into themarkets across the globe.

• conceptualize their business on a global scale in terms of product-markets, capital markets, and labormarkets.

• locate operations in different geographic regions and weave them together to take advantage of the comparative costs in different regions as well as the proximity to key markets for products andservices.

• create customer interactions and distribution arrangements that enable order fulfillment on a globalscale.

Collectively, these pressures suggest that the traditional make-and-sell paradigm is no longer appropri-ate: firms must be able to rapidly revise their products, services, distribution systems, and operationalstrategies in response to shifts in the global landscape of consumer preferences, labor and capitalmarkets, and national regulations. With the make-and-sell paradigm, firms could be saddled with bloated inventories, idle plant capacities, or inefficient deployment of capital when global shiftsinvalidate prevailing managerial understanding about markets. The sense-and-respond paradigm directs managerial attention toward active probing and rapid response to emerging global shifts.

Consumer Preferences for “Solutions” Rather Than Products or ServicesTraditional market segments are being fragmented as innovative firms discover sophisticated ways toanalyze demographics and practice “finer niching” of consumer markets. However, as products and services proliferate, consumers are facing a bewildering array of decisions for satisfying their needs.Therefore, opportunities for building value-added relationships with customers through solution selling,rather than marketing specific products or services, are also emerging.

Solution selling is the art of helping customers discover their needs, make decisions about solutions totheir needs, and bundle a wide array of complementary products and services to satisfy those needs.Firms that reorient their customer interactions toward providing solution guidance are more likely to be successful in these new business environments. For example, Amazon.com’s business success hasbeen partly due to its obsessive attention to helping customers discover solutions to their readinginterests and needs. By carefully recording and tracking its customer’s past purchases and reading habits, the firm facilitates consumers’ attention toward other books that they might wish to read. Simi-larly, computer resellers, such as Computer Discount Warehouse, are emerging as a significant force inthe personal computing industry because they provide “bundled” solutions for their customers’ homecomputing needs, including the hardware, software, and peripherals.

Chapter 1 Introduction: The New Business Environment 3

The sense-and-respond paradigm directs attention toward building capabilities for actively probing andsensing customer needs in order to respond with appropriate solutions.

Emergence of Mass Customization CapabilitiesRevolutions in manufacturing technologies and methodologies have made it feasible for firms to drama-tically alter their production and operations capabilities. Traditional manufacturing technologies andmethodologies were designed to accomplish economies of scale––produce large batches of similarproducts in order to lower the costs of production. Firms focused their efforts on producing optimalquantities of specific products and services and marketing them to large customer segments whose sizepermitted them to realize the economies of scale.

However, current information technologies, such as computer-aided design (CAD) and computer-aidedmanufacturing (CAM), and manufacturing approaches, such as lean manufacturing and flexible manu-facturing systems,3 have made it feasible to realize economies of scope. These advances in manufac-turing have made it possible for firms to target the unique needs of smaller customer segments withoutsacrificing cost advantages in production.4 As a result, firms are in a better position to offer customizedproducts and services to the marketplace while still holding the line on their manufacturing andoperations costs.

Similar advances have also occurred in distribution technologies and methodologies. Just-in-timeinventory approaches and individualized inventory tracking technologies have enabled firms to alter theirmanufacturing and distribution value chains to be more responsive to the changing consumer prefer-ences. For example, Dell has pioneered the “build-to-order” business model, whereby specific config-urations of computing solutions (hardware, software, network cards) are manufactured and delivered inresponse to customer orders. Not only is Dell able to execute the order rapidly, but it is also able tocustomize its solutions according to individual customer orders.5

The sense-and-respond paradigm directs managerial attention toward capturing customer needs as atrigger for “build-to-order” capabilities and the delivery of customized solutions.

Rising Prominence of Information in Customer RelationshipsTraditionally, businesses have managed customer relationships through physical distribution chains, witha focus on effective delivery of products and services. These physical chains provided customers withthe information necessary for their buying needs and also enabled the movement of the physical productor service from the producer or intermediary to the customer.

In the sense-and-respond paradigm, firms are reorganizing in order to focus on their interactions with their customers. Increasing attention is being given to the development of information-based relation-ships that enable customers to discover solutions to their buying needs and to order the appropriateproducts and services. The physical distribution chains are assumed to be efficient and not a compe-titive differentiator.

The rising prominence of information-based relationships characterizes both business-to-end consumeras well as business-to-business relationships. Advanced information technologies, including the suite of


Internet technologies, have made it feasible to create “virtual experiences” for product and servicedemos, “porous” and intimate relationships between firms and their customers, and a faster velocity ofcustomer transactions.6

The IT Leadership Challenge

Given these characteristics of today’s hypercompetitive business environments, how are contemporaryfirms transforming themselves to effectively compete? And how do they reposition their IT organizationsto enable these new competitive moves?

This book is aimed at providing some practical answers to these contemporary phenomena. Our insightsare based on data collected from more than 40 organizations. We focus here on rich examinations of sixlarge firms in diverse industries, in which IT executives were repositioning the IT function for the newsense-and-respond paradigm. Each of these firms already had a solid reputation for business perfor-mance in their prior competitive environments. Further, the top leaders at each of these firms envisionedIT to be a strategic differentiator and the companies had already made significant commitments to thetransformation of their IT functions.

Yet doing things right in the past does not create an exemplar for the future, and as researchers we knewthat we were constrained to selecting these firms based on their past performance records and currenttransformation visions. During our multiyear data collections, however, we knew that these transfor-mation stories were of interest to our research sponsors (CIOs in mostly Fortune 200 firms). Fortunately,we also now have access to their early performance returns, which suggest that we have indeed focusedon success stories. We therefore share these six anonymous stories with confidence born not only fromskills honed as academic researchers but also from some external reports of marketplace success.

Our data were collected during site visits, often at multiple geographic locations, where we interviewedkey senior IT and business executives. We were also able to obtain access to important documents thathelped us better understand their transformation imperatives. Follow-up visits and conversations withseveral of these firms after the conclusion of our initial project for the APC have also yielded additionalinsights. More specific details about our methodology can be found in this book’s appendix.

Though our sponsors were senior IT leaders and this is our target audience, we think that IT manage-ment consultants and researchers will also find value in the pages that follow. The next section providesa navigation guide to what’s ahead.

The Upcoming Chapters: A Navigation Guide

At the beginning of this chapter, we set the stage for why businesses are encountering sharp discon-tinuities in the success of their traditional strategic activities and are transforming themselves forhypercompetition. We have described the emergence of a new sense-and-respond paradigm, includingthe environmental drivers for businesses competing in today’s hypercompetitive era, based on asynthesis of work by others.

Chapter 1 Introduction: The New Business Environment 5

In Chapters 2 to 4 we continue to set the stage for our own case-study findings by describing thesystemic business transformation thrusts and the IT transformation vectors that emerged from our ownanalyses. In Chapter 2 we describe the three systemic transformation thrusts for our six case studies thatwere discovered: process integration, knowledge leveraging, and competitive agility. We profile the sixfirms in our study in terms of their visions and strategies for competing in the new sense-and-respondbusiness environments.

In Chapter 3 we begin to tease out how these six firms repositioned their IT organizations in order toenable these new business strategies. We begin by profiling the six cases in terms of three generalimperatives for IT transformations. Then we detail their IT repositioning initiatives in terms of five key elements, or vectors, that we discovered to be in common across our six stories: talent infusion,governance redesign, pacing, sourcing, and lateral coordination capability. We define a lateralcoordination capability as the development of a portfolio of formal and informal mechanisms in order to facilitate communication, coordination, and decision making across functions.

The last vector, building and sustaining a lateral coordination capability, is an IT management competencythat was of special interest to the senior IT executives who sponsored and molded our research. Chapter 4presents our framework for describing (and architecting) a lateral coordination capability for the ITfunction. The framework includes five categories: integrator roles, groups, processes, informal relationship-building, and human resource practices. Here our findings extend beyond the six case studies to includewhat we have learned from a field survey of more than 40 additional organizations.

Chapters 5 to 7 present the heart of our IT repositioning stories. Taken together, they provide detaileddescriptions on how to transform an IT organization for a sense-and-respond era. We devote one chapterto each systemic transformation thrust and discuss in detail how the relevant cases repositioned their ITorganization to be a strategic differentiator and key enabler of this systemic thrust. Chapter 5 focuses onrepositioning an IT function for process integration. Chapter 6 focuses on knowledge leveraging, andChapter 7 focuses on competitive agility.

A similar structure is used across these three chapters. First we describe how the five IT transformationvectors were used by the relevant firms. Then we describe in rich detail the transformation journey ofone case study, including some improvised solutions along the way. Executive guidelines specific to thetransformation thrust close each chapter.

Chapter 8 is our capstone: we summarize our key findings in terms of practical recommendations. Webegin with a discussion of the IT role as a strategic differentiator. Then we describe what it takes for theIT function to become a strategic differentiator under four themes: IT capabilities, high performancedesigns, the five IT transformation vectors, and the CIO as transformational leader.

Endnotes

1 S. P. Bradley and R. L. Nolan (Eds.), Sense and Respond: Capturing Value in the Network Era,Harvard Business School Press, Boston, 1998. For a discussion of this new paradigm in contrast tothe conventional make-and-sell paradigm, see Chapter 1 of Bradley and Nolan’s publication.

2 R. A. D’Aveni, Hypercompetition: Managing the Dynamics of Strategic Maneuvering, The FreePress, New York, 1994.


3 J. P. Womack, D. T. Jones, and D. Roos, The Machine That Changed the World: The Story of LeanProduction, HarperCollins, Boston, 1990; M. A. Cusumano and K. Nobeoka, Thinking Beyond Lean:How Multiproject Management Is Transforming Product Development at Toyota and OtherCompanies, The Free Press, New York, NY, 1998.

4 B. J. Pine, Mass Customization: The New Frontier in Business Competition, Harvard Business SchoolPress, Boston, 1993.

5 J. Magretta, The power of virtual integration: An interview with Dell Computer’s Michael Dell,Harvard Business Review, March-April 1998: 72–84.

6 N. Venkatraman, and J. C. Henderson, Real strategies for virtual organizing, Sloan ManagementReview 40 (1), Fall 1998: 33–48.

CHAPTER 2

BUSINESS TRANSFORMATION THRUSTS

Given today’s hypercompetitive business environments and the drivers for sense-and-respondcapabilities, how are businesses transforming themselves? Three systemic thrusts characterized thebusiness transformations of our six case studies:

Process integration Binding together the enterprise’s business units through common end-to-end processes that offer integrated solutions to customers’ needs

Knowledge leveraging Leveraging the ability to apply existing knowledge to respond rapidly to marketplace changes by capturing and providing access to dispersed expertise across the enterprise

Competitive agility Leveraging the ability to sense fleeting marketplace trends and rapidly offer a stream of innovative solutionswithout being hampered by the inertia of existing commitments

We do not mean to suggest that these three thrusts capture all of the transformation goals of these firms.Rather, they capture their primary focus at the time of our data collections and the systemic pressures forIT repositioning.

Table 2.1 maps our six case studies into these three systemic thrusts. We then devote the remainder ofthis chapter to describing each of the transformation thrusts in some detail. Understanding these businesstransformation pressures is key to understanding why a new IT role—as strategic differentiator—wasrequired, which will be the focus of the chapters that follow.

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Table 2.1: Business Transformation Thrusts at Six Case Firms

Transformation TransformationThrusts Description Case Sites Case Background

Process Binding together the Tran-Integrate Large firm in the transportationintegration enterprise’s business units and logistics industry with a

through common end-to-end history of significant autonomyprocesses that offer integrated among its business unitssolutions to customers’ needs Diverse- Large global firm operating in

Synergy automotive, chemicals, office products, and electronics industries with a history of significant innovation under autonomous divisions

(continued on next page)


Process Integration:Building Capabilities Through Common Processes

Given today’s hypercompetitive business environments, firms must develop the ability to weave togetherseamless enterprises so that they can quickly respond to opportunities in the product, capital, and labormarkets around the globe. Increasingly, sense-and-respond strategies require the integration of enterpriseactions through common processes.

Process integration is our term for business transformations aimed at building sense-and-respondcapabilities through enterprise-wide processes that facilitate more intimate relationships with customersand the rapid delivery of solutions to customers’ needs. Examples of such global processes includecustomer order gathering, order fulfillment, manufacturing flow, supply chain management, and capitalacquisition and management.1 Seamless enterprise-wide processes enable the rapid movement ofinformation required to respond with appropriate solutions to customers’ needs.

Table 2.1 (continued)

Transformation TransformationThrusts Description Case Sites Case Background

Material- Large global firm in building System materials and advanced

composites industry with new top leadership brought in for financial turnaround

Knowledge Leveraging the ability to apply Bio-Leverage Large global firm competing inleveraging existing knowledge to respond chemicals, agricultural products,

rapidly to marketplace changes and pharmaceuticals with newby capturing and providing top leadership focused on access to dispersed expertise biotechnology opportunitiesacross the enterprise

Competitive Leveraging the ability to sense Pub-Enabler Large global publishing and agility fleeting marketplace trends printing firm facing significant

and rapidly offer a stream of competitive disruption due to innovative solutions without new digital technologiesbeing hampered by the inertia Tele-Nimble Large telecommunications firmof existing commitments competing in local markets

but anticipating significant competitive disruption due to industry deregulation

Chapter 2 Business Transformation Thrusts 9

During most of the 1980s, prevailing organization structures were built around the multidivisional (M-form) or holding company (H-form) organizational models. These structures facilitated attention to theneeds of specific market segments, while overcoming the weaknesses of earlier functional models.However, as hypercompetitive business environments demand integrated solutions for global customers,firms need to integrate operations across individual lines of business, particularly when these units servecommon customers. Process integration requires a joint ownership of decisions and collectiveresponsibility for outcomes.2 It allows organizations to create solutions that cross the lines of businesseffectively and efficiently in a way that is invisible to customers.

Process integration is therefore one of the most widespread transformation thrusts among contemporaryfirms as they seek to bind together the activities of their business units and become more customer-responsive.3 As shown in Table 2.2, one service and two manufacturing firms that we studied hadinitiated transformation thrusts toward process integration. This transformation thrust typically requiressome structural reorganization, but the movement toward common, enterprise-wide processes, ratherthan restructuring, was the systemic driver.

In the following sections we capture some of the highlights of the process integration thrusts at threefirms: Tran-Integrate, Diverse-Synergy, and Material-System. Chapter 5 is devoted to describing therepositioning of the IT organizations to enable these business transformations.

Process Integration at Tran-IntegrateIn early 1996, Tran-Integrate emerged as a new corporate entity within a large transportation andlogistics corporation. Previously, the firm operated as a holding company, with the operating companiesenjoying high levels of autonomy in their respective lines of business: emergency shipments, dedicatedlogistics, package delivery, and less-than-truckload shipments.

The restructuring involved two major actions: (1) a spin-off of a unionized business into a separatecorporation, and (2) the creation of Tran-Integrate, with nonunionized businesses that included dedicatedlogistics and package delivery. This new corporation was expected to operate as a multidivisional firm,with a much tighter integration of operations and initiatives of business units that had previously beenindependent operating companies.

The logistics and transportation industry is experiencing intense rivalry, fueled in part by deregulation.The industry itself is very mature and has had a history of unionization. The industry response to thisnew competitive environment had been to segment into different niches––for example, dedicatedlogistics for large organizations, such as retailers, distributors, automobile manufacturers, and so on;emergency shipments for medical products and services; small package delivery for catalog retailers;and less-than-truckload shipments. Within each segment, new rivals had sprung up and created excess

Process IntegrationBuilding sense-and-respond capabilities through global and enterprise-wide

common processes that bind together organizational units


capacity. Although the operational processes of these segments are different, the services themselves hadbecome commodities with little differentiation among the rivals’ offerings. This, in turn, had begun tosqueeze profitability margins.

Tran-Integrate developed a new strategic response to this hypercompetitive business environment: ratherthan operate in the individual market segments of its industry, it sought to leverage its customers’ desirefor integrated solutions. By 1996, the firm had therefore embarked on a transformation that wouldenable it to combine the talents of its different operating units to offer its customers a seamless blend of package, freight, logistics, and expedited services from a single source. Logistics and supply chainmanagement was anticipated to be a growing segment of the economy. As more firms recognized the

Table 2.2: Process Integration Thrust: The Case Evidence

Motivation for Process Complementary Firm Transformation Integration Actions Transformation Actions

Tran-Integrate Intense industry rivalry in Common customer Spin-off of specific business the transportation industry solution process units

Sharpened value proposition Account Reintegration of business of customer intimacy management units within a “tighter”

Customers’ desire for of customers organization structure

integrated logistics solutions IT as the “glue” for the new organization

Diverse-Synergy Revival of innovation fervor Core Processes Spin-off of specific businessthat characterized past Customer unitssuccess relationship Reintegration of existingSharpened value proposition management divisions into five marketof operational excellence Demand centers to focus on supply

Marketplace consolidation management chain management, product

created misalignment with Customer order innovation, and brand

“autonomous” organizational fulfillment marketing

model Manufacturing flow Emergence of IT as the key

Procurement integrator

Material-System Enhanced customer Common, simple Corporate vision thatsatisfaction through global processes emphasizes core values:superior solutions that for value-chain global, mobile, paper-free,leverage the firm’s product and corporate integrated, team-oriented,range support learning-based, customer-

Sharpened value proposition focused, and technology-

of customer intimacy enabled

Growth that exploits global New integrative role for IT reach of the business


critical value-added role of effective supply chain and logistics management, Tran-Integrate would bepoised to differentiate itself through its new capability to provide total, end-to-end customer solutions.

Tran-Integrate’s primary transformation thrust was a tighter integration of its lines of business, whichincluded four business divisions and a separate technology unit. For some of its largest customers,account managers would be responsible for sensing their logistics and supply chain needs and thenworking with appropriate experts from the four different business units to develop integrated solutions.These market-facing account managers and the processes that they use for developing customersolutions were significant elements of their transformation thrust. They altered the firm’s relationshipwith their customers––moving away from being based on products and services and toward the deliveryof integrated logistics and supply chain expertise and solutions for the customers’ total needs.

Figure 2.1 graphically describes this vision: the four lines of business are channels of expertise to the customer base, and IT-based processes will facilitate cross-unit synergies and better customerrelationships. Though the firm had traditionally used IT strategically, the transformation catapulted ITinto a key role as strategic enabler of its integration efforts. The mission of Tran-Integrate Technologywas to provide integrated IT services to these business units and to play a new role as key enabler of anew business strategy based on the integration of value-chain activities across its new enterprise. IT wasviewed as the “glue” that would bind together the processes of the units that previously operated indistinctive industry segments in order to facilitate a “one-window” face to its customers and thestrengthening of its customer relationships. This meant the building of a new IT organization capabilityto facilitate greater levels of customer service differentiation.

Package ExpeditedServices

LogisticsFreight

Customer Base

IT Services

Figure 2.1: Tran-Integrate’s Vision

Process Integration at Diverse-SynergyAlthough it had had a tremendously successful business model for many years, Diverse-Synergy alsoinitiated a fundamental transformation in 1996. Traditionally, the firm had been structured aroundproducts, with each division given high levels of autonomy to manage its family of products that fulfilledspecific customer needs. In response to an increasingly hypercompetitive environment, Diverse-Synergy


began to transform itself from being a product-centered enterprise to a market-centered enterprise,in which groups of divisions serving a common market would be consolidated in order to exploitsynergies and build relationships with common customers. One of the distinctive characteristics of this new market-centered organization was the creation of a “one-window” interface between thecompany and its markets through a core set of common processes.

Diverse-Synergy operates in more than 60 countries with a diverse range of businesses including morethan 40 major product lines in the automotive, chemicals, office products, and electronics industries. Thecompany’s culture fosters a spirit of entrepreneurship, and the firm has consistently spawned a stream ofgroundbreaking products. More than 25% of its sales each year come from products introduced withinthe previous four years.

Previously, individual business units enjoyed considerable autonomy while operating as parts of threebroader strategic sectors. Significant investments in R&D occurred at three levels: (1) the divisionlaboratories that are close to the customers and work on day-to-day developments to support existingproduct lines and create new ones, (2) sector laboratories, where scientists work on technologies thatwill reach the market within 5 to 10 years, and (3) corporate research laboratories, where the focus is a 10- to 15-year technology horizon.

Though the company has been a model of corporate excellence and had consistently demonstratedinnovation and business success, concerns grew internally about the appropriateness of the prevailingculture and organization design to meet the challenges of hypercompetitive environments:

1. The culture of the company had emphasized the creation of winning products based on inimitable,“blockbuster” innovations and the ability to extract high premiums for these products. However,there was a growing concern about the company’s ability to sustain the rate of innovation needed fora strategy based on “proprietary” product innovation and premium pricing strategies. Therefore, oneof the challenges facing the company is to revitalize its innovation fervor and accelerate the pace ofproduct innovation. At the same time, the firm also recognized the necessity for complementing its“proprietary product pull” strategy with a deliberate “channel push” strategy. The latter realizationhas prompted a higher level of attention to marketing in contrast with the past, when attention wasmostly focused on product innovation through R&D.

2. While divisional autonomy had enabled success in focusing products and services on specific marketsegments, two characteristics suggested the need for enterprise-level solutions: (1) not all divisionswere effectively managing their supply chains, and (2) many of the divisions were selling theirproducts to the same markets. For example, the firm discovered that more than a dozen of itsdivisions sold office products to a common set of 12 distributors who jointly controlled about 85% of the global business for this industry. Yet the traditional mode of organizing divisions around product lines had masked this commonality and fostered “silo-oriented” thinking among thedivisions. As a result, potential synergies for supply chain operations and marketing relationshipshad not been exploited. Therefore, another significant challenge faced by the firm was the creation of marketing and supply chain management processes that would better balance the dual needs forautonomy and coordination across its product-based divisions.


Overall, while Diverse-Synergy wished to preserve the traditional strengths that it had developedthrough divisional autonomy and product leadership, there is a clear realization that it needs to pursueoperational excellence through common enterprise-wide processes and greater collaboration among thedivisions that serve similar customers and markets. Therefore, process integration is viewed as asignificant strategic commitment in order to sustain superior performance in the future.

Diverse-Synergy’s transformation began with a restructuring of its businesses, including a business spin-offthat accounted for about 20% of revenues, and the integration of its remaining businesses into five marketcenters. The cornerstone of the transformation was the identification and implementation of a core set ofprocesses within each market center, including customer relationship management, demand management,customer order fulfillment, manufacturing flow, and procurement centers (see Figure 2.2). Senior execu-tives were assigned to be process leaders, and process councils were created to link together the processleaders across the five market centers to share ideas, practices, and solutions for common processes.

Enterprise-wide Processes

Customer relationships

Procurement

Manufacturing flow

Order fulfillment

Demand management

Divisions Within Market Center

Figure 2.2: New Processes at Diverse-Synergy

In addition, three key initiatives directed at achieving supply chain excellence, renewed productinnovation leadership, and brand marketing were championed by three top managers charged withevaluating the prevailing organizational practices, identifying best practices from inside and outside theorganization, and transferring these best practices throughout the organization. For example, in thecontext of supply chain management, aggressive enterprise-wide targets were set with respect to thechannel fill rates and product availability.

A critical element of the transformation at Diverse-Synergy is the role of information technology: IT isexpected to shape the organization’s success at supply chain management and the building of customerloyalty—to be a strategic enabler of the business. While the firm had historically been a big spender onIT, the focus had primarily been on facilitating cost control in manufacturing, marketing, anddistribution activities. IT is now being viewed as a core business competence.

Process Integration at Material-SystemMaterial-System was heavily in debt when the current CEO took over the reigns of the firm in early1992: it had used up significant levels of cash in fighting off a takeover bid and responding to lawsuits


related to products containing harmful materials that it manufactured two decades earlier. The new CEObegan to transform the firm by (1) renewing its focus on R&D, and (2) making the customers in its fourmajor markets its first priority. The early restructuring initiatives included the divestiture of noncorebusinesses, investment in new plants on three continents, and these business process reengineeringprojects: reengineering the logistics and customer service processes and consolidating of the financefunction. By 1996, Material-System was well on its way toward deploying common, global businessprocesses to support its sense-and-respond business goals: accessing worldwide information in real timeto make fully informed decisions and customizing responses to meet customer needs.

Material-System is a world leader in manufacturing building materials and advanced composites. Itsprimary lines of business produce and market more than 2000 specific building products, includinginsulation, roofing materials, and siding, and it is a market leader in composite materials. Three corevalues underlie its new global strategy based on common processes: customer satisfaction, individualemployee dignity, and shareholder value. These values were also embodied in the CEO’s vision for anew workplace, which was communicated with a set of eight qualities: global, mobile, paper-free,integrated, team-oriented, learning-based, customer-focused, and technology-enabled.

Key to this transformation was a new prominent leadership role for the IT function. In the past, the ITorganization had been led by a string of business managers and the IT organization had been an ordertaker; for example, there was no significant IT management involvement in the early business processreengineering projects. By 1994, it was clear to top management that IT would have to become anenabler of its new vision and a new IT leadership role would be needed to help move the company intothe next century.

In summary, then, all three of these firms had business transformations well on the way toward processintegration by early 1996. In Chapter 5 we profile and compare the IT transformations of all three ofthese firms. We will also describe in detail the IT transformation journey of Material-System as itrepositioned its resources for one of the earliest global ERP implementations by a U.S.-based firm.

Knowledge Leveraging:Building a Knowledge Asset

Firms possess vast amounts of knowledge about markets, competitors, suppliers, and other importantstakeholders. But this knowledge is typically dispersed throughout the firm. Integrating the dispersedknowledge and facilitating its availability throughout the enterprise can dramatically enhance compe-titive ability by allowing firms to sense new trends and then quickly shape responses by drawing onhistory, experience, and prior learning.4

Knowledge leveraging is our term for the building of sense-and-respond capabilities through thecreation, nurturing, and maintenance of a knowledge asset. As knowledge becomes recognized as afundamental organizational asset for sustaining competitive edge in today’s hypercompetitive businessenvironments,5 firms are attempting to identify “what they know”: capturing, storing, and maintainingthis knowledge to create an organizational knowledge base, and facilitating access to this knowledgethroughout the enterprise.6


Knowledge LeveragingBuilding sense-and-respond capabilities through the

creation, nurturing, and maintenance of a knowledge asset

The knowledge embedded in the people, systems, culture, and overall organizational architecture of afirm enable it to sense emerging opportunities and shape the competitive future better than its competi-tion. The term economies of expertise refers to the benefits accruing to a firm when it can leverage itsexisting knowledge across a wide range of business opportunities in different markets, geographicregions, and customers.

Only one firm, Bio-Leverage, was engaged in a transformation in which leveraging knowledge was aprimary thrust (see Table 2.3). Complementing this thrust were several other integration initiatives, butbetter understanding how to build an enterprise-wide knowledge asset was a centerpiece of itstransformation.

Table 2.3: Knowledge Leveraging Thrust: The Case Evidence

Motivation for Knowledge Complementary Firm Transformation Leverage Actions Transformation Actions

Bio-Leverage Innovations for fast-changing Connecting via global Restructuring of leadershipmarkets themes: operational and corporate functions

Competitive advantage excellence, growth, IT as key architect ofdependent on firm’s sustainability, knowledge assetscollective insights globalization,

cultural change

New units to focus onlearning and growth(balanced scorecardmeasures)

Knowledge Leveraging at Bio-LeverageIn the spring of 1995, the new chair and CEO of Bio-Leverage embarked the company on a transfor-mation that would lead to the spin-off of a mature chemicals business in order to focus on biotechnology.To survive in the new hypercompetitive environment, the firm needed to increase its capabilities tosense-and-respond by leveraging knowledge across functions, businesses, and business sectors. In thefuture, competitive advantage would depend on the firm’s collective insights and how fast it learns. A culture characterized in the past by “radical decentralization” would need to be transformed to alsoreward knowledge sharing. The CEO’s new vision was communicated as “small and connected.”

In the past, Bio-Leverage had competed in related industries, including chemicals, agricultural products,and pharmaceuticals. Its mature chemicals businesses provided over half of the company’s 1995


revenues, but its agricultural businesses were its “crown jewels” and generated about two-thirds of thecompany’s profits. The firm’s growth was heavily dependent on biotechnology innovations within fast-changing markets. In early 1996, Bio-Leverage had four global operating companies, fourteen strategicbusiness units, and four world areas, with about 30,000 employees worldwide.

In the past decade, the firm’s business units had been deliberately radically decentralized in order toquickly bring innovations to market in response to customer demand. But being small and not connectedhad led to “silo-itis” and missed opportunities for leveraging one of the firm’s key competencies––itsintellectual capital. Becoming “connected” would therefore be a key challenge, and advanced IT wasidentified by the new chairman as the single most valuable tool in helping the company redesign itself tocompete in fast-changing markets.

Bio-Leverage adopted a balanced scorecard approach in which Learning and Growth was one of fourprimary performance objectives. Under the leadership of a VP of Strategic Change, organizationalmeasures for new competencies and behaviors associated with learning and growth would help track thefirm’s progress toward these new objectives. The CEO also initiated two new top management groups tohelp actualize his new vision for the company. His management board––including the CFO, five industry“family” heads, and international heads––began meeting a couple days each month, and a newoperations council––including all SBU heads, the management board, plus other corporate seniorVPs––also met monthly.

The corporate functions were also restructured. A new corporate stewardship unit was separated from the“shared services” unit in order to focus on innovation, leadership, and “doing the right things” to achievethe corporate vision. Another one of the highly visible changes was the introduction of five high-prioritythemes to help focus the company on new ways of doing business: operational excellence, growth,sustainability, globalization, and cultural change. A series of global forums was held to create rapidenterprise-wide awareness of these themes. Five hundred employees participated in each forum––representing a “diagonal slice” of all levels, including board members, and all functions.

By early 1996, about 40 enterprise-wide initiatives and councils had been set up to facilitate thedevelopment of a portfolio of capabilities to realize the five global themes and overall vision of the firm.Examples of new councils included the Corporate Marketing Council and a Manufacturing LeadershipCouncil, which had both a steering committee with members from the highest ranks, and workinggroups with members from across the organization. Examples of new initiatives included a Public PolicyInstitute and the Global Learning Network.

Under corporate funding, the Global Learning Network (GLN) was a new initiative to focus on thecorporate objectives of learning and growth.7 Its initial focus would be a major redesign of the humanresource function, building on recommendations from an earlier reengineering team. The GLN would alsotake the leadership role for the identification and dissemination of best practices in partnership with IT.

This transformation also significantly changed the role of the IT function: it would no longer be a“provider of solutions,” but an enabler of the business transformation. IT was viewed as critical foreliminating the time and distance barriers to being small and connected. The attainment of a seamlessglobal IT infrastructure for connecting its disparate businesses would be critical for knowledge


leveraging. By mid-1995, a new Knowledge Management Architecture (KMA) unit within IT wascharged with developing a new business intelligence capability enterprise-wide. In Chapter 6 wedescribe in detail the IT transformation journey of Bio-Leverage.

Competitive Agility:Building Capabilities for Rapid Response

A competitively agile firm anticipates the marketplace by developing the competencies needed to exploitemerging opportunities. Agile firms embrace change since change and uncertainty are sources ofopportunities for superior competitive performance.

Competitive agility is the term we use for a transformation thrust aimed at enhancing the ability torapidly respond with a stream of innovative products, services, and distribution arrangements that satisfycustomer needs and take advantage of the emerging markets.8 When market opportunities are fleetingand customer needs keep changing, competitive success is associated with rapid innovation that delightscustomers and surprises the competition.9

Competitive AgilityBuilding sense-and-respond capabilities through the ability to rapidly

respond with a stream of innovative solutions that reflect customer needs and emerging markets

Agile firms are not constrained by the inertia of their commitments to existing products, services, ordistribution structures; they are willing to be change-ready. Significant cultural changes are typicallyrequired in order to develop this new entrepreneurial orientation.

Table 2.4 shows the characteristics of the two firms in our study in which the primary transformationthrust was to achieve competitive agility.

Table 2.4: Competitive Agility Thrust: The Case Evidence

Motivation for Agility Complementary Firm Transformation Actions Transformation Actions

Tele-Nimble Impending deregulation in Cultural change to an New set of core valuesthe industry entrepreneurial mindset Business process redesignCycle time pressures New IT leadership role

Pub-Enabler Emerging discontinuities due Cultural transfor- Business process redesignto new digital technologies mation toward an Investments in digitalCycle time pressures entrepreneurial capabilities

workforce New IT role for digitalfuture


Competitive Agility at Pub-EnablerPub-Enabler’s traditional competitive strengths in the publishing and printing industry were its size,technological expertise, and long-term customer relationships. Yet by 1995 it had become clear that thedemand for traditional ink-on-paper print was facing obsolescence: the future was a digital one. Itsgreatest competitive threat was substitute products based on new digital technologies, but it also facedsevere cycle time pressures. It needed to transform itself into an agile marketing-and-services companythat could provide future customers with editorial content in whatever format they requested.

Pub-Enabler had about a dozen business units grouped into three major sectors, competing in the United States and four international markets. Its customers included major magazine publishers (weekly magazines), Baby Bells (yellow pages), and software vendors (software diskettes). The CEO’sdual strategy of heavy investments in new technology and expansion into developing countries that havehigh literacy rates had led to record sales growth. Among its investments were digital printing plantswith the capability to print the same day that data are electronically transmitted from customers and new computerized sorting equipment with the capability to print inserts or ads targeting specificdemographic groups.

The centerpiece of the transformation efforts toward agility was the cultural transformation toward anentrepreneurial mentality. By early 1996, there was a realization that competitive agility required a stillmore flexible organization and a highly skilled workforce. The company’s size, a historical asset, wasnow viewed as an impediment to building the flexible organization and highly skilled workforce neededto compete in the new marketplace. Some of the Pub-Enabler workforce had been at the firm for 40years; some employees had done the same jobs for 25 years. To be “nimble,” the firm needed totransform its business culture and diversify its workforce.

At the same time, it needed to better compete on low cost by sharing resources across the corporation.Through its business process reengineering efforts, it was discovered that many of the firm’s currentinformation systems didn’t have the capabilities needed for responsiveness to fast-changing markets. Thenew vision for the IT organization was to be an enabler of competitive agility: IT would be an integralpart of the business, and every IT goal would be linked to an overall company goal.

Competitive Agility at Tele-NimbleTele-Nimble competed in the local voice and data market segments of the telecommunications industry.Prior to 1996, the telecommunications industry had operated as an oligopoly, governed by regulatorybodies. By 1995, landmark federal legislation that would fuel an industry consolidation and shakeoutwas anticipated and only a handful of major national and international providers were expected tosurvive. Tele-Nimble therefore faced the prospect of a world where “market windows of opportunity”open and close rapidly. The transformational imperative for Tele-Nimble was to move from a protected,regulated, and oligopolistic market environment to a hypercompetitive market environment. Sustainedsuccess in this context would require mastering the sense-and-respond business paradigm. According tothe CEO,

The winners in this era of open markets will be those who are organized around the requirements ofthe market and ready to take advantage of emerging opportunities.


In anticipation of this paradigm shift, the firm initially focused on a cultural transformation: anentrepreneurial mindset in which customer needs and the speed of response would be the watchwordsembraced by all employees. It also embarked on developing common enterprise-wide processes tofacilitate agility.

Key to this transformation effort was a new leadership role for the IT function. A new CIO withbusiness process reengineering oversight expertise was sought to transform IT from a back-officefunction to an enabler of agility. In Chapter 7 we describe in detail the IT transformation journey of Tele-Nimble.

The New IT Role

The six firms in our study each pursued one of three systemic business transformation thrusts in order to compete effectively in a hypercompetitive business environment: process integration, knowledgeleveraging, or competitive agility. A key element of the business transformation to sense-and-respondcapabilities in all six companies was the emergence of a new IT role: IT would be a strategicdifferentiator and a key enabler of their business transformation success.

The remaining chapters focus on how the IT organization was repositioned in response to these businessimperatives. In Chapter 3 we introduce the five key elements, or vectors, of the IT transformationstrategies that emerged from our research.

Endnotes

1 T. H. Davenport, Process Innovation: Reengineering Work Through Information Technology, HarvardBusiness School Press, Boston, 1993.

2 B. Gray, Collaborating, Jossey Bass, San Francisco, 1991.3 J. Liedtka, Collaboration across lines of business for competitive advantage, Academy of Management

Executive, May 1996: 20–37. 4 T. A. Stewart, Intellectual Capital: The New Wealth of Organizations, Double Day/Currency, New

York, 1997; K. E. Svelby, The New Organizational Wealth: Managing and Measuring Knowledge-based Assets, Berrett-Koehler Publishers, Inc., San Franscisco, 1997; T. H. Davenport and L. Prusak,Working Knowledge: How Organizations Manage What They Know, Harvard Business School Press,Boston, 1998.

5 M. J. Kiernan, The Eleven Commandments of 21st Century Management, Prentice Hall, EnglewoodCliffs, N.J., 1996; J. Martin, Cybercorp: The New Business Revolution, American ManagementAssociation, New York, 1996.

6 R. M. Grant, Prospering in dynamically-competitive environments: Organizational capability asknowledge integration, Organization Science 7(4), July-August 1996: 375–387; B. Moingeon and A. Edmondson, Organizational Learning and Competitive Advantage, Sage Press, Newbury Park,Calif., 1996.

7 Learning and growth is one of four “balanced scorecard” measures in a management system devisedby R. S. Kaplan and D. P. Norton. (See the authors’ The Balanced Scorecard, Harvard BusinessSchool Press, Boston, 1996.)


8 S. L. Goldman, R. N. Nagel, and K. Priess, Agile Competitors and Virtual Organizations: Strategiesfor Enriching the Customer, Van Nostrand Reinhold, New York, 1995.

9 R. A. D’Aveni, Hypercompetition: Managing the Dynamics of Strategic Maneuvering, The FreePress, New York, 1994.

CHAPTER 3

REPOSITIONING STRATEGIES FORIT TRANSFORMATION

Heightened roles for the IT function were required to enable the systemic transformations described inChapter 2: IT was expected to not only be an enabler of the transformation thrusts, but also a strategicdifferentiator for the business. How did these firms reposition their IT function to play this new strategicdifferentiator role?

We believe that five major elements, or transformation vectors, capture well the strategic choices thatrepositioned the IT function at these six firms:

Hiring of new senior IT executives,including a CIO, in order to guide the IT transformation initiative

Redesign of the allocation of authority for significant IT management decisions among corporate IT and divisional IT managers, including matrixed designs

Speed at which the IT transformation should be driven relative to the business transformation thrust

Decisions about the sourcing of key IT assets, applications, or skills: internally sourced or outsourced

Introduction of coordination mechanisms to link business and IT management, as well as corporate and dispersed IT management, to facilitate cross-unit workand decision making

To set the context for our descriptions of how these vectors were used to reposition an IT organization,we begin by mapping the six case studies into three overall imperatives for IT transformation: theheightened role of the IT function, dissatisfaction with current IT performance (at four of the six firms),and the new IT capabilities required in order to respond to the first two imperatives.

Table 3.1 summarizes these mappings.

21

TalentInfusion

Governance

Pacing

LateralCoordination

Capability

Sourcing


Table 3.1: Imperatives for IT Transformation

Diverse- Material-Imperative Tran-Integrate Synergy System Bio-Leverage Pub-Enabler Tele-Nimble

Heightened role Enable cross-unit Enable cross-unit Lead develop- Enable the Facilitate orga- Facilitate rapidof the IT synergies synergies ment and imple- transformation nizational agility delivery of ITfunction Participate Provide greater mentation of vision of small that leverages applications that

in solution attention to common, global and connected external alliances build strategic

development strategic oppor- processes value to the

for external tunities for IT business

customers use

Dissatisfaction Frequently main- IT infrastructure Legacy systems Legacy develop-with current IT tained and gaps an impedi- inadequate ment environmentperformance incompatible ment to for fast-changing an impediment to

legacy “connectedness” markets quick cycle timesapplications goals IT skills outdated Entitlement “Order-taking” IT leaders not mentality of IT mentality connected workforce in promoted “silo” conflict with solutions entrepreneurial

values

Desire for new Enhance customer Infuse strategic Create flexible Create seamless Develop Infuse strategic IT capabilities orientation of IT thinking in IT IT infrastructure IT infrastructure partnerships with thinking in

organization applications Build high Become primary business conceptualization

performance IT architect of Build generalist of IT applications

organization for knowledge asset talent for Build IT talent integrated packaged base that is package environment change-readyenvironment

Heightened Role of the IT Function

At each of the six firms, the IT function was expected to play a significant role in facilitating thebusiness transformation thrusts. In most cases, these expectations meant a new direction and a departurefrom the past activities and focus of the IT function. For example, at both Tran-Integrate and Diverse-Synergy, the IT function had traditionally focused on aligning itself to the autonomous operations of thebusiness units. While IT devoted some efforts toward enterprise-wide synergies in the management anduse of information and information technologies, the prevailing vision was to respond to the unique ITneeds of the individual business units. The charter for the IT function changed dramatically to being theagent for facilitating cross-unit synergies. Similarly, the IT function at Material-System was expected tolead the implementation of common global processes. Given the risks and uncertainties associated withthe implementation of ERP systems to facilitate common processes, the IT function needed to transformitself to successfully execute its anticipated role in the business transformation thrust.

At Bio-Leverage, the IT function was expected to be an enabler of the business transformation thrustenvisioned by its CEO. IT was considered to be critical for eliminating the time and distance barriersrequired for being small and connected, as well as a key partner in a new initiative: the development of

Chapter 3 Repositioning Strategies for IT Transformation 23

intellectual assets. Both Pub-Enabler and Tele-Nimble faced unprecedented industry uncertainties due to the arrival of the Information Age, and their IT functions were now required to facilitate agility. Bothorganizations had “entitlement” workforces that needed to be transformed in order to deliver strategic IT applications rapidly.

Dissatisfaction with Current IT Performance

At four of the six firms, the IT transformation pressures also originated due to dissatisfaction with thecurrent performance of the IT function and the realization that the current IT function would simply not be able to help achieve the desired business transformation thrusts. Some of the reasons underlyingdissatisfaction with the current performance include excessive burden of legacy applications, an “order-taking” mentality of the IT function rather than a proactive focus on delivering strategic value, ITinfrastructure gaps impeding seamless enterprise-wide information networks, and restricted IT skillsets.

The burden of legacy applications was a significant concern at Material-System. These applications were characterized as “complex, fragmented, incompatible, unreliable, and highly redundant.” In thewords of a manager, “we had to get better at what we were doing, but legacy systems wouldn’t let us dothat.” At Tele-Nimble, an environment of legacy applications development meant long lead times andexcessive efforts devoted to applications maintenance. According to a senior IT executive, “to paraphrasea Chinese proverb, it was realized that if we didn’t change our direction, we might end up ‘where wewere headed.’”

Another significant concern with the performance of the IT function related to the “order-taking”mentality of the IT function. At Material-System, the initial reengineering efforts for building commonprocesses were undertaken by three separate groups in finance, logistics, and customer service. The ITgroup did not have a significant involvement in these efforts; IT was simply expected to respond to thenew application development needs of the separate reengineering task forces. This “order-taking”mentality of the IT group in the past meant that commonalities across the reengineering initiatives werebeing overlooked. The new CIO realized that the current mode of operation would lead to “silo”solutions rather than the common global processes that the firm sought in its transformation thrusts.

IT infrastructure gaps were a source of dissatisfaction with the performance of the IT function at Bio-Leverage. Traditionally, with the emphasis on divisional autonomy, about 80% of the communicationswere within an employee’s workgroup. Therefore, IT infrastructure standards were decentralized downto the individual business units. As a result, e-mail packages had proliferated and made it difficult fordifferent business units to “talk to each other.” As the firm embarked on a transformation thrust ofknowledge leveraging, it was imperative that the IT function build a seamless IT infrastructure thatallowed global communications and information exchange.

Both Tele-Nimble and Pub-Enabler realized that their IT staff primarily had skills that were inadequatefor rapid delivery of strategic applications. At Tele-Nimble, a history of legacy applications enhancementmeant that the IT staff did not possess expertise with the emerging IT skills and methodologies. Further,its workforce had developed an “entitlement” mentality––they assumed lifetime employment privilegesand looked for their superiors to path their careers and identify their training and development needs.


Since entrepreneurship was likely to be critical in the emerging business environments, there was arealization that the IT function needed to develop an entrepreneurial workforce: individual employeeswould chart their training and development, display initiative in developing innovative ideas, andembrace the values of customer orientation and speed of response. Similarly, at Pub-Enabler, many ofthe IT employees had been doing the same jobs a long time and had programming expertise only in“old” tools––for example, Adabase. Most of the corporate IT workforce was primarily providing legacysupport.

Desire for New IT Capabilities

Whether or not there was dissatisfaction with the current performance of the IT function, senior ITexecutives at all six firms realized that they needed to nurture new IT capabilities in order to effect thenew heightened IT role. These capabilities included not only more flexible IT infrastructures, but also anexpanded IT talent base that had a new teaming/partnering orientation.

Strategic thinking in the conceptualization of IT applications was one of the significant capabilitiessought within the IT function. These firms (particularly Tran-Integrate, Diverse-Synergy, and Tele-Nimble) realized that the high payoff applications needed to focus on the customers’ needs and tofacilitate the delivery of solutions to those needs. Both Tran-Integrate and Diverse-Synergy expected its IT function to be more proactive in enabling customer solutions through collaboration among thedifferent business units. The IT staff were also expected to be able to interact with the external customersin identifying strategic applications as well as stimulate the business managers with ideas about winningIT applications. Overall, there was a desire to see a more active role for the IT function in identifyingvalue-adding IT applications.

Material-System recognized the need for a flexible IT infrastructure that would permit the developmentof common global processes. In particular, the CIO realized the need to transition to an open-systemssolution based on UNIX, relational databases, and user-friendly desktop technologies. Further, the firmalso recognized the desirability of creating high performance project teams that could apply state-of-the-art technologies, methodologies, and skills in developing common global processes. Such anenvironment would also create greater partnership with the business unit managers in conceptualizingstrategic IT applications. Additionally, high performance project teams would be motivated by a newcore set of values: invention, fast-tracking, partnership, project mentality of deadlines and deliverables,everyone contributes, and attitude wins. These values would be important for encouraging IT employeesto challenge the status quo, initiate bold changes, learn, work fast, and be a team player. The “attitudewins” value also sets up an environment in which an individual was free to fail: “integrity, pride, andenthusiasm count.”

Finally, both Tele-Nimble and Pub-Enabler realized that they needed to expand their repertoire of ITskills: technical skills covering emerging technologies such as client-server, networking, object-oriented,and databases, as well as project management and account management skills. These firms in particularrealized that the soft skills associated with managing customer interactions and delivery of projects on atight cycle time could not be neglected and needed considerable attention if their firms were to succeedin developing competitive agility.


Strategies for IT Transformation

What are the key strategic choices for repositioning the IT function? How should CIOs transform the ITfunction to take on its new role as an enabler of the firm’s business transformation, overcome its currentperformance gaps, and develop the desired IT capabilities?

At the beginning of this chapter, we introduced five IT transformation vectors that emerged from ouranalysis. With an understanding of the context for which these new IT capabilities were sought, we are now ready to discuss how these five vectors were used by our case firms to transform their ITorganizations.

Our objective for this chapter is to establish an understanding of the five-vector framework. We will thenuse this framework to describe in detail the IT repositioning strategies for process integration, knowl-edge leveraging, and competitive agility in Chapters 5 to 7.

For a summary of our findings for the first four vectors, see Table 3.2.

Table 3.2: Evidence of Four IT Transformation Vectors

Diverse- Material-Vectors Tran-Integrate Synergy System Bio-Leverage Pub-Enabler Tele-Nimble

Infusion of new New CIO New CIO New CIO New CIOIT management New senior IT Division New senior IT talent executives to managers with executives to lead

develop key successful KM divisional IT andcapabilities pilot transferred key corporate IT

to corporate IT units

Governance CIO’s member- Recentralization Recentralization Recentralization Recentralization Recentralization redesign ship on the through matrix of IT units through new through new of IT units

corporate reporting First “true” CIO corporate IT corporate IT executive relationships of units and matrix units and matrix committee divisional IT reporting of reporting of

heads eariler decentral- decentralized

CIO’s elevation ized IT heads IT heads

to membership First “real” CIO CIO’s member-on corporate ship on key executive team executive

committees

Pacing Concurrent Concurrent Dynamic Dynamic Dynamic Anticipatorybalancing balancing balancing

Sourcing Outsourcing of Outsourcing of Reduced legacy system legacy system dependence on operations and maintenance and new use of maintenance contractors for

skill infusion


Vector 1: Infusion of New IT Management Talent

Hiring of new senior IT executives, including a CIO,in order to guide the IT transformation initiative

Four of the firms initiated their IT transformation efforts with the infusion of new IT executive talent. All four of these firms brought in a new CIO from the outside; three of these CIOs also imported keysenior IT managers from the outside or a business division. For instance, at Material-System, a “string of people with business expertise” had been at the helm of the IT organization. The firm realized that itneeded a CIO with significant IT management expertise if it expected its IT organization to overcome its existing performance gaps and build the IT capabilities commensurate with its new role.

At both Tele-Nimble and Material-System, key direct reports to the new CIOs were also brought in from the outside to help develop new IT capabilities. The CIO at Material-System needed new talent for program management and vendor alliance management. The CIO at Tele-Nimble hired senior ITexecutives from other firms to import reengineering experience and a vision for transforming theworkforce. At Bio-Leverage, managers with a successful knowledge management initiative weretransfered to corporate IT in order to apply what they had learned to an initiative at the enterprise level.

Vector 2: Governance Redesign

Redesign of the allocation of authority for significant IT management decisionsamong corporate IT and divisional IT managers, including matrixed designs

We define IT governance design as the locus of decision rights for IT activities. The two most commongovernance designs for today’s IT organizations are primarily centralized designs and federal designs. Thedistinguishing feature between centralized and federal designs is that under federal designs, business unitshave primary decision rights for systems development and related activities. We use the term recentraliza-tion for a change in governance in which decision rights previously decentralized to business units (such asin a federal design) are either partially or totally reassigned to a corporate IT organization.

Five of the six firms initiated some change to their prevailing governance arrangements, and all fiveinitiated moves toward recentralizing IT governance. At these firms, significant IT managementresponsibilities had been located within business units, with the divisional IT heads often reportingdirectly to their business units heads. These CIOs recognized that while decentralization had providedbenefits in the form of greater partnership with business leaders, the redefined roles of the IT functionwould require a tighter-knit coordination of initiatives across the enterprise. Recentralization placed thedivisional IT heads in a direct reporting relationship with the CIO.

At three of these firms, a matrix reporting structure was introduced. This arrangement preserved thereporting relationship of the divisional IT heads to their business unit heads, while adding another (dual) reporting relationship to the CIO. In addition, two of these firms, Bio-Leverage and Pub-Enabler,introduced new senior corporate IT positions to consolidate some targeted IT functions. For instance, at

TalentInfusion

Governance


Bio-Leverage, the CIO had four new direct reports within the corporate IT function: (1) major corporatesystems development efforts, (2) IT architecture, (3) IT policies, practices, and people development, and(4) IT strategic planning. Similarly, at Pub-Enabler, the CIO’s new direct reports included corporate ITexecutives responsible for IT deployment, technical architecture, outsourcing management, and programmanagement.

Another element of governance redesign involved the nature of the CIO’s reporting relationship and theCIO’s inclusion as a formal member of the corporate executive committee. At Tran-Integrate, the CIOwas a formal member of the corporate executive committee and reported directly to the CEO of the firm.Similarly, at Diverse-Synergy, the CIO was formally included as a member of the corporate executivecommittee, while reporting to the vice-chair of the firm. At Pub-Enabler, unlike his predecessors, thenew CIO became a member of the corporate operating committee and the strategic planning committee.These memberships ensured face-to-face contact with the firm’s top managers at least once a week.Further, the CIO also became a member of the corporate acquisition committee; membership in thisgroup was considered critical for developing the organizational capability to merge units more quickly.Finally, the new CIOs at both Bio-Leverage and Material-System were regarded as the firm’s “first”CIOs due to their significant IT management expertise and officer titles.

Vector 3: Pacing

Speed at which the IT transformation should be driven relative to the business transformation thrust

Pacing refers to the speed at which the IT transformation should be driven relative to the businesstransformation thrust. The conventional wisdom for achieving IT performance objectives is that the ITfunction must be strategically aligned with the business.1 The traditional notion of strategic alignmentimplies that activities of the IT organization will lag behind business transformation initiatives since theultimate goal of the IT function is to support the business. Yet recent critics have pointed out that thisalignment logic is misleading when the role of the IT function is to help shape or enable new businesscapabilities.2 Under some circumstances, it might therefore be more appropriate for the IT function to“lead” the organizational transformation.

We uncovered three different pacing strategies in our study. These strategies are described below andsummarized in Table 3.3.

1. Anticipatory pacing describes an approach in which the pace of IT transformation is faster and moreaggressive than the pace of the business transformation thrust. The underlying logic is that the ITfunction must move rapidly to fix existing performance gaps and develop new IT capabilities inorder for the business to develop its desired new capabilities. Anticipatory pacing requires a CIOwho can envision the future state of the business, identify the appropriate IT role and capabilities,sell this vision of the IT organization, and initiate organizational design actions to transform the IT organization. This strategy is appropriate when the firm recognizes the necessity for thetransformation but when the specific timing of the business transformation is an unknown.

Pacing


For instance, Tele-Nimble anticipated the imperative to become more agile due to significant changes toits competitive landscape, but some of the fundamental industry changes were yet to occur. However, theCIO had developed an overall vision of the new IT capabilities that would facilitate agility, so that the ITfunction would be ready to deliver the expected enabling role in the firm. A new direct report to the CIOgot buy-in to an organization design experiment from the other IT leaders, and then embarked onbuilding a rapid application delivery group in advance of the rest of the business.

2. Concurrent pacing describes an approach consistent with the traditional alignment logic. Here, thetransformation of the IT function occurs in synchronization with the business transformation. CIOsrecognize the changes that are necessary to the IT function, yet they do not wish to disrupt thecurrent state of performance of the IT function or its contributions to the business by driving the ITtransformation at a pace faster than the business transformation. Such a strategy is appropriate whenIT performance gaps are not a concern; instead, the primary emphasis is on responding to thebusiness transformation imperatives.

Both Tran-Integrate and Diverse-Synergy had concurrent pacing strategies. This strategy was appropriatein these firms because the IT function was effectively contributing to the prevailing business; the CIOswished to preserve this success even as the IT function underwent transformation. The most effectiveway to preserve the current success and facilitate the business transformation would be to synchronizethe pace of IT transformation with the pace of business transformation.

3. Dynamic balancing describes an approach in which the IT transformation is driven at a pace thatalternates between leading the business transformation and being in synchronization with the

Table 3.3: Pacing Strategies for IT Transformations

Anticipatory Concurrent Dynamic Balancing

Description IT transformation is IT transformation is The pace of IT trans-driven at a pace faster driven at a pace in formation alternates and more aggressive synchronization with between being faster than the pace of the the business transfor- and more aggressive business transformation; mation thrust. than the business the IT function is being transformation positioned to deliver (anticipatory) and being capabilities for an in synchronization with anticipated business the business transfor-future. mation (concurrent).

Primary Imperatives Dissatisfaction with Heightened role of the Heightened role of the current IT performance IT function IT function

Desire for new IT Dissatisfaction with capabilities current IT performance

Desire for new IT capabilities


business transformation. This strategy is appropriate when CIOs are attempting to balance twoconcerns: on the one hand, there are significant IT performance gaps and the IT function mustdevelop new capabilities. At the same time, the business itself is in a state of transformation and theIT transformation must be attuned to the evolutionary trajectory of the business transformationthrusts. Such a strategy is appropriate when the IT function needs to significantly upgrade itscapabilities and credibility in order to be a valued partner in the business transformation. At the sametime, since the business transformation itself is underway, this strategy enables synchronization withthe firm’s repositioning moves.

For instance, at Material-System, the IT function had significant performance gaps and needed tourgently develop new IT capabilities in order to facilitate process integration. At the same time, the CIOrecognized the need to keep the IT function in synchronization with the pace of business transformationsince the implementation of common, global processes was likely to encounter significant challenges.Thus, the dynamic balancing strategy would allow the building of new IT capabilities while alsopartnering with the business community in pursuit of the overall business transformation goals.

Vector 4: Sourcing

Decisions about the sourcing of key IT assets, applications,or skills: internally sourced or outsourced

Sourcing refers to strategies for locating IT capital and human assets, work processes, and IT skillresourcing either internally or with external partners. CIOs utilized outsourcing as another key vector inenhancing the capabilities of the IT function.3

At Tele-Nimble the IT organization had in the past relied on outside contractors when new projectsrequired new IT skillsets. As part of its IT transformation, contractors began to be used in new ways: todiffuse new IT expertise among the internal workforce.

At both Material-System and Pub-Enabler, the CIOs realized that the excessive burden of legacyapplications development and maintenance would not only continue to contribute to IT performancedeficiencies but would also impede the development of new IT capabilities. At Material-System, about75% of the IT budget was being consumed with legacy systems support rather than new applicationsdevelopment. The new CIO instituted outsourcing in order to reduce the costs of legacy applicationssupport on mainframe platforms and redirect the savings toward investments in ERP systems using aclient-server platform. Outsourcing also enabled the accomplishment of another goal for the ITorganization: it helped the IT function focus on the future rather than the past. Outsourcing sent a clearsignal to the organization as a whole that the old systems were “going to go away.” This enabled aconcerted focus on the process integration effort at Material-System. At Pub-Enabler, the outsourcing oflegacy applications work enabled the IT function to focus its attention on the development of new skillsand to collaborate more effectively with business clients in order to achieve competitive agility goals.Both these firms outsourced their legacy applications work in order to “fence off” problematic issuesthat could adversely affect their transformation initiatives.

Sourcing


Vector 5: Lateral Coordination Capability

Introduction of coordination mechanisms to link business and IT management, as well as corporate and dispersed IT management, to

facilitate cross-unit work and decision making

The term lateral coordination capability describes the ability to link strategic stakeholders for cross-unitpartnering. A lateral coordination capability for an IT function involves linking not only key businessand IT managers, but also corporate IT and IT managers dispersed throughout the enterprise. Thebuilding blocks for a lateral coordination capability for IT activities are formal and informalcoordination mechanisms, such as roles, groups, processes, and human resource practices.

The heightened IT role as a strategic differentiator requires strong collaboration, and each of the sixfirms made significant investments in the building of a new lateral coordination capability. Sincedescriptions of how to build a lateral coordination capability for the IT function are not well understood,we devote the next chapter to describing a framework of five categories of mechanisms. We have foundthis framework to be useful for describing and benchmarking this type of organization design capabilityfor both transformational and evolutionary IT contexts.

Endnotes

1 J. Henderson and N. Venkatraman, Strategic alignment: A framework for strategic informationtechnology management, in T. Kochan and M. Useem (Eds.), Transforming Organizations, OxfordUniversity Press, New York, 1992: 97-117.

2 J. M. Burn, A professional balancing act—Walking the tightrope of strategic alignment, in C. Sauerand P. Yetton (Eds.), Steps to the Future: Fresh Thinking on the Dynamics of IT-Based OrganizationalTransformation, Jossey-Bass, San Francisco, 1996: 55–80.

3 A. DiRomualdo and V. Gurbaxani, Strategic intent for IT outsourcing, Sloan Management Review39(4), Summer 1998: 67–80.

LateralCoordination

Capability

CHAPTER 4

LATERAL COORDINATION CAPABILITY

The heightened IT role as a strategic differentiator requires strong collaboration among business and ITleaders.1 The term lateral coordination capability refers to the ability to quickly link across managersfrom different organizational areas in order to effectively communicate and problem-solve with otherdecision makers; it enables the pooling of expertise and influence.2 Although the need for joint businessand IT decision making has been recognized for some time, 3 today’s hypercompetitive environmentsmake this a more critical capability. Further, as firms have located their IT leaders in individual businessunits and divisions in order to promote greater partnering with their business clients, pressures increasefor fostering collaboration across the company’s dispersed IT workforce.

The sense-and-respond paradigm requires that organizations not be constrained by existing physicalboundaries or structures. Therefore, the development of a lateral coordination capability is a criticalelement in the repositioning and transformation of the IT function. A lateral capability is built throughcoordination mechanisms that bind together stakeholders via formal roles, groups, or processes, or viaopportunities for voluntary informal exchanges.4 These coordination mechanisms create lateral linkagesacross individuals or units to facilitate information sharing, to develop a common language and sharedunderstanding, and to nurture the trust requisite for influencing.

What types of coordination mechanisms are being used to build a lateral capability for the IT function?This chapter describes our taxonomy of five different types of coordination mechanisms being used byCIOs to develop a lateral coordination capability for linking both business and IT leaders, as well asdispersed IT experts and leaders. Our findings are drawn from interviews with more than 40 senior ITexecutives in mostly Fortune 500 companies that were noted for their IT management and use in thetrade press and by peer reputation.5

Taxonomy of Five Coordination Mechanisms

Five different categories of coordination mechanisms are important for building a lateral organizationalcapability in contemporary business firms.6 Table 4.1 provides a brief generic description of each one ofthese categories of mechanisms. In Figure 4.1 we depict these categories through an iceberg metaphor toportray their relative roles in the development of the lateral organizational capability. Three of thesemechanisms, namely, integrator roles, groups, and processes, are the formal, more visible mechanisms forcreating cross-unit linkages. These mechanisms usually surface first in conversations with senior executivesbecause they require significant investments of managerial time and effort, and are highly visible. Twotypes of mechanisms appear “below the waterline”: informal relationship-building and human resourcepractices. They are used in two important ways. First, they supplement the effectiveness of formalmechanisms. Second, they can be used as substitutes for formal mechanisms, particularly when prevailingorganizational conditions preclude the introduction or use of a more formal mechanism; they may even beused as “paving the way” for the introduction of a more formal mechanism in the future.

31


Table 4.1: Coordination Mechanisms for Lateral Coordination Capability

Coordination Mechanism Description

Integrator roles An individual who is formally assigned the responsibility forlinking across units

Groups Formally established councils or teams given specific linkingresponsibilities

Processes Formalized routines used to link stakeholders in different unitsand provide decisional guidance

Informal relationship-building Intentional actions or practices that link managers from two ormore organizational units to facilitate voluntary interactions forcross-unit problem solving

Human resource practices Intentional human resource management actions to facilitate voluntary cross-unit problem solving and interactions

Figure 4.1: Iceberg Metaphor for Formal and Informal Mechanisms

Integrator Roles

Groups

Processes

InformalRelationship-building

HR practices

In the following paragraphs we describe how specific mechanisms in each category have been used byCIOs to develop a lateral coordination capability, including some of the salient design challenges thatemerged from our own research.

Integrator RolesAn integrator role is an individual formally assigned with the responsibility for linking activitiesbetween the IT organization and one or more business units.7 This individual is the primary point ofcontact for the business unit, accountable for sensing and responding to business management’s needs.

Chapter 4 Lateral Coordination Capability 33

Individuals who play this role are also in a position to informally educate and “seed” business managerswith innovative ideas for IT use, as well as to sensitize corporate IT managers about strategic IT issues.

Five types of integrator roles emerged in our research (see Table 4.2). Three of these are found inorganizations that have centralized governance structures and locate the integrator as a corporate ITmanager. The most common integrator of this kind has a single-point-of-contact role that is typicallyfound in consulting organizations: an account manager who reports to corporate IT (typically the CIO)but has no direct responsibilities for a systems development staff and is usually physically co-locatedwith one or more business clients. Few account managers have any formal reporting relationship to thebusiness unit, although they are typically part of business management team meetings and are expectedto be knowledgeable about their business client’s strategy and major processes.

Table 4.2: Integrator Roles for Lateral Coordination

Type of Integrator Role Description

Account manager Member of the corporate IT staff, often reporting to the CIO orthe CIO’s direct report

Often physically co-located in the business unit, but carried oncorporate IT payroll

No reporting relationships with business unit management, butactively involved in key IT use decisions in the business unit

Process manager Account manager used for linking IT with business process owners in process-based organizations

Enhanced systems director Account manager with additional responsibility for managing agroup of systems development staff

Client liaisons IT-literate business managers responsible for coordinating initia-tives with corporate IS; they are located in the business unitswithout any reporting relationship with corporate IS

Divisional information officer Senior IT executive with a solid reporting relationship to thebusiness unit or divisional head and, very often, a solid or dotted-line reporting relationship with the CIO

Most prevalent in organizations with a federal governance design

Manages the applications development and IT operations of thebusiness unit

Member of the senior management team in the business unit

Two other variations of the integrator role were also found within centralized IT contexts. The processmanager role is similar to an account manager, except that this role links with business process ownersin process-based organizations with major reengineering initiatives underway or responsibilities forongoing integrated IT solutions for multiple business clients. Another integrator role is referred to as“enhanced” systems director because these directors played the role of account manager and managedan IT unit (usually systems development staff).


The fourth type of integrator role was also found within centralized IT contexts, but the role was playednot by IT managers but by business managers. Labeled here as client liaisons, these integrators weretypically IT-literate business managers responsible for coordinating initiatives with corporate IS, such asserving as the “owner” of a key business application. These integrator role positions were typicallyimplemented without any dotted-line reporting relationship with corporate IS.

Another popular integrator role was found to be most prevalent in firms with a federal governance mode:the divisional information officer (DIO). These individuals were senior IT managers with a solid-linereporting relationship to a divisional business head. They were a recognized member of the division’smanagement team, and in some cases, they were in officer-level positions within their business unit.These senior IT managers were typically responsible for major applications development staffs and alsomay have had significant IT operations responsibilities for a business unit, or business sector, in additionto their integrator role responsibilities. In addition, more than half of the examples had instituted formalreporting relationships to the corporate CIO––either matrix reporting (solid-line report to corporate IT aswell as the business) or a dotted-line DIO report to corporate IS.

Design Challenges

CIOs reported two design solutions to help integrators achieve the “right balance” of allegiance betweenthe business unit and corporate IS. The first solution was to implement a dual reporting structure. Asecond solution was to design performance appraisal and incentive systems that included input fromboth IT and business management. For those integrators with dual reporting relationships, both IT andbusiness input was already ensured; for those integrators without dual reporting relationships, multiunitinput provided an institutional incentive to achieve an appropriately balanced allegiance without aformal dual report.

Another significant challenge was related to the combination of skills necessary for effective per-formance in the integrator role positions. CIOs mentioned three types of skills as being important:(1) strategic thinking––envisioning opportunities for strategic IT use; (2) negotiation and collaborationskills––including influencing people through interpersonal interactions; and (3) IT service brokeringskills––diagnosing client problems in order to identify appropriate IT service experts to resolve them.The scarcity of individuals that possess skills in all three of these areas was also mentioned, andmentoring strategies were among the solutions.

GroupsGroup mechanisms (see Table 4.3) are formally established councils or teams of business and IT stake-holders, or central and dispersed IT stakeholders, that are given specific linking or oversight responsi-bilities for IS-related activities. In contrast to integrator role mechanisms that vest specific individualswith a coordination responsibility and authority, group mechanisms vest multiple individuals withcoordination responsibilities. Further, while the coordination activities of integrator roles are bilateral(the individual integrator and specific organizational units), groups typically have multilateralresponsibilities (i.e., coordination across more than two organizational units).

We identified three group mechanisms to link senior business managers with one or more key IT leaders.The typical membership of an executive council, the most common type of group mechanism, includesthe chief operating officer and/or the chief financial officer, and senior business executives from thedominant lines of business, along with the CIO. Executive councils deal with enterprise-wide IT issues


such as capital appropriation for large IT projects, IT policy endorsements, and articulations of IT visionand business-IT strategy. They also serve as educational and communication forums on IT-related issues.Executive councils were primarily observed in firms with centralized governance modes.

Another type of business council typically found in centralized governance modes was the use of aproject steering team to oversee a process or one or more large application projects. The use of such asteering team ensured the ongoing involvement of key business executives in major initiatives. The thirdtype, divisional steering council, was found in large multidivisional companies, usually with federalgovernance modes. These are intradivisional councils comprised of the divisional senior businessexecutives and the senior IS leader for that division. In federal contexts, council members are seniorbusiness managers of the division and the divisional information officers.

Two types of group mechanisms to link across IT stakeholders were also frequently mentioned assignificant coordination mechanisms: councils of IT managers and IT standing teams. In two-thirds ofthe organizations with a federal governance mode, an IT management council was used to formally linkdivisional IT heads with the CIO and other corporate IT managers who had IT strategy, infrastructure,

Table 4.3: Group Mechanisms for Lateral Coordination

Group Mechanism Description

Executive council Senior business executives, perhaps including the CEO, COO,CFO, along with the CIO

Addresses IT strategy and enterprise-wide IT issues

Prevalent under centralized governance

Project steering team Key business and IT executives responsible for a project orprocess

Divisional steering team Senior business executives in a business unit or division and thedivisional information officer

Prevalent under federal governance

IT management council Membership of the CIO and other senior IT executives in the cor-porate IT or business units

Prevalent under federal governance

Directs attention toward the “IT business of the business”

IT standing teams Teams of IT professionals or managers, often with specializedskillsets

Teams of experts with specialized IT knowledge that serve as“gurus” for internal IT consulting (expertise centers)

Groups formed to facilitate the development, retention, and motivation of IT professionals with specific IT skillsets requiredby the business (competency centers), under group leaders thatserve as mentors

Task forces Ad hoc groups of managers created to address specific tasks thatrequire cross-unit coordination for a limited period of time


and corporate (or enterprise-wide) IT application responsibilities. More specifically, these councils directattention to the “IT business” of the organization and serve as a coordination forum to:

1. Advise (counsel) the CIO on strategic IT organization issues2. Surface potential impacts of corporate IT policies3. Share IT-related best practices, solutions, and problems4. Nurture and grow IT human resources

IT standing teams typically are groups of IT professionals formed to address specific IT issues on anongoing basis, such as IT standards issues or the identification of IT skill gaps. One common examplewas an IT architecture group of IT experts to develop recommendations on high-level infrastructureissues. Another form of IT standing teams we observed was IT expertise centers. The “gurus” whocomprised these centers of expertise were selected for their IT knowledge leadership; they wererewarded for their expertise as internal technical consultants.

A less obvious type of IT standing team, IT competency centers, served as “virtual homerooms” for ITprofessionals in order to facilitate training and development. The members of these competency centerswere trained in valued IT specialties, such as object-oriented development, client-server technologies, orproject management. As the name suggests, IT competency centers facilitate the grooming and nurturingof an IT workforce as well as the leveraging of specific skillsets across different applications projects.The heads of these centers typically act as mentors and coaches; they are responsible for the counselingand career development of the IT personnel assigned to their competency centers.

Similar to IT standing teams, task forces are ad hoc groups of managers created to address a specific taskthat requires cross-unit coordination for a limited period of time, such as problem solving related to anew technology, enterprise-wide applications of technologies, or enhancement of specific processes orapplications.8

Design Challenges

Several challenges known to be associated with group mechanism designs include identifying appro-priate representation and ensuring the communication of group decisions to the members’ constituencies.Some of those we interviewed also mentioned the need to monitor the relevance of a given groupmechanism over time, especially in light of other structural changes within the business.

ProcessesProcesses are formalized routines used to link stakeholders in different units. Three types of IT processeswere highlighted: strategic planning (including IT capital investments), chargeback and service levelagreements (SLAs), and software acquisition and deployment processes. In centralized governancemodes, corporate IT typically initiated the planning process with an assessment of strategic thrusts at theenterprise level. In decentralized governance modes, corporate IT typically played a review role in orderto identify overlapping initiatives. Methodologies for evaluating packaged software were mentioned,along with methodologies for delivering in-house developed applications.

Design Challenges

Several companies reported a concern with ensuring that a given process continued to direct attention tocross-unit coordination and did not degenerate into a “ritual.” A second challenge was designingfeedback to those responsible for overseeing a process, including formal postreviews.


Informal Relationship-BuildingInformal relationship-building mechanisms are intentional activities or practices that link managers fromtwo or more organizational units to facilitate voluntary interactions for cross-unit problem solving. Weidentified three different types: one-on-one management contacts, periodic briefings and conferences,and physical co-location.

One-on-one contacts are scheduled and unscheduled interactions initiated by senior IT executives, mostcommonly with business peers or top managers but also with IT heads reporting to business managers.CIOs used one-on-one contacts to gain senior executive buy-in to key IT initiatives as well as to increaseIT-related knowledge and awareness with the CIO acting as a “personal coach.” Some CIOs used thismechanism as a substitute for an executive council when the prevailing organizational culture in theircompanies precluded the use of group mechanisms to link with high-level business managers.

Periodic briefings and conferences entail structured information sharing but are also occasions forfacilitating informal networking. This type of mechanism may be more important under governancedesigns that are not highly centralized for bringing together dispersed members of an IT community.

A co-location mechanism is heavily used in companies with centralized governance. Close physicalproximity can be used to promote behaviors associated with formal reporting relationships––that is,some CIOs reported that their co-located individuals acted as if they had a formal accountability tobusiness management, which was the desired behavior.

Design Challenges

A key design challenge is determining when to continue to rely on these informal mechanisms versusinstitute a formal group, role, or process mechanism. The effectiveness of this type of mechanism isdependent on the willingness of the participants to engage in voluntary cross-unit interactions, soorganizational cultures need to be taken into account.

Human Resource Practices We defined human resource practices as actions related to the human resource management of IT per-sonnel that are also intentional activities or practices to facilitate voluntary cross-unit problem solvingacross two or more individuals reporting to different organizational units. Three types of specificpractices were identified for this mechanism category.

First, a variety of training approaches was mentioned, especially in conjunction with approaches to“growing” IT managers’ soft skills for integrator role positions.

Second, redesigned appraisal systems and special rewards for cross-unit collaboration were alsoreported. For example, one company had established discretionary rewards to recognize contributions toa unit for which the employee had no direct reporting relationship.

Third, we also found examples of temporary job rotations for IT personnel––defined as short assignments,typically within a business division, to increase an individual’s business knowledge or sensitivity to specialunit needs. For example, a CIO with centralized governance reported temporarily assigning IT personnelto do “real business work” for a few weeks in order to enhance their business knowledge and learn thedepartment’s “hot buttons.” A CIO with federal IT governance reported assigning corporate IT personnel to work for six months in IT units within manufacturing plants in order to increase their understandingabout differences in local versus enterprise-wide IT objectives and priorities.


Design Challenges

The primary challenge in implementing human resource practices as coordination mechanisms is thatthe implementation of such practices typically requires either formal approval by the corporate HRdepartment or an executive-level agreement about the IT department’s freedom to “work around”institutionalized policies and procedures. Some CIOs reported leveraging corporate HR buy-in to theirimplementation of a new HR mechanism as a pilot initiative for the overall organization.

Lateral Coordination Capability as an IT Transformation Vector

In Chapter 3 we described a firm’s lateral coordination capability for the IT function as one of five ITtransformation strategy vectors. Table 4.4 illustrates the portfolios of coordination mechanisms that thesix firms in our study created as part of their IT transformation strategy. Details about how and whythese mechanisms were implemented are provided in Chapters 5 to 7, in which we describe how each ofthese firms repositioned their IT organizations to enable their business transformations.

Table 4.4: Portfolios of Coordination Mechanisms for New Lateral Coordination Capability at Six Case Firms

Coordination Diverse- Material-Mechanisms Tran-Integrate Synergy System Bio-Leverage Pub-Enabler Tele-Nimble

Integrator roles Divisional infor- Divisional infor- Account Enhanced Integrator roles Account mation officers mation officers managers systems director for program managers

Client liaisons Compentency manager, out- Competency center managers sourcing vendor center

Integrator roles Client liaisons managers

for program manager, out-sourcing vendor

Groups Executive council Executive council Executive council IT management IT management IT management

Divisional IT standing teams IT management council council council

steering teams (expertise centers) council IT standing teams IT standing teams IT standing teams

IT standing teams Task forces (competency (competency

(competency centers) centers)

centers)

Processes IT strategic IT strategic New processes IT strategic New processes planning process planning process for packaged planning process to develop and

software devel- New processes to allocate IT opment and build knowledge resourcesrelease asset

Informal Physical Periodic briefings Periodic briefingsrelationship- co-location and conferencesbuilding Periodic briefings One-on-one

contacts

Human resource Redesigned Redesigned practices practices, includ- practices, includ-

ing appraisal ing appraisal systems and systems special rewards


Endnotes

1 J. C. Henderson, Plugging into strategic partnerships: The critical IT connection, Sloan ManagementReview, Spring 1990: 7–18; F. J. Mata, W. L. Fuerst, and J. B. Barney, Information technology andsustained competitive advantage: A resource-based analysis, MIS Quarterly, 19 (4), December 1995:487–506; J. W. Ross, C. M. Beath, and D. L. Goodhue, Develop long-term competitiveness throughIT assets, Sloan Management Review 38 (1), 1996: 31–42.

2 J. R. Galbraith, Competing with Flexible Lateral Organizations, Addison-Wesley PublishingCompany, Reading, Mass., 1993.

3 R. W. Zmud, Building relationships throughout the corporate entity, in J. Elam, M. Ginzberg, P. Keen,and R. W. Zmud (Eds.), Transforming the IT Organization: The Mission, the Framework, theTransition, Washington, D.C., ICIT Press, 1988.

4 S. A. Mohrman, Integrating roles and structure in the lateral organization, in J. R. Galbraith, E. E.Lawler, and Associates (Eds.), Organizing for the Future: The New Logic for Managing ComplexOrganizations, Jossey Bass, San Francisco, 1993: 109–140.

5 A complete description of the methodology, including the identification of some of the organizationsthat participated, can be found in Carol V. Brown and V. Sambamurthy, Guidebook on ITCoordination Mechanisms, SIM International, Chicago, 1996.

6 IT-based systems can also be viewed as a sixth mechanism category. For this study, we have focusedon non-IT mechanisms.

7 By this definition, the CIO role is also an integrator role. However, since our study was from theperspective of the CIO as the architect of the lateral capability, the CIO role itself is not included here(see also the vector 1 discussion in Chapter 3).

8 Task forces for specific systems development or acquisition projects (i.e., systems project teams) wereconsidered outside the scope of this study. Instead, the task force classification was used here for adhoc groups typically chartered by an executive council to develop recommendations rather thandevelop applications.

CHAPTER 5

REPOSITIONING IT ORGANIZATIONS FOR PROCESS INTEGRATION

40

Process IntegrationBuilding sense-and-respond capabilities through global and enterprise-wide

common processes that bind together organizational units

This chapter focuses on the repositioning of IT to enable business transformations in which the primarystrategic thrust is process integration: business transformations aimed at building sense-and-respondcapabilities through enterprise-wide processes that facilitate more intimate relationships with customersand the rapid delivery of solutions to customers’ needs.

Three of our case studies were pursuing process integration thrusts: Tran-Integrate, Diverse-Synergy, andMaterial-System. We begin by discussing how these firms used the five IT transformation vectorspresented in Chapter 3. Then we illustrate the transformation journey at Material-System in some detailin order to highlight some specific tactics, including a totally new IT organization structure, as well assome of the challenges of this type of IT repositioning. The chapter closes with a short set of executiveguidelines for IT transformations to enable process integration, based on the lessons learned from thesethree firms.

IT Transformation Strategies

Table 5.1 summarizes the IT transformation strategies for enabling process integration that we discuss indetail below. Two of our case studies, Tran-Integrate and Diverse-Synergy, used only three of thetransformation vectors––governance redesign, pacing, and lateral organization capability––to repositiontheir IT organizations. Neither of these firms had IT performance gaps at the time of the transformation.An IT performance gap existed at Material-System and this firm managed its transformation along allfive vectors, including the infusion of new talent and the outsourcing of legacy systems.

In the following sections we describe in detail the use of all five IT transformation vectors forrepositioning the IT function to enable process integration.

Vector 1: Infusion of New IT Management TalentThe existing IT management at Tran-Integrate and Diverse-Synergy possessed a good reputation andcredibility because of their partnerships with their senior business executives and a track record of ITinnovation success. In fact, the CIOs of both of these companies were also respected by their peers forbeing innovative and successful leaders. For example, the CIO at Tran-Integrate was a formal member ofthe top management team and had established relationships with senior business executives that had

TalentInfusion

Chapter 5 Repositioning IT Organizations for Process Integration 41

facilitated IT alignment in the past. Not unexpectedly, the infusion of new IT management talent was notpart of these firms’ IT transformation strategies.

In contrast, at Material-System, a “string of businesspeople” had been at the helm of the IT organization.The last of these, a career manufacturing executive, assumed the leadership of the IT function in 1993.However, as the firm’s reengineering teams identified significant gaps between the systems needed fornew global processes and the current IT organization’s track record, new IT leadership with significantIT management expertise was sought from outside the firm to both enable the business transformationand reposition the IT organization. The new CIO held both strong general management and ITmanagement expertise as well as the leadership skills to forge a new kind of IT organization.

Table 5.1: IT Transformation Strategies for Enabling Process Integration

Transformation Vectors Tran-Integrate Diverse-Synergy Material-System

Infusion of new IT management New CIOtalent New senior IT executives for

program management, external alliance management

Governance redesign CIO membership in top CIO’s elevation to membership Recentralization of IT units priormanagement team on the corporate executive team to hiring of first “true” CIO

Matrix reporting for divisional IT heads

Pacing Concurrent Concurrent Dynamic balancing

Sourcing Outsourcing of legacy systems (operations and maintenance)

Lateral coordination capabilityIntegrator roles Divisional information officers Market information officers Business process leaders

Client liaisons with matrix reporting to CIO Account managers

Capability leaders

Groups Executive council Executive council Executive council

Divisional steering committees Expertise centers IT management councilenterprise-wide Competency centers

(IT capability centers)

Processes IT strategic planning process IT strategic planning process New standard processes for business process innovation,software package releases, and other new IT capabilities

Informal relationship-building Physical co-location of business process experts

IT community briefings

Human resource practices Redesigned human resource practices including appraisal process, short-term incentive plans


In turn, as part of the IT transformation itself, the new CIO also recognized that new IT managementtalent needed to be brought in from the outside, not just developed from within. Two key directors werehired, both with earlier ties to the current CIO: a program manager and a manager of external alliances.

Vector 2: Governance RedesignMaterial-System redesigned its IT governance structure just prior to hiring a new CIO as part of anoverall corporate recentralization initiative: previously decentralized IT units were recentralized. Arecentralized organization was perceived to be the best structure as the firm began to move forward withprocess integration. Recentralization of IT would enable a consolidated IT effort under the leadership ofa corporate function with authority for enterprise-wide process integration. Earlier, the IT organizationhad significantly decentralized IT decision authority to the business units.

In contrast, both Tran-Integrate and Diverse-Synergy had federal governance arrangements in place thatenabled the corporate IT function to provide significant oversight and coordination over enterprise-wideIT issues. Given the lack of performance gaps and high level of credibility of these IT organizations,these two firms did not recentralize previously decentralized IT units. However, at Diverse-Synergy amatrix reporting relationship was established for its new market information officers to increaseresponsibility for enterprise-wide initiatives.

At Diverse-Synergy, governance redesign also occurred in the form of the CIO’s reporting relationshipbeing elevated: the CIO now reported to the vice-chair of the firm, instead of the CFO. Further, the CIOwas also formally included as a member of the corporate executive team.

Vector 3: PacingBoth Tran-Integrate and Diverse-Synergy adopted a concurrent pacing strategy. Tran-Integrate andDiverse-Synergy had been quite successful with their use of IT to enable business strategies in the past.As they repositioned their IT organizations, they did not want to destroy the existing IT managementcompetencies that had brought them success to date. A concurrent pace would enable both of these firmsto keep the IT transformation in synch with the business transformations under business executiveleadership in these organizations.

In contrast, the new CIO at Material-System faced deficiencies in current IT performance that neededto be quickly addressed in order for the IT function to facilitate process integration. Therefore, the CIO took some dramatic actions to rapidly transform the IT function ahead of the business itself. Forexample, a new emphasis on standard processes was a key element of its new competency centers, andnew human resource practices were designed and implemented within the IT organization ahead of therest of the business. This meant that at times the pace of IT transformation would be concurrent with thepace of the business transformation, whereas at other times the IT organization would be ahead––that is,a dynamic balancing pacing strategy.

Vector 4: Sourcing The CIO at Material-System recognized early on that the existing burden of legacy applications wouldconstrain both the transformation to a new IT role and the enablement of the process integration thrustwithin the business. At the same time that the organization was selecting a software package to support

Governance

Pacing

Sourcing


its process integration goals, it was also selecting an outsourcer to operate and maintain its legacysystems. This initiative reduced total legacy systems costs and redirected the cost savings to investmentsin the process integration project. This outsourcing strategy also allowed Material-System to “fence off”activities that would have dragged the pace of the transformation and inhibited the IT function fromfocusing on the new capabilities needed for the process integration thrusts.

The other two firms, Tran-Integrate and Diverse-Synergy, did not have significantly large numbers ofstaff burdened with legacy system maintenance, and they did not undertake any significant sourcingdecisions as part of their IT transformation strategies.

Vector 5: Lateral Coordination CapabilityAs illustrated in Table 5.1, all three firms architected a portfolio of coordination mechanisms to build anew lateral coordination capability across the enterprise. At Tran-Integrate and Diverse-Synergy, specificmechanisms were either introduced for the first time as part of the IT transformation effort, or weremodified and combined with other mechanisms in different ways to develop a new lateral capability.

Lateral Capability at Tran-Integrate

Traditionally, Tran-Integrate had used an executive council to facilitate attention on the linkage betweenIT initiatives and business strategies. As part of its federal governance design, each business unit alsohad a divisional information officer (reporting to the business unit head) responsible for the strategic ITactions of their business unit.

However, new coordination mechanisms were also implemented at Tran-Integrate as part of the ITtransformation. First, the strategic planning process underwent significant changes to facilitate the newthrust toward process integration. Previously, each business unit conducted its own IT planning that wassubsequently consolidated into an enterprise plan. The new strategic planning process placed thecorporate IT function in a more active role. The corporate IT function reviews plans for each businessunit with its divisional information officer and business executives. Further, the corporate IT functionidentifies the top half-dozen enterprise-wide projects that will enhance process integration and developsplans for their implementation and resource requirements. The planning process therefore became moreintegrated and enterprise-focused in comparison to the autonomous business unit planning process of the past.

Second, Tran-Integrate formalized divisional steering committees within all business units. In the past,some business units had this mechanism in place, while others did not. As a result, the extent to whichbusiness executives were active in IT projects varied across the units. The goal of implementingdivisional steering committees enterprise-wide was to enhance senior business executives’ appreciationof the role of IT in enabling the development of common enterprise processes. Through thesecommittees, business executives were encouraged to champion their IT projects and work with senior ITexecutives in generating innovative ideas for business use of IT.

Third, Tran-Integrate introduced client liaisons in order to achieve its goal of building customer-orientedcommon processes that will enable the firm to offer integrated logistics solutions. These individualswere senior managers in business units. Each of these client liaisons was assigned the responsibility for

LateralCoordination

Capability


delivering integrated services to specific clients who transacted large business volumes with Tran-Integrate. Client liaisons worked with other executives (both business and IT) from different businessunits to diagnose their clients’ logistics needs, develop solutions, and design processes and applicationsto deliver those solutions. This new mechanism reflects the firm’s focus on IT-enabled customer-orientedprocesses that will deliver integrated solutions to customers’ needs.

Lateral Capability at Diverse-Synergy

Diverse-Synergy also implemented new coordination mechanisms to facilitate process integration. Asdescribed in Chapter 2, the firm reorganized its business divisions into five market centers. Therefore,one new mechanism was integrator roles for these market centers––that is, market informationofficers. These five individuals reported to their respective market center business heads as well as thecorporate CIO and were responsible for the strategic IT activities in their respective market centers.The divisional information officers of the individual business divisions within each market center nowreported to these new market information officers. The role of the new IT executives was to facilitateIT-enabled integration of customer-oriented processes across the divisions within each market center.They were also expected to work with the CIO in facilitating enterprise-wide synergy across themarket centers.

While Diverse-Synergy had traditionally used an executive council, significant changes occurred to thiscouncil in light of the organizational transformation to market centers. The new executive councilincluded the business heads of five market centers, the head of international operations, and the VPs oflogistics, finance, manufacturing, and engineering, in addition to the CIO. It continued to be chaired bythe vice-chair of the corporation. The redesigned executive council was expected to reinforce thecorporate desire for process integration across the divisions and market centers.

Traditionally, the IT strategic planning process at Diverse-Synergy had been driven by the corporate ITfunction. The process involved interviews with the top 50 executives (corporate officers and heads of keybusiness divisions) to surface the corporate priorities. Strategic IT plans were then developed to respondto these priorities. However, this process was discovered to be ineffective in surfacing specific ITprojects from the corporate priorities. Therefore, a new planning process was introduced in which theCIO, the five market information officers, and key corporate IT executives identified key IT projects thatwould provide a link to the corporate priorities and enable the implementation of common processesacross the market centers and the firm.

Finally, Diverse-Synergy implemented expertise centers to facilitate the infusion of technical expertisethroughout the enterprise. Within corporate IT, groups of experts provided consulting support to businessunits on topics such as telecommunications, applications development methodologies, and relational andobject databases.

Lateral Capability at Material-System

The introduction of new coordination mechanisms at Material-System was the most radical applicationof this vector within these three organizations: a completely new portfolio of formal and informalmechanisms was implemented. In the next section we describe in detail these mechanisms as we presentMaterial-System’s IT transformation tactics and the challenges it faced along its IT transformationjourney.


The IT Transformation Journey at Material-System1

Table 5.2 summarizes some of the pertinent background charaterisitcs of Material-System presented inChapter 2. The IT organization was recentralized in 1994 as part of an overall organization recentrali-zation, and a CIO was brought in from the outside to play a new integrative IT leadership role.

Table 5.2: Process Integration at Material-System: Background

Business characteristics Ranked as world leader in building material systems and advancedcomposite materials

New CEO brought in for financial turnaround

Factors motivating the Enhanced customer satisfaction through superior solutions that business transformation thrust leverage the firm’s product range

Sharpened value proposition of customer intimacy

Growth that exploits global reach of the business

Vision for transformation Process Integration ActionsCommon, simple, global business processes for value chain andcorporate support

Complementary Transformation ActionsCorporate vision that emphasizes core values: global, mobile,paper-free, integrated, team-oriented, learning-based, customer-focused, and technology-enabled

New integrative leadership role for IT

The Business Transformation ThrustMaterial-System’s transformation was initiated by a CEO brought in for a financial turaround. Some ofhis initial actions were to infuse his top management with new talent, divest some of the firm’s noncorebusinesses, and invest in new manufacturing plants across the globe. He established new core values and aggressive growth goals for the year 2000, and process integration became part of the vision forachieving them.

Setting the Stage for Business Transformation

In early 1994 three business process reengineering (BPR) projects were initiated: the reengineering ofthe logistics processes, customer service processes, and a consolidation of the finance function. A Big 6consulting group at the time was engaged to work with these BPR teams, and it didn’t take long for theteams to conclude that the company’s existing IT would not be able to support the following BPRobjectives:

• Accessing worldwide information in real time (for inventory, production, pricing, and distributioninformation)

• Customizing responses to meet customer needs (for pricing, production and delivery schedules,purchasing forecasts)


• Communicating paper-free (internal and external in-person communications and businesstransactions)

• Making fully informed decisions

In the past, the IT organization had primarily been an “order taker.” Initially, top management’s assump-tion was that IT would build the applications to support the new business processes being designed bythe three separate BPR teams. The danger with this approach was that there was no integration across the reengineering teams and that the requested systems would lead to “silo” solutions rather than thecommon, integrated processes that the firm was seeking.

By mid-1994, a major reorientation of the reengineering efforts was initiated after the new CIO came on board: the three teams were asked to explore whether their separate process redesign efforts could be supported by common, global systems solutions. The result was a refocusing of the teams towardenterprise-level core processes that could be supported by enterprise-level systems solutions. With helpfrom external consultants, a global process model was developed as a template for guiding the enterpriseprocess integration.

Once there was management buy-in to the global process model, the organization sought to identify anoff-the-shelf enterprise resource planning (ERP) solution that could support common business processesand real-time integrated information demands and other BPR objectives across multinational and multi-lingual business environments. By September 1994, the feasibility of an enterprise process model andglobal systems solution for Material-System was established, and a six-month planning process wasbegun. By December 1994, SAP’s R/3 client-server enterprise system was selected as the foundationpackage.2 This solution meant buy-in to a new-open systems client-server architecture. The signing ofthis contract therefore represented a top management commitment to a global initiative that wouldinvolve the redesign of most of the company’s supply chain processes as well as replacement of virtuallyall of its major systems.

By early 1995, a two-year implementation schedule (100-week plan) for reengineering the company’sglobal business processes and implementation of the SAP R/3 was established. An aggressive schedulewas viewed as a critical decision: it minimized the likelihood that a key senior executive would jumpship or cease to support the project goals before it was completed. Top management was sure that thepain would be considerable, but the pain to achieve integration would be the same whether an aggressiveschedule was followed or not.

Multiple SAP releases were planned over the 100-week period. The release concept entailed the “shrinkwrapping” of several new processes and new system modules into a single release. This avoided theproblem of business units having to contend with multiple implementation dates by multiple projectteams. The number of releases was also intentionally small. Release 1 was finance modules only andwould build on the original reengineering project. Release 2 would include a full set of supply chainmodules for a major business unit outside the United States that needed replacement systems toaccommodate recent acquisitions. Release 3 implemented a standard client-server infrastructure in about100 North American locations, including wide area networks, local area networks, and about 5000 newdesktops that would access a centralized Oracle database at headquarters. Release 4 would begin toexploit the multinational and multilingual capabilities of a new R/3 version that would be implemented


in several waves across multiple businesses and multiple continents. The four-release plan was alsodesigned to take advantage of organizational learning from earlier releases. In particular, the Release 4waves were designed so mistakes made in the first business unit implementation could be correctedbefore the next wave.

To meet the aggressive schedule goals, the plan was that “good enough” reengineering would be itsinitial focus. Achieving integrated processes was the initial implementation outcome, not achieving best-in-class processes. Variations to the common, simple, global processes would be driven by customer andproduct differences, not business unit differences. Successive waves of process-driven change would bedirected at achieving world-class outcomes by the year 2000.

Motivation for IT TransformationWhen the reengineering projects began in early 1994, Material-System had a complex, incompatible,and highly redundant set of more than 200 legacy systems. Due to different data definitions and years ofmaintenance, some of these systems now also had reliability problems. The IT organization was saddledwith the burden of legacy maintenance: about 75% of the IT budget was directed at legacy systemsenhancements and support rather than new development.

The IT organization’s “order-taking” mentality fit this type of IT support role for “silo” systems.However, the new IT role as enabler of the business transformation would require a whole new mindsetand IT leadership roles. When the new CIO came on board, he arrived with a clear mandate: to helpmove the company into the next century by strategically aligning the IT organization to the ambitiousvision for the year 2000. This would be the first time the IT organization would be partnering withbusiness management on a project that would radically transform the business.

Setting the Stage for IT Transformation

In mid-1994, when the CIO arrived, he knew that he would need to transform the IT organization from amaintenance and support mindset to a high performance mindset. Although he didn’t yet know how tospecifically reposition the IT organization, he did know that they would need to focus on acquiring newsets of skills, including diverse technical skills and methodologies, at the same time as they werebeginning to plan for an enterprise-wide systems megaproject.

During the second half of 1994 when Material-System was selecting an ERP vendor, they were alsoevaluating outsourcing alternatives for legacy systems that would be replaced at the end of the ERPimplementation schedule. An initial driver was to reduce total legacy systems costs by moving fromfixed cost to variable cost funding; as they were generated, these cost savings could then be redirected tosystems investments for the new global processes project. In January 1995, more than 200 legacysystems were outsourced to a major vendor for operations and support. The contract included the sellingof data center assets and the transfer of over 50 IT personnel to the outsourcer.

The “fencing off” of legacy systems support via an outsourcing contract allowed the remaining IT staffto focus on the new IT capabilities needed for the ERP implementation initiative as well as a future ITorganization heavily dependent on packaged solutions. Outsourcing the legacy systems also sent a clearsignal to the whole firm that the old systems were “ships to be burned”; there would be no turning back.


The Transformed IT FunctionThe transformation of the IT organization to a “high performance environment” was in keeping with thethrust toward high performance for the corporation as a whole as it pursued process integration. Inconsultation with the same consulting firm that worked on the reengineering projects (and would beimplementation partners for the ERP project), a graphic design with three primary structures wasdeveloped to direct and communicate the IT organization’s transformation (see Figure 5.1):

• Project teams: Multidisciplinary project teams of IT employees and full-time businessrepresentatives (and at the outset also implementation partners) responsible for business processredesign and systems integration tasks under global development leaders and for other IT service delivery.

• Account managers (IT consultants). IT managers with no direct reports who serve as the primarypoint of contact for a business entity.

• IT capabilities: councils, roles, and processes. IT employees (and at the outset also implementationpartners) responsible for standard IT processes, IT skill development, and project integration. Eachmember of a project team also belonged to an IT capability.

IT Consultants

IT C

apab

iliti

es

SystemDelivery

Processes, Integration, Skilled Resources

BusinessRelationships

Business Units & Regions

Project Teams

Figure 5.1: New IT Organization at Material-System

Readers of Chapter 4 will recognize that the design embodies all three types of formal mechanismsintroduced in our iceberg metaphor: roles, groups, and processes. The portfolio of mechanismsimplemented by Material-System also included mechanisms “below the waterline”: informalrelationship-building and human resource (HR) practices. The HR practices in particular proved to be a key part of the IT transformation.

Project Teams for Global Development

A Global Development Team of IT and business representatives was created for each of the globalprocesses in the business process model (see Figure 5.2). The primary objective of each global team wasto develop and deliver process and systems solutions on time. Five teams were given responsibility forthe supply chain processes (product development, sourcing, manufacturing, sales, and customer service).Each global development team also had subteams. For example, the Sales Advantage Team had three


subteams: Field Sales Automation, Pricing, and Demand Forecasting. Two additional teams wereresponsible for enterprise support.

Man

ufa

ctu

rin

gA

dva

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Sell Fulfill

ENTERPRISE SUPPORT

BusinessDevelopment

InformationSystems

Finance HumanResources

CorporateServices

So

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Ad

van

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Pro

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ctA

dva

nta

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Sal

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Cu

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Ad

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Fin

ance

Ad

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tag

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Peo

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Manufacture SourceMarketStrategy Develop

Figure 5.2: Global Process Model and Project Teams at Material-System

Each team had a Global Development Leader (GDL) responsible for project planning and making surethe team was “on course” in terms of both schedule and budget. All GDLs were full-time Material-System employees, although some consultants were assigned to be leaders of subteams. Most of theGDLs had previously been systems development managers reporting to business unit heads a few yearsearlier. This meant that the typical GDL had already established extensive working relationships withkey members of the business community, which came to be recognized as a major IT organization asset.

GDLs needed to be comfortable with learning new technologies, as well as leading a cross-functionalteam with business managers and IT professionals. GDLs also needed excellent interpersonal skills,since they sometimes had to make some unpopular decisions. They also had to get comfortable with andtrust the business leaders on their teams, because the success of the project relied heavily on the processknowledge and negotiation skills of these team members. In addition, GDLs needed to be able to helpcreate a work environment based on the new IT organization values in which it was all right to take risksand make some mistakes. The aggressive schedule often meant that they themselves had to believe in thetransformation goals, even though they might not yet know how they would achieve them.

A few months after the formal ERP project kickoff, it became clear that another integrator role wasneeded: an IT manager to focus on integration across the supply chain project teams on a daily basis.


An external GDL hire (who had worked with the CIO elsewhere) was moved into the new programmanagement position. To plan a new release, multiday, intensive workshops with GDLs and other ITservice managers were held. When major issues arose among business executives, the program managerand the CIO helped provide “air cover” for the GDLs and their team members so that they could stayfocused on the release deadlines.

A co-leadership role with the GDL was played by Business Process Leaders (BPLs), who had primaryresponsibility for business process reengineering. They were the primary business interface for theirteam during the life of the project. BPLs were senior managers or other high achievers from a functionor business unit who were typically assigned to a project team full time. (Some compromise arrange-ments were made for European business leaders.) Having a high-level business manager assigned fulltime to an IT project was new at Material-System, so business commitment to the BPL role was a highlyvisible sign that this joint IT-business initiative was part of the business transformation.

The BPLs were responsible for taking global business process redesign to the point of buy-in from theprocess owners in each affected business unit and corporate function. The business process owners weretypically at the VP level within a function or business unit; in a few cases the BPL on a project team was also a process owner. In the past, business units did not regularly confer with each other; they were“stovepiped.” The BPL’s job thus entailed getting buy-in to common processes across constituencies thathad not been required to work together before. The BPL was responsible for ensuring that all processowners endorsed the new common, global processes and enterprise-wide systems products that theproject team was preparing to configure and deliver. Since business process redesign was required forevery release, this was a critical role. Getting buy-in to common processes often required giving up aformer business allegiance or personal loyalty; BPLs needed to be open and candid communicators aswell as persuasive negotiators.

Business unit heads had to decide whether or not to “backfill” a BPL’s job in the business unit. In mostcases, the business units couldn’t afford to leave a business unit position open for the duration of theproject and did replace the manager. They also had to resist pulling off one of their prized managersfrom the project as time went on, although the vast majority of BPLs were expected to return to abusiness unit assignment after the final (Release 4) rollout. Management also had to figure out ways tokeep their key business representatives informed of important business changes. Many BPLs had a high-level mentor to help them stay current; those from international sites tried to arrange in-person visits tothe home unit.

Account Managers (IT Consultants)

Under the prior IT organization structure, each North American business unit had had its own IT headand systems development teams that serviced its needs with considerable autonomy. In recent years ITdevelopers had often performed heroic systems maintenance efforts for them as their legacy systemsbecame unwieldy. This relationship changed in 1993 when North American IT units were centralizedinto a corporate IT group as part of the firm’s overall recentralization initiative. According to the CIO:

There was a tremendous sense of loss. Business managers were asking “who is my IT guy?” Theyneeded a senior person who was an IT spokesperson, who could help match their systems plan withthe business plan.


Under the new CIO, the former IT unit heads were designated as senior IT strategists for their formerbusiness units. Like an account manager in a consultant organization, they would sit on the leadershipteam of their business unit and often were treated as if they continued to report to the business unit head,rather than to the CIO. However, as the IT leadership team began to identify what management skillswere needed for the ERP projects during the initial months of planning in 1995, essentially all of theserecentralized IT unit heads were tapped for global project team roles, due to their business processknowledge and project management experience. Other IT managers were therefore selected for the newaccount manager roles and became the business unit’s new primary point of contact and spokespersonfor corporate IT. Key attributes were really understanding the business and having an interest inpartnering with senior business managers. Two IT consultants also had larger operational roles for non-U.S. regions: one for the United Kingdom and Europe and the other for Asia (including China).

Since legacy systems operations and support in North America were now outsourced, a primary ITconsultant responsibility was to serve as the business unit’s liaison with the outsourcer to ensuresatisfactory service levels. The goal was to decrease legacy spending but to keep the old mainframesystems operational until the new systems were implemented. The IT consultant helped plan thebusiness unit’s budget for any “absolutely necessary” legacy systems maintenance during the transitionperiod. The IT consultants also played key liaison roles for the ERP rollouts. For Release 3, theyinventoried existing desktop tools, helped the IT organization understand the business unit’s end-usercomputing needs, and oversaw the local implementation of the standard networked desktop. For Release4, they worked with business unit management to get business resources assigned to the localdeployment teams.

By early 1997 the relatively freestanding IT consultants were assigned to a new corporate IT capability:Sourcing & Alliances (description follows). The intent was to improve the coordination of current andfuture vendor contracts and relationships.

IT Capabilities: Councils, Roles, and Processes

The design and implementation of the new IT capabilities represented by the horizontal arrow in Figure5.1 was an even bigger challenge for the IT management team. It was clear that new IT capabilities wereneeded to ensure both speed and quality––hallmarks of a high performance work environment. Whatwasn’t clear was what kind of structure should be developed to provide new standard processes andmethods, new supporting tools, and human resources skilled in these methods and tools. Anotherunknown was the range of IT capabilities that would be needed.

As a result, IT capabilities needed for the new IT organization have continued to evolve. For example,Figure 5.3 shows the 11 IT capabilities in place at the time of the Release 3 rollout. The first fourcapabilities were related to the systems integration life cycle––Planning & Project Management, ProcessInnovation, Technology Applications (development work, including SAP configuration and scripting),and Release Management. Three other capabilities were related to ongoing IT infrastructure planningand systems support: Architecture, Service Operations, and Sourcing & Alliances. The last fourcapabilities provide ongoing support to project teams, the IT leadership team, and sometimes the ITorganization as a whole: Communications (including the intranet), Resource Development, Finance (anIT Controller), and Administration.


Each capability had a capability leader accountable for the processes, methods, and tools of thecapability, as well as for the development of the skillsets for the people assigned to the capability.Usually reporting to each leader was one or more capability experts who concentrated on theidentification and transfer of best practices for the capability. Further, most IT capabilities also had acouncil, the “training center” for the capability.

Each member of a Global Development Team was assigned to a capability, and each team had at least one representative on each relevant capability council. Subteams within the councils worked on specialinitiatives. Initially, the capability assignments were made for each project team member based on theircurrent job duties. Eventually, all IT assignment (job) descriptions included not only project team responsi-bilities, but also capability responsibilities. A key capability leader role, then, was to help an individualnegotiate the best balance when project team and individual capability objectives were in conflict. Whenthe new IT organization structure was initialized in 1995, some of the capability leaders for the systemsintegration life cycle were ERP implementation partners (Big 6 consultants). For example, the initial leader of the Planning & Project Management Capability was a consultant in order to leverage theconsultancy’s expertise in managing this type and scope of project. The GDLs were all members of thecouncil for this capability. BPLs were members of the Process Innovation Capability. Another key process-oriented capability was Release Management. Key processes of this capability involved releasepreparation, including the “cleansing” and converting of data and infrastructure work, and actual deploy-ment and coordination of postinstallation support. Deploying a product release required coordination acrossmultiple project teams, HR personnel responsible for training, and local business unit leaders.

Another capability closely tied to the GDLs was the Intranet/Communications Capability. Initially partof the Planning and Project Management Capability, it became a separate capability after communica-

Administration

Finance

Resource Development

Intranet / Communications

Sourcing & Alliances

Service Operations

Architecture

Release Management

Technology Applications

Process Innovation

Planning & Project Management

Arc

hite

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Alli

ance

s

Sys

tem

Inte

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ion

Figure 5.3: Eleven IT Capabilities at Material-System


tions and information sharing became recognized as key success factors for the Advantage 2000 project.Each global development team had at least one member assigned to the Communications Capability,which was responsible for communications across global project teams and the rest of the IT communityas well as for communications between the IT organization and the rest of the company.

Another capability that did not initially exist was the Sourcing & Alliances Capability, responsible formanaging vendor relationships for the IT organization. At the start of the project, there was only onemajor external alliance: the outsourcer for legacy systems operation and support. The management of theoutsourcing relationship was initially dispersed across the IT consultants. This plan made sense becausein the past systems had been custom developed for the business units. However, under this dispersedstructure, the execution of the outsourcing contract turned out to be a very “bumpy ride” and the legacysystems costs continued to be a larger organizational expense than expected.

The Sourcing & Alliances Capability set up a superstructure for coordinating contacts across the ITconsultants who previously had acted on behalf of their business managers, not on behalf of the enter-prise as a whole. An external hire who had previously worked with the CIO was brought in to lead theSourcing & Alliances Capability. Giving the responsibility for managing this strategic alliance to a high-level capability manager meant that the rest of the IT leadership team could stay focused on the systemsintegration goals. The capability leader position was given a dual reporting arrangement––reporting notonly to the CIO, but also to the VP of Sourcing––in order to establish high-level accountability to thebusiness. As business units encountered problems with service levels provided by the outsourcingvendor––for example, help desk services––the IT consultants worked with the capability leader toidentify the scope of the problem and to provide input to enterprise-level solutions.

Informal Relationship-Building

Typically, co-location is used to place IT employees in physical proximity with dispersed businessmanagement. For the ERP project, the critical co-location mechanism was to physically house all teammembers at the same location. All business team members were physically co-located with the IT teammembers at the company headquarters in the same building as Material-System’s top management team.Team members saw each other daily. The close physical proximity helped the business process leadersbetter understand the trials and tribulations faced by IT managers, while the IT people learned toappreciate how changes in business executives and business processes affected the work of the businessprocess leaders. The IT organization also implemented several workspace changes that reflected theCEO’s vision for the “new way of working” enterprise-wide. Some walls were actually torn down so thatthe CIO and some of his directors could work with minimal physical obstruction. Before the first waveof Release 4 implementations, the teams moved into the firm’s new world headquarters, which became aphysical symbol for its transformation values: the new building had a modular design with work areasdesigned to be optimal for high performance teams––that is, four-person pods.

A special emphasis was placed on “public” communication––in other words, information sharing aboutthe project to the firm’s community at large. The consensus was that keeping the project “public” sets upopportunities for people to come forward rather than keep issues “boiling under the surface.” Regularreporting of the status of the project teams in public forums provided such opportunities. The successfuloutcomes of the two IT transformation workshops held for the IT community in 1995 persuaded the ITleadership that such a community briefing mechanism should be continued into 1996––regardless of theactual topic.


Human Resource Practices

The transformation of the IT organization to a high performance environment required a whole newstructure for the IT organization as well as a whole new set of HR practices and processes. The CIOoriginally planned to rely heavily on the corporate HR department, and an HR staff member wasassigned to the IT organization. However, after a few months it became apparent that the “care andfeeding” of the IT people was receiving inadequate attention and constraining the IT transformation.With the blessing of the new senior vice president of HR, a Resource Development Capability wasestablished within the IT organization in August 1995, and a seasoned IT director was designated theleader. The establishment of this capability was a clear signal to the IT workforce that the new ITorganization was committed to the transformation to a new kind of IT organization.

Several major HR initiatives were championed under this director. For example, a new six-levelbroadband compensation scheme that was competency-based was initiated in the first quarter of 1996.Each project team role was assigned a competency level and given an IT capability assignment. Withineach level there were three sublevels to ensure that IT employees would help each other: learning, cando, and can teach. Another early initiative was the implementation of an employee-led appraisal processwith 360 degree feedback: employees solicit evaluations from up to 10 people of their choice who are inpositions below, above, and beside their own, or some other relevant sampling.

In addition to these long-term HR initiatives, two special incentive plans were put in place at the outsetof the project to help retain “critical” employees who had ERP skills highly valued in the marketplace.The project was highly visible within the firm as a whole, and “being a part of it” was expected to be anintrinsic reward for some managers. However, it was also recognized that marketplace salaries foremployees with SAP R/3 experience could be powerful incentives; by early 1996 it appeared to oneparticipant that salaries had “doubled overnight.”

The first incentive plan took advantage of a preexisting incentive structure at Material-System: a year-end incentive or bonus plan. For those employees already a part of this plan, there was an opportunityfor a bonus equivalent to 15–40% of one year’s salary; for employees not on this plan, a year-end bonusup to 15% was possible.

The second incentive plan was unique to the company: an on-time project completion bonus in the formof stock options worth 20% of the employee’s annual salary. In addition, individuals in roles considered“critical” for the project would receive an additional 10–20% (in stock options or cash) for on-timecompletion of the project. Having a special incentive based on the “criticality” of a role was also uniqueto the company.

Navigating the Transformation Journey at Material-SystemWhat were some of the challenges that Material-System faced as it repositioned its IT organization, andwhat planned solutions and management improvisations3 were devised to address them?

Mobilizing Commitment Through Shared Values

The transformed IT function was predicated on a totally new view of the workplace and the individual’srole in it. This was reflected in the three core values (customer satisfaction, individual employee dignity,


shareholder value) and eight workplace qualities (including paper-free, team-oriented, technology-enabled) espoused by the CEO. At a mid-1994 retreat with its new CIO, the IT management team alsodeveloped a set of six values to communicate what a high performance IT organization really meant (see Figure 5.4). The first three values emphasized work changes critical to the 100-week schedule:invention, fast tracking, partnership. The other three values were slogans that characterized a team-based project environment: IT employees in the new IT organization would be encouraged to chal-lenge the status quo, initiate bold changes, and learn, but to also work fast and be a team player. The“attitude wins” value was intended to help set up an environment in which an individual was free tofail.

Figure 5.4: Six Shared Values for the IT Organization at Material-System

Invention Invent the future; continuously challenge the status quo

Fast Tracking Performance: start now, deliver soon, learn quick

Partnership Collaborate for best results; harness diversity

Everything Is a Project Achieve your goals by aiming high, setting directions,planning milestones

We All Contribute World-class organizations are built by world class people; competitive advantage from personal growth

Attitude Wins Integrity, pride, and enthusiasm count

Evolving the IT Leadership Team

Initially, an IT Management Council was utilized by the CIO to communicate and coordinate decisionmaking across all 20 of his direct reports; this IT leadership team initially met together on a weeklybasis with the CIO. By March 1996, however, an upper-level IT council or board concept wasimplemented: its members included the CIO and four IT directors. Four IT “working groups” were setup, one under each director, responsible for the Global Process project (all project management issues),Resource Development (organization structure and HR issues), Business Operations (total IT expenses,including legacy systems projects for business units), and Sourcing & Alliances (including legacysystems issues). The expectation was that other leaders (internal or external to the IT organization)would be invited to meet with the council on issues related to the strategic positioning of the ITorganization in the future.

Personal networks due to prior job positions were also being leveraged. The CEO’s hires for his new topmanagement team provided an early model: his new VPs for R&D and HR had also worked at his priorcompany. The CIO, controller, and CFO had worked together for another employer. Similarly, the CIO’soutside hires for two key directorships had prior ties with the CIO: the program manager for the ERPproject teams and the capability leader for Sourcing & Alliances. IT managers who had been the headsof decentralized IT units were also recognized as key assets due to their established networks withbusiness managers.


Partnering with Human Resource Experts

The transformed IT function required a whole new set of HR practices and processes. For example, anearly change in the IT organization was to move from the concept of job-based work to project-basedassignments, and from the concept of manager-initiated to employee-initiated career development.Beginning in January 1995, after the legacy systems operations and support functions had beenoutsourced, the remaining IT organization personnel became personally responsible for applying for newwork assignments. The underlying assumption here was that the majority of individual learning wouldoccur under new assignments––that is, “learning by doing.” Further, acceptance of an assignmenttypically meant up to an 18-month commitment. The second assumption was that the opportunity formore frequent assignments would lead to more rapid learning. If an employee decided after nine monthsin a new assignment that it would be best for him or her to make an assignment change, it was theresponsibility of the individual employee to find their replacement.

In the new workplace environment, then, project team heads advertised for employees, but individualsmarketed their own capabilities (“self-nomination process”). For the individual, the goal was financialreward and marketability based on skills or competencies. For the organization, the goals were to pay forperformance (demonstrated skills or competencies) and to have employees who were specialists in morethan one area.

The initial plan was to rely heavily on HR department personnel to develop and implement new HRpractices and processes in consultation with the IT management team. The IT organization’s model andthe new HR practices that would evolve with it were viewed as a “pilot” for the CEO’s vision of a newworkplace. A new VP of HR, who arrived in early 1995, viewed it as an “incubator” for transforming thecompany as a whole.

However, several months into the 100-week ERP implementation, it became clear to the IT managementteam that people issues were taking a distant backseat to project issues. To ensure a more balancedapproach––and to avoid a personnel crisis situation––HR management became a separate IT capabilitywith its own full-time capability leader beginning in August 1995. In March 1996, the new ResourceCapability leader within the IT organization was working on “connecting the dots” between the HRinitiatives—for example, linking new IT competency models with the capability component of teamproject assignments, compensation schemes, and so on.

Transferring Knowledge From External Consultants

External consultants played a significant role in the repositioning of the IT function at Material-System.Initially, they supplied expertise in business process reengineering and the development of a globalprocess model. Subsequently they were involved in the IT organization redesign and ERP projectmanagement expertise. An average of 50 to 75 consultants (including consultants from the softwarevendor) worked side by side with Material-System’s IT managers.

Finding the right mix of consultants and internal employees was an ongoing challenge. Top managementknew they needed external expertise for this scope and type of organizational change. However, if theexternal consultants were relied on to lead project teams, then project management skills and ERPknowledge might not be transferred to their own workforce as quickly. By early 1996, each Big 6


consultant was paired with two Material-System managers—one with a business focus, one with atechnology focus—as part of a plan to transition out the consultants. By the fall of 1996 all full-timeconsultants had been transferred out of the IT organization.

Executive Guidelines

The experiences of these three case firms suggest some key guidelines for repositioning the ITorganization to enable the business transformation thrust of process integration.

Guideline 1 Establish a corporate IT organization with an

enterprise-wide coordination mandate.

Guideline 2Match the transformation pace to the pace of the business transformation thrust.

Process integration efforts cannot succeed in a context that continues to reward “silos” of individualbusiness units or functions. At all three firms, the process integration thrust required that corporate IT bea prime facilitator. In two of these firms, a corporate IT oversight and coordination role had already beenestablished. At Diverse-Synergy, it was strengthened by the introduction of matrix reporting to the CIOfor the new Market Information Officers. At Material-System this oversight role was a new one, andrequired both an IT governance redesign and new CIO. More important, the new incumbent wasregarded as the first true CIO for the business firm in contrast with a string of business executives whohad been appointed to the position in the past.

Process integration thrusts require significant changes to the existing structures, processes, andinformation flows within an enterprise. Given the magnitude of the changes, they are likely to generatecultural conflicts, concerns about the impacts of these changes on existing business competencies, andsome level of power struggles across prior stakeholders. Therefore, the pace of the IT transformationmust to some degree mirror the pace of the business transformation—that is, be at a concurrent pace.

However, sometimes, the IT organization must also focus on building capabilities in advance of thebusiness transformation. This imperative might exist when there are significant deficiencies in the typesof IT capabilities needed to enable the transformation thrust or when the IT organization needs toestablish its credibility as a potential strategic enabler. Under such circumstances, it is much moreappropriate to use a dynamic balancing strategy that switches the pace of the IT transformation betweenanticipatory and concurrent. In the anticipatory mode, the CIO can direct attention to some core ITcapabilities; in the concurrent mode, the CIO can fine-tune the IT transformation in synchronization withthe business transformation thrust.

Guideline 3Use formal mechanisms to quickly align with new business structures.


As is evident from all three case sites, significant attention was directed toward the use of formalmechanisms (roles, groups, processes) to link the IT organization with new business structures and roles.In some cases, old mechanisms were modified. In other instances, new mechanisms were designed.Informal relationship-building and HR practices also proved critical to the effectiveness of the newformal mechanisms at the case site with a dynamic balancing strategy (Material-System).

Guideline 4Fence off the legacies to focus on the new capabilities.

Guideline 5Leverage prior relationships and build new partnerships with non-IT units.

Legacy applications are associated with a set of IT capabilities and behaviors. When IT performancegaps exist, continuing to support legacy applications is likely to significantly impede transformationalprogress. This was the situation at Material-System. Fencing off the legacy applications by outsourcingreleased knowledgeable IT resources and also signaled the IT organization’s commitment to thedevelopment of new skills.

Process integration thrusts are likely to run into structural, cultural, and political barriers that are aconsequence of the traditional organization structures that were designed to promote differentiation.Individual units could well impede the development of enterprise-wide processes because they arefocused on their own products, markets, and processes. At each of the three firms, significant attentionwas devoted to reinforcing old relationships with business leaders by fine-tuning existing coordinationmechanisms (for example, the role of Market Information Officers at Diverse-Synergy) or introducingnew ones (for instance, Account Managers at Material-System).

Further, strong partnerships with the leadership of the HR function was critical to the IT transformationat Material-System: the IT organization’s new high performance model required new job descriptions,career paths, and incentive systems. The IT directors were given the authority by their HR counterpartsto move forward in advance of the rest of the organization in order to have the IT capabilities needed tohelp lead the business transformation.

Endnotes

1 Portions of this story have also been told in a teaching case prepared by one of the researchers. SeeCase IV-3 in Managing Information Technology: What Managers Need to Know by E. W. Martin,C. V. Brown, D. W. DeHayes, J. A. Hoffer, and W. C. Perkins, Prentice Hall, Upper Saddle River, N.J.,1999.

2 SAP R/3 is an enterprise-level software solution that encompasses the Accounting/Finance, HumanResources, Sales/Distribution, Materials Management, and Operations functions. Material-Systemretained PeopleSoft for its HR packaged solution but implemented the other SAP R/3 modules.

3 The improvisational metaphor for the management of change and transformation is described in W.J.Orlikowski and J. D. Hofman, An improvisational model for change management: The case ofgroupware technologies, Sloan Management Review, Winter 1997: 11–22.

CHAPTER 6

REPOSITIONING IT ORGANIZATIONSFOR KNOWLEDGE LEVERAGING

59

Knowledge LeveragingBuilding sense-and-respond capabilities through the

creation, nurturing, and maintenance of a knowledge asset

Knowledge leveraging was a primary thrust in only one of our case studies: Bio-Leverage. The ITtransformation at Bio-Leverage occurred at two levels: actions by the CIO to develop an IT organizationcapable of supporting the new goal of connectedness, and actions under a new IT unit director chargedwith architecting a knowledge leveraging capability.

Bio-Leverage utilized four IT transformation vectors (all but the sourcing vector) to achieve theseknowledge leveraging goals. Bio-Leverage had traditionally operated with radically decentralizedbusiness units and recognized that it needed to focus on greater “connectedness” among these units.Therefore, for our discussion of vector 5, we emphasize mechanisms directed at achieving enterprise-wide connectednesss. However, for our illustration of the transformation journey, we focus on theknowledge management architecture capability being developed under the IT unit director. The chaptercloses with some executive guidelines based on the lessons learned from this case.


Table 6.1 summarizes the IT transformation strategy for enabling knowledge leveraging at Bio-Leverage.

Vector 1: Infusion of Management TalentBio-Leverage’s senior management recognized that the prevailing IT performance gaps would hamperthe firm’s ability to execute its transformation thrusts. A new CIO who had a good track record of ITleadership knowledge and experience was hired as a direct report to the CFO; some viewed the new CIOas the first “real CIO” the company had had.The CIO was made a member of the Stewardship unit that isthe corporate controlling body and focuses on innovation, leadership, and “doing the right things” toachieve the corporate vision.

Further, IT managers who had collaborated on a successful knowledge management application at thedivision level were transferred to corporate IT leadership roles to jump-start an enterprise-wide initiative.

Vector 2: Governance RedesignPreviously, individual business units managed made their own independent infrastructure decisions. Thisgovernance approach had led to incompatible technologies and the inability to communicate across the

TalentInfusion

Governance


enterprise. Consistent with the corporate vision of “small and connected,” the CIO made two majorchanges to the IT governance structure. First, a dotted-line relationship with the CIO was instituted forall the IT heads reporting to each of the strategic business units. Similarly, the IT heads of worldwide“shared services” were also given a dotted-line relationship to the CIO. These new formal relationshipsbetween the IT heads and the CIO symbolized the new corporate emphasis on connectedness to enableknowledge leveraging.

Second, a new corporate IT group was created to oversee the delivery of three major enterprise-wide IT initiatives considered to be leading-edge. The Center for Technology Excellence was a part of the CEO’s new Stewardship unit, which was a separate entity from the shared IT services unit (computeroperations, telecommunications, and help desk units). Within the Center for Technology Excellence wasa special unit created to develop a knowledge management capability: the Knowledge ManagementArchitecture (KMA) unit. The director of this unit was given considerable autonomy to build a newbusiness intelligence capability for Bio-Leverage.

Table 6.1: IT Transformation Strategies for Enabling Knowledge Leveraging

Transformation Vectors Bio-Leverage

Infusion of new IT management talent New CIO, a “first real CIO,” reporting directly to the CFOand part of new Stewardship unit

Division IT managers with successful pilot transferred tocorporate

Governance redesign Recentralization through new corporate IT units and matrix reporting of earlier decentralized IT heads

Pacing Dynamic balancing

Sourcing

Lateral coordination capability

For connectedness IT management council (including dotted-line reports)

Ad hoc task forces

IT strategic planning process

IT community briefing

For KM architecture Enhanced systems director (KMA director)

IT standing team (knowledge team)

Ad hoc task force (resource coordination)

New processes to identify projects and build knowledgebase

Informal relationship-building (one-on-one contacts,periodic forums)

Exploratory incentives for information sharing

Chapter 6 Repositioning IT Organizations for Knowledge Leveraging 61

Vector 3: PacingBio-Leverage adopted a dynamic balancing pace for its IT transformation. As defined in Chapter 3, thisis an approach in which the IT transformation is driven at a pace that alternates between leading thebusiness transformation and being in synchronization with the business transformation. The CIO’sactions to achieve enterprise-wide connectedness are best described as being in synchronization with thebusiness transformation. However, the KMA unit was given the autonomy to lead the businesstransformation—that is, to outpace the rest of the organization in the area of knowledge management.This combination resulted in a pace that we define as dynamic balancing.

Vector 4: Sourcing No major change in IT sourcing was a part of the IT transformation at Bio-Leverage. Instead, the focuswas on developing a knowledge management capability through leveraging existing in-house expertise.Similar to other IT units, the KMA director brought in outside contractors as needed in order tosupplement internal IT expertise for specific projects.

Vector 5: Lateral Coordination CapabilityTraditionally, under the highly decentralized structure of the past, Bio-Leverage had developed strongbusiness-IT partnerships. Now it needed to strengthen partnering across its previously decentralized ITleaders and its dispersed IT workforce. To facilitate ongoing two-way communication, establish acollaborative work environment, and leverage IT expertise across the firm, Bio-Leverage created a newportfolio of coordination mechanisms by implementing entirely new mechanisms and modifyingpreviously existing ones.

The CIO’s IT leadership group was reconstituted to include about 25 members: not only direct reportsbut also all the new dotted-line reports located in the business units, worldwide regions, and sharedservices groups. The CIO’s new mandates for this IT management council included:

• coordinated IT infrastructure planning across the enterprise.• elimination of duplicate business unit efforts. • identification (and transmission) of best IT practices.

Ad hoc task forces were also empowered by the CIO to address issues that were related to theoperationalization of the new business vision. The IT management council regularly discussed theprogress of these task forces and charter documents helped align the teams. For example, an ad hoc teamworking on Business Impact and Metrics had three IT management council members as well as othermembers from IT groups in the business units, external consultancies, and non-IT groups. This team wascharged with (1) developing a process for valuing a new IT initiative, and (2) measuring theeffectiveness of an ongoing initiative using business metrics. These metrics were expected to helpbusiness units determine their own IT priorities and assist the IT organization in articulating itscontribution to that business. Other task forces were investigating Portfolio Management, IT Staffing andSuccession Planning, Architecture Implementation, and so on.

A new IT planning process for IT initiatives was introduced to better support Bio-Leverage’s neworganizational and operational models and to apply standard metrics to describe the expected IT benefits

Pacing

Sourcing

LateralCoordination

Capability


at the SBU level. This new process would also identify duplicative efforts across the enterprise at aninitial stage. Other synergistic outcomes would include shared IT platform choices and joint IT purchaseagreements.

After a six-year hiatus, a three-day annual meeting of the global IT community (IT community briefing)was re-initiated by the new CIO. The primary intent was to provide an opportunity for networking withpeers across the enterprise. But this event also had a beneficial secondary effect: it offered anopportunity for IT in business units that were geographically dispersed to participate in in-personmeetings of these groups. Such interactions had not regularly occurred in the past.

In the next section we describe in detail the portfolio of new mechanisms implemented as part of theKMA initiative at Bio-Leverage, as well as some of the challenges faced along this IT transformationjourney.

The IT Transformation Journey at Bio-Leverage

Table 6.2 summarizes the pertinent background characteristics of Bio-Leverage presented earlier inChapter 2. The IT organization was regarded as an enabler of the business transformation. IT wasconsidered to be critical for eliminating the time and distance barriers to being “small and connected.”IT was also expected to play a strategic differentiator role in developing a knowledge managementcapability.

Table 6.2: Knowledge Leveraging at Bio-Leverage: Background

Business characteristics Large global firm competing in chemicals, agricultural products, and pharmaceuticals

History of radical decentralization

New top leadership focused on biotechnology opportunities

Factors motivating the business Growth heavily dependent on innovations for fast-changingtransformation thrust markets

Competitive advantage dependent on firm’s collectiveinsights

Vision for transformation Knowledge Leveraging Actions

Connect via global themes: Operational excellence,growth, sustainability, globalization, cultural change

New units to focus on learning and growth (balanced scorecard measures)

Complementary Transformation Actions

Restructuring of leadership and corporate functions

IT as key architect of knowledge assets


The Business Transformation ThrustWhereas radical decentralization had characterized Bio-Leverage in the past, competing in a hyper-competitive environment would require the ability to leverage knowledge across disparate units. In thefuture, competitive advantage would depend on the firm’s collective insights and how fast it learned. TheCEO’s vision for knowledge leveraging was to keep “small” as in the past, but to also be “connected.”

Setting the Stage for Business Transformation

A new corporate Stewardship unit was created to focus on innovation, leadership, and “doing the rightthings” to achieve the corporate vision. A separate shared services unit would continue to focus onoperational excellence.

The CEO also introduced five high-priority themes (e.g., sustainability) to focus on new ways of doingbusiness in an environment of knowledge leveraging. After a series of global forums were held (withdiagonal slices of workers as participants), new councils with global members were created to realize theenvisioned new capabilities. One of these was the Global Learning Network (GLN), whose missionwould be to achieve the firm’s new Learning and Growth objectives. For example, the GLN helpedorchestrate periodic events to increase the probability of interpersonal knowledge sharing, leading toinsight creation. Other in-person forums in which people could relate to each other were alsoimplemented as corporate initiatives under the names of Brain Food, Lunch & Learn, Table Talks, and soon. This type of social forum was encouraged because it not only enabled relationship-building but alsoopportunities for the transfer of tacit knowledge through dialogue.1

Motivation for IT TransformationThe business transformation at Bio-Leverage imposed a new demand for cross-organizationalcommunication via IT and enterprise-wide IT standards. The prevailing IT infrastructure at Bio-Leverage was viewed as a clear impediment to achieving global connectedness: a variety of different e-mail servers (about 90 across the corporation) made it difficult to “talk to each other.” There was aclear need to develop a flexible architecture with low complexity. But this would require a dramaticchange in IT capabilities and an investment in an enterprise-level mindset.

Prior to the business transformation, about 80% of communications were within an employee’sworkgroup, so that the setting of standards at the local level made sense. Now the “soft spots” in thecurrent infrastructure needed to be removed, and global electronic communications needed to betransparent and easy.

An earlier multiyear consultant study of the company’s current systems and practices had recommendedmajor significant investments to “overhaul IT” at Bio-Leverage. One of these initiatives was the creationof an independent IT unit to oversee enterprise-wide IT initiatives. The CEO leveraged this idea byimplementing a new Center for Technology Excellence that reported to the new CIO. A separate unitwithin this center, the Knowledge Management Architecture (KMA) unit, was given the mandate to“increase the value of Bio-Leverage’s intellectual capital.”


Setting the Stage for IT Transformation

The KMA unit within the Center for Technology Excellence included full-time internal personnel withthe position titles of technology leaders, project leaders, and technology specialists, as well as contractpersonnel whose numbers fluctuated according to project needs. The director of the new KMA unit hadworked with the center director for more than three years on the development and implementation of asystem for a 600-person business unit. This application was viewed as a “best practice” for knowledgemanagement: a competitive intelligence application that enabled the business to view their “competitivehorizon” to understand what both the technology and their competitors would “look like and who theywill be.” This IT development effort included new transaction processing systems, a reference datamodel at the business unit level, a data warehouse, the development of a searching/navigation tool, andnew people roles for identifying and cataloguing targeted information content.

The KMA’s charter was to develop a similar capability, but enterprise-wide; the KMA unit personnelrepresented the firm’s current core capability for knowledge management at Bio-Leverage. The directorof KMA viewed this challenge as how to create a “collection of 100-plus things across the enterprise.”The analogy from nature was a tornado (the KMA unit capability) that would spawn hundreds oftwisters. The biggest challenge would be to move beyond information capture (a historical focus) to theknowledge creation—the creation of new insights—that would add value to Bio-Leverage’s products andservices. The biggest payoffs were expected to be in product information, market information and“customer intimacy.”

The KMA unit enjoyed sponsorship from the highest levels of the organization. The assumption was thatthere would be desirable long-term results; performing traditional cost-benefit analyses to justify theKMA’s existence and some of its initiatives would be irrelevant. To accomplish these objectives, theKMA staff was involved in developing repositories, delivering new tools to facilitate communication andcollaboration, as well as developing and facilitating processes to enable and sustain knowledge creationand usage. Working assumptions for developing the requisite knowledge management capabilityincluded the following:

• The thrust would be to communicate and share experiences across units and to provide “metadata atthe fingertips”; the thrust would not be to control, although some interactions may be provided in a“push” or “tap-on-the-shoulder” mode rather than a self-initiated “pull” mode.

• “Virtual encounters” of people and people, as well as people and information, could be orchestratedacross national boundaries.

• Processes could be developed to help create organizational insights—that is, an increment inorganizational knowledge, not a replication.

• Multiple presentation options (time-based, person-based, and sometimes “platter”) needed to beavailable to provide information in a “constant sea” mode.

• Knowledge management would continue to require a symbiotic relationship between people and IT.

The KMA was expected to bring a collection of autonomous “bits and pieces” together using IT. Thegoal was to reach a state in which the organization would “know what it knows.” As shown in Figure6.1, one goal would be to create data warehouses (with quantitative data from internal transactionprocessing systems and external systems) and repositories of qualitative information (from internaldocuments as well as external sources such as a newswire report) that could be integrated (via anenterprise reference data model) in order to cross-link internal and external sources of both qualitativeand quantitative data.


The Transformed IT FunctionThe new KMA unit needed to be aligned with other IT and business units to enable the businesstransformation. This repositioning was accomplished via four types of lateral organization mechanisms:integrator roles, new groups and processes, informal relationship-building, and new HR incentives.2

Integrator Roles

The director of the KMA was in a key integrator role position for the IT organization. Although thedirector’s formal report was to the IT head of the Center for Technology Excellence and he had systemsdevelopment staff responsible to him, he also had a dotted-line report to the CIO. In addition, the KMAdirector was given a high degree of latitude to create linkages with the GLN, council leaders working onthe five global themes, and other IT Stewardship groups (see Figure 6.2).

Quantitative/Structured

Qualitative/Unstructured

Internal

External

InventoryFinancialsSales

Best PracticesStandard Operating ProceduresPeople Directory

Market DemandSupplier Technical SpecsRaw Material Prices

Competitor InformationIndustry Best PracticesBenchmarking Data

Figure 6.1: Four Quadrants of Data Sources at Bio-Leverage

IT Organization(Center for Technology

Excellence)

Global LearningNetwork

IT Stewardship and Global Themes

KnowledgeManagementArchitecture

Figure 6.2: The KMA’s Linking Pin Role at Bio-Leverage


Other integrator roles identified as important for knowledge leveraging included people roles throughoutthe organization, such as topic experts and shepherds. Topic experts are subject matter experts who makesense of external competitive intelligence information and infuse their subjective judgments intodiscussions––including electronic discussion threads. Shepherds focus on the group dynamics of a teamand how to infuse expertise through interpersonal interactions. Both of these roles were fostered at Bio-Leverage as part of the KMA initiative in order to connect people with information and with each other.

Groups and Processes

A knowledge team (standing team) of two IT specialists and six information scientists (librarians) fromdifferent corporate and business units was created to develop new processes to (1) catalog, find, andorganize data sources, and (2) link quantitative and qualitative data from internal and external sources.The KMA director sought out team leaders with librarian backgrounds because they had expertise inanalyzing information requests, knowing where to go and who to ask for information, in cataloging newsources, in filtering and cutting information “down to size,” and in making information accessible toothers. The team had two high-level sponsors: an International VP and a VP of corporate research. TheKMA director played a “champion” role for the team, helping the team leader connect with theappropriate organizational leaders and knowledge experts.

A resource coordination task force was also being designed in order to coordinate the smaller, ad hocrequests for IT services related to the knowledge leveraging thrust with existing IT projects. In the newcorporate environment, IT projects could be initiated by different councils and initiatives (such as thosefocused on global themes) across the enterprise, outside of any annual IT planning process. Thismechanism was expected to help the organization respond to the two opposing forces: (1) a “sense ofurgency” and (2) a need to “be aligned.” It would be the funnel for requests for an IT-relatedcapability—from any council or initiative associated with a global theme or an operational unit such asthe Help Desk. The team members included representatives from the Center for Technology Excellenceand the business units. The team was expected to decide what requests would become a new IT projectversus what was “highly related” to another current IT project. The outcome of the new review processcould be one of three actions: (1) expand the scope of a current project to absorb the request, (2) identifythe request as an unnecessary duplicate effort, or (3) initiate a new project to produce a pilot or proof-of-concept.


Key to the success of the separate KMA structure were unit leaders skilled in informal relationship-building via one-to-one contacts and the use of electronic media. The KMA director was noted for hisability to be “plugged in” to what was going on in the organization. His ability to work acrosshierarchical, functional, and geographic boundaries in order to stimulate creative solutions and developlinkages with potential experts and other integrators was critical to the success of this initiative.

Moving the KMA initiatives forward also involved capturing the attention and time from high levelpeople to gain their sponsorship and personal participation in the usage of IT for knowledge sharing.Periodic events that would involve interpersonal contacts were also heavily relied on, includingcommunity events and new kinds of social forums jointly sponsored with the GLN or other humanresource units.


Print media internal and external to the organization were also used to increase credibility for the KMAinitiatives. For example, the following “war story” had already been widely disseminated in the firm andwas used as a catalyst for investments in a knowledge asset: after the loss of a major business customer,a postmortem analysis revealed that the knowledge that could have helped the firm avoid the loss didexist in the organization, but the information was inaccessible to those who could have taken action toprevent the loss. More recently, a knowledge management article that mentioned Bio-Leverage in anissue of Fortune proved to be useful in helping to persuade internal managers and resident experts thatthe KMA was “not just hype.”


Since Bio-Leverage had previously operated in an environment characterized as autonomous “bits andpieces,” one of the key challenges was how to ensure that individuals would share their knowledge. Oneview was that the “right people” needed to be early participants in knowledge capturing efforts so thatothers will participate. The “first wave” was expected to include R&D and IT “type folks” for whom noother incentives were needed. Yet the expectation was that, to be successful, the knowledge managementinitiative would require “lots of time from lots of people” to capture individual knowledge.

Bio-Leverage began with assuming that intrinsic rewards for knowledge sharing would be sufficient:personal pride in being a participant in a corporate initiative, or the belief of contributing to a “greatercause.” Access to collaborative tools not available to all units (e.g., a Lotus Notes license) was also usedas an incentive. Extrinsic rewards included recognition beyond the workgroup—for example, electronicrecognition for broadcasting a good idea or in-person recognition at IT community meetings.

Navigating the Transformation Journey at Bio-LeverageWhat were some of the challenges that Bio-Leverage faced as it repositioned its IT organization, andwhat planned solutions and management improvisations were devised to address them?

Empowering the IT Roles

The new “connectedness” goals required enterprise-wide standards-setting and a new spirit ofcollaboration across radically decentralized business units. The CIO was empowered to accomplish thispart of the knowledge leveraging goals, and quickly established formal mechanisms to gain business unitbuy-in to this part of the transformation. However, the key knowledge management role was given to thedirector of a unit that was formally structured two levels down from the CIO: the KMA. Unlike otherorganizations, Bio-Leverage did not create an integrator role among its top management team—typicallya chief knowledge officer—who would have the positional status and budget authority to influence, top-down.3 The other challenges discussed below involved enterprise-wide cultural changes and could nothave been accomplished by IT leadership alone. Even though the interpersonal and IT skillsets of theKMA director were considerable, and the knowledge management activities of the firm reached a highlevel of awareness, the continued effectiveness of a separate KMA unit was continually being evaluated.

Promoting a Culture of Sharing and Trust

Though the KMA had promoted some intrinsic and extrinsic rewards for initially motivating the sharingof knowledge, sustained sharing over the long run required the development of a culture that valuedopenness, trust, and honesty. Business units focused on bottom-line results and in the past the culture


had been one of SBU competition, not sharing. For example, when the KMA director had worked in adifferent business unit, information sharing using IT had become part of the culture of that business unit.However, when he moved on, people reportedly “quit doing it”; electronic sharing was no longerperceived to be a rewarded behavior. For the KMA unit to be effective, these values needed to becontinually articulated as part of the vision of Bio-Leverage and embraced by the business unitleadership.

The sharing of failures was just as important as the sharing of good ideas, but the sharing of failuresrequires high levels of trust. The IT organization increased awareness of the importance of sharingfailures by referring to the company’s recent “war story” (described earlier). It also pursued ways to useIT to initially develop trust and to refresh it as needed. For example, the GLN became a sponsor of an ITproject to develop electronic repositories of vitas and other personal information (e.g., electronic yellowpages).

Instituting Measurable Results for Rewarding Knowledge Sharing

Concerns arose about the KMA’s specific deliverables and how they tied into the competencies neededfor the corporation in the future. However, measures outside of the KMA unit were not yet in place tohelp justify the continuation of the KMA unit as a separate entity. For example, at the time the KMAwas initiated, only corporate employees and top-level SBU managers had incentive systems that werebased on organization-level performance, not just business unit performance. This meant that thoseworking in business units that were successful would “roar on without internal sharing,” while thosebattling for their survival might be the only ones that wanted to share.

Bio-Leverage’s initiative to measure the Growth and Learning with the Balanced Scorecard approachwas being pursued but was not yet in place.4 Rewards for experience sharing also were not beingcaptured as part of an individual’s performance appraisal system, but the KM director was working withbusiness champions of an Assets Program initiative in which the skills and knowledge of the company’speople were viewed as corporate assets to be managed. This initiative was expected to be the umbrellaproject for the development of new performance appraisal systems to incent behaviors for knowledgeleveraging.


Bio-Leverage’s experiences with repositioning the IT organization to enable knowledge leveragingsuggest some key guidelines.

Guideline 1Deploy the IT infrastructure standards as quickly as possible.

Knowledge cannot be leveraged if a firm does not have a seamless IT infrastructure across the enterprise.At the same time, such an infrastructure must be flexible enough to respect differences in regions,nations, and cultures. The CIO of Bio-Leverage quickly focused his attention on building relationshipsamong the previously decentralized IT heads and the deployment of new IT architectural standards.


Until this was achieved, IT would continue to be viewed as an impediment to the businesstransformation.

Guideline 2Use mechanisms to link independent structures.

The hiring of a new CIO and the establishment of a new KMA unit established the IT organization as akey enabler of the knowledge leveraging thrust. However, these new roles and structures needed to bequickly linked with the decentralized IT heads in the business units and other knowledge managementinitiatives spawned by the CEO. The CIO established an IT management council and an IT planningprocess to create new lines of accountability and communication across corporate and decentralized ITheads. The KMA director used formal role and group mechanisms, including his own integrator roleposition, to identify and create shared initiatives with non-IT units and the leaders of new global teams.For example, a new single-point-of-contact and new process were created to learn about and respond toIT needs being generated by the sponsors and champions of the new cross-enterprise councils andinitiatives. In some cases, these requests could be matched with existing IT projects. Informalrelationship-building mechanisms were also heavily relied on by the KMA director to develop keyworking relationships and to respond to new IT-related needs.

Guideline 3Motivate through a culture that values sharing.

Don’t assume that providing new structures and tools for information sharing—a “Field of Dreams”5

approach—is all that is needed to build a knowledge asset. Instead, assume that some encounters mayneed to be orchestrated and that step-wise processes help lead to the creation of collective knowledge.Experience sharing—including failures—must also become a part of the culture and the rewards system.Core values that support knowledge sharing and incentive systems that explicitly reward knowledgesharing need to be developed and communicated enterprise-wide.6

Guideline 4Exploit partnerships with information scientists and human resources.

A hallmark of the knowledge leveraging approach at Bio-Leverage was to exploit the strengths ofexisting information science and HR expertise within the organization. Information scientists are expertsin locating, cataloging, and presenting information in digital, sharable form as well as linking people toelectronic resources. Organizational scientists often found in HR departments can improve theorganization’s understanding of how best to use IT to leverage existing tacit and explicit knowledge,based on knowledge of group dynamics and individual learning. Partnering with HR specialists is alsocritical for the development of appropriate incentive systems at the individual employee level to ensuregrassroots buy-in to the building, nurturing, and maintenance of a knowledge asset.


Endnotes

1 Based on the work of Polanyi, tacit knowledge is undocumented individual know-how, whereasexplicit knowledge is externally visible and documented. (See M. Polanyi, Tacit Dimension,Doubleday, New York, 1966.)

2 Several of the ideas in this section of the chapter have also been reported in a paper co-authored byone of the researchers. See B. Junnarkar and C. V. Brown, Reassessing the enabling role of IT,Knowledge Management Journal 1(2), December 1997: 142–148.

3 M. J. Earl, and I. A. Scott, What is a Chief Knowledge Officer? Sloan Management Review 40 (2),Winter 1999: 29–38.

4 See the reference to GLN and note 7 in Chapter 2.5 Refers to the philosophy of “if we build it, they will come” in a recent movie of the same name.6 P. S. Goodman, Exchanging best practices through computer-aided systems, Academy of Management

Executive 10 (2), May 1996: 7–19.

CHAPTER 7

REPOSITIONING IT ORGANIZATIONS FOR COMPETITIVE AGILITY

71

Competitive AgilityBuilding sense-and respond capabilities through the ability to sense trends and rapidly offer a stream of innovative solutions without the

inertia of existing commitments

Two of our case studies were pursuing a competitive agility thrust: Pub-Enabler and Tele-Nimble. Bothof these companies were competing in established industries with entrenched workforces and were in thethroes of responding to major paradigm shifts within their industries. We begin by discussing how thesetwo firms used the five IT transformation vectors to achieve agility, which required significant culturechanges in order to develop a new entrepreneurial orientation among their workforces. For theillustration of a transformation journey to achieve agility we selected Tele-Nimble: within the ITorganization at Tele-Nimble a “grand experiment” in developing change-readiness capabilities tookplace in one of its large systems development units. The chapter closes with a succinct set of executiveguidelines for IT transformations to enable agility, based on the lessons learned from both of these firms.


Table 7.1 summarizes the IT transformation strategies for enabling agility that we discuss in detail later.Tele-Nimble was the only one of our six cases to pursue an anticipatory pacing strategy. As introduced in Chapter 3, this was because the new hypercompetitive environment anticipated for the telecommuni-cations industry had not yet been realized: Tele-Nimble’s IT transformation was in anticipation of thelandmark telecommunications legislation in 1996 that unleashed major competitive forces still reshapingthis industry today.

Vector 1: Infusion of Management TalentBoth companies brought in new IT executive talent from outside the firm in order to refocus theirorganization’s IT efforts in new industries. Tele-Nimble intended to be ready for its new competitiveterrain and hired a new CIO to reposition the IT organization. In his words:

As a company, we need to be agile, dynamic; we have to be able to move quick enough. . . . First, Ihad to have the best team available. I needed people who had been there before . . . winnerselsewhere. Second, we needed to create the environment for a rapid-moving company, withacquisitions, divestitures, and alliances overnight.

TalentInfusion

Table 7.1: IT Transformation Strategies for Enabling Competitive Agility

Transformation Vectors Pub-Enabler Tele-Nimble

Infusion of new IT management New CIO New CIO and other senior talent IT executives

Governance redesign CIO’s membership on key Recentralization of IT unitsexecutive committees

Recentralization through new Program Office and matrix reporting for divisional IT heads

Pacing Dynamic balancing Anticipatory

Sourcing Outsourcing of legacy system Reduced dependence on and maintenance new use of contractors for skill

infusion

Lateral coordination capability

Integrator roles Integrator roles for program Account managersmanager, outsourcing vendor Competency center managersClient liaisons

Groups IT management council IT management council

Competency centers Competency centers (centers ofof excellence)

Processes Statement of work, resource planning, competency center life cycle

Informal relationship-building IT community briefings

Human resource practices Redesigned practices, including appraisal system


As part of his transformation agenda, the CIO created a new IT leadership team by hiring a large number ofsenior IT executives from the outside—“proven winners” from other user firms and consultancies. One ofhis new senior IT leaders was a divisional information officer with some pioneering ideas. He had spentseveral years thinking about how to organize IT activities in order to build strategic IT applications within ashort time cycle to exploit the fleeting “windows of market opportunity.” Rapidly absorbing emergingtechnologies and development practices was a key capability in his model.

At Pub-Enabler, the traditional business model was already being threatened: print media were alreadylosing market share to electronic media, although the explosion of opportunities via the Internet was stillto be exploited by new and old competitors. At Pub-Enabler the technology of the business and use ofsystems to support business processes were closely intertwined, and the IT organization had been thestepchild. Dissatisfaction with the prevailing performance of the IT function as well as the desire for anew IT role that would enable the business transformation spurred the hiring of a new CIO from outsidethe firm.

Chapter 7 Repositioning IT Organizations for Competitive Agility 73

Vector 2: Governance RedesignBoth of the CIOs viewed some recentralization as a necessary step to transforming their IT organiza-tions. At Pub-Enabler, recentralization was accomplished in two ways. First, a matrix reportingrelationship was established for all divisional IT heads who previously reported only to the businessmanagers of their respective divisions. Now they were accountable to the CIO as well. Second, a newProgram Office was created to manage new multi-divisional projects. The intent was to leverage not only IT development expertise but also deployment expertise.

The new CIO at Pub-Enabler also became a member of the firm’s corporate operating committee and strategic planning committee for the first time, ensuring face-to-face contact with the firm’s topmanagers at least once a week. The CIO also became a member of the corporate acquisition committee;membership in this group was considered critical for developing the organizational capability to mergeacquired units more quickly.

At Tele-Nimble, the IT organization in the past had played a “neutral” role, rather than a strategic role.The recentralization of dispersed IT managers signaled a fundamental change in the role of the ITorganization: from a reactive, cost-control enabler to a proactive, strategic differentiator of the business.

Vector 3: PacingPub-Enabler adopted a dynamic balancing pacing strategy for its IT transformation: it was already in thethroes of industry turmoil and had to rapidly respond to growing competition in its core products andservices. The business had already embarked on the agility transformation path and the IT organizationwas being repositioned as part of this overall transformation thrust. Synchronizing the pace of ITtransformation with the business transformation thrust allowed the new CIO to be in tune with the seniorbusiness leadership of the firm as well as to orchestrate improvisations to the IT transformation as thebusiness transformation was taking shape. However, the IT function also had performance gaps: most ofthe existing skills were confined to legacy applications and the cycle times for applications developmentwere excessive. Therefore, some IT initiatives anticipated the business transformation in order todevelop entrepreneurial IT capabilities that could enable the business transformation. By switchingbetween anticipatory and concurrent pacing, the dynamic balancing strategy enabled the CIO toreposition the IT organization for the new competitive environment.

In contrast, Tele-Nimble adopted an anticipatory pacing strategy. Although it was clear that the tele-communications industry was soon going to be in the throes of dramatic change, the new deregulatedindustry landscape had not yet emerged. As an organization, Tele-Nimble wished to be ready for this new competitive reality and the hiring of a new CIO with responsibilities for IT and businessreengineering placed IT as a fundamental differentiator in achieving its transformation toward agility.The new CIO faced a history of legacy applications and an entitlement mindset that entrenched the ITorganization with structures, processes, and skillsets that would no longer be appropriate. The buildingof a new change-ready IT organization was required. Since the expected winds of deregulation weremore than a year away, the CIO used this as a window of opportunity to “experiment” with innovativeorganizational designs within the IT organization. An anticipatory pacing strategy allowed the ITorganization to reposition itself in advance of the business transformation anticipated under a stillundetermined regulatory environment.

Governance

Pacing


Vector 4: Sourcing On his arrival, the new CIO at Pub-Enabler recognized the IT workforce had been “doing the same jobs”at the firm for a long time. Most of the corporate IT workforce was engaged in legacy applicationssupport and had programming experience only in old tools (e.g., Adabase). One of the CIO’s toppriorities was to refocus the IT organization toward new technologies and applications that would yieldsignificant value to a business striving to become competitively agile. The outsourcing of legacyapplications therefore became a key tactic for refocusing the corporate IT organization.

An outsourcing agreement was developed in the form of a three-year “break fix” contract: onlymandatory fixes were to be maintained. If a business client requested changes in the functionality of anold system, there would be a direct chargeback to that client. A postmortem review of the outsourcingprogram demonstrated its effectiveness: (1) all former IT personnel for the legacy system had beenrelocated inside or outside the organization, (2) the annual cost savings were significant, and (3)customer satisfaction had doubled.

At Tele-Nimble, the new sourcing thrust was to reduce the dependence on outside vendors. In the past,the IT organization had regularly contracted outside resources for their expertise with new technologiesand used these resources to do project work—sometimes for extended time periods. In order toreposition the company for the future, the new thrust was to build the expertise in-house, and thissourcing practice meant lost opportunities for internal employees to develop new skillsets. Beginning inJanuary 1995, contractor engagements were used in new ways: to accelerate internal growth of skillsetsand other capabilities associated with change-readiness. Reducing contract personnel therefore became akey indicator of progress toward agility.

Vector 5: Lateral Coordination CapabilityBoth firms deployed new portfolios of lateral coordination mechanisms to reposition the ITorganizations toward agility. For our discussion below we focus on the new corporate IT mechanismsimplemented by the new CIO at Pub-Enabler. The presentation of the full set of mechanisms that werepart of the radical redesign of a large IT unit at Tele-Nimble is saved for our detailed discussion on thetransformation journey at Tele-Nimble that follows.

Lateral Capability at Pub-EnablerThe CIO at Pub-Enabler relied heavily on new formal mechanisms to quickly develop linkages acrossthe new corporate and business division IT heads. To develop a “cross-functional,” enterprise-level view,the CIO established an IT management council with IT heads from each of the six major business units,plus an international IT head. The team’s mandate was to “govern the digital architecture” of the firmand approve all systems projects using a new process that enabled an assessment of redundant effortsacross divisions. The IT management council held monthly, two-day meetings at different locations “tolearn about that part of the business.” The CIO used his own newness to the firm to gain buy-in to thisapproach by the IT heads and sensitize them to the need to increase their responsiveness to the corporatetransformational pressures.

A new integrator role position, as a direct report to the CIO with no staff, was established to manage itsnew outsourcing relationship. The manager who filled this position previously supervised all of thecorporate IT specialists who had been transferred to the outsourcing organization. He viewed his role asa process integrator and facilitator; he served as a “translator” for the business client user and helped to

Sourcing

LateralCoordination

Capability


tear down any third-party walls. Physical presence (co-location) was viewed as important: he had oneoffice in corporate IT and one at the outsourcer’s site.

The head of the new corporate IT Program Office (see Vector 2) was also expected to play a newintegrator role: influencing development and deployment methods across divisions.

To reinforce business ownership of IT projects and increase the likelihood of systems adoption ofpurchased packages client liaisons were implemented within corporate departments. During the initialimplementation, these liaison managers served as team leaders of projects. IT specialists reporteddirectly to them to increase IT responsiveness and accountability.

Competency centers in which corporate IT specialists were organized by technology expertise—forexample, client-server, UNIX administration, electronic mail—were also introduced. The managers ofthese competency centers were responsible for the development of the IT specialists assigned to them:their assignments to projects, training and development, and mentoring. To emphasize the dualimportance of building responsiveness to the business as well as new IT capabilities, an IT specialistassigned to a business project had a solid-line report to the project leader in the business function, and adotted-line report back to the competency center.

Tele-Nimble

The IT transformation at Tele-Nimble included the development of a totally new portfolio ofmechanisms for one of the four systems development units (LB&IT) under its visionary new DivisionalInformation Officer. In the next section we describe in detail these mechanisms as part of our descriptionof the IT transformation journey at Tele-Nimble.

The IT Transformation Journey at Tele-Nimble1

Table 7.2 summarizes the pertinent background characteristics presented in Chapter 2. Informationtechnology was recognized as a key player in facilitating the transformation to a new, as yet uncharted,industry environment. In 1993, a new CIO was hired to reposition the IT organization in its new role asan enabler of a business transformation thrust toward competitive agility.

Table 7.2: Competitive Agility at Tele-Nimble: Background

Business characteristics Large telecommunications firm competing in local markets,anticipating major industry change

New CIO brought in to transform IT from back-office function

Factors motivating the Impending deregulation in the industrybusiness transformation thrust Cycle time pressures

Vision for transformation Competitive Agility ActionsCultural change to an entrepreneurial mindset

Complementary Transformation ActionsNew set of core valuesBusiness process redesignNew IT leadership role


The Business Transformation ThrustIn 1996, Tele-Nimble competed in a telecommunications industry that had traditionally operated as anoligopoly, with markets and activities governed by regulatory bodies. However, since the early nineties,the industry had begun to experience hypercompetitive pressures in the form of increased rivalry.Landmark federal legislation deregulating the industry passed in February 1996, allowing competitionbetween the phone companies, long distance carriers, and cable companies. This legislation wasexpected to fuel an industry consolidation and shakeout in which only a handful of major national andinternational providers were expected to survive. Tele-Nimble faced the prospect of a world where“market windows of opportunity” would open and close very rapidly. Therefore, sustained successwould require mastering the ability to anticipate customer needs through intimate relationships andsatisfy them through novel streams of products and services. According to the CEO:

The winners in this era of open markets will be those who are organized around the requirements ofthe market and ready to take advantage of emerging opportunities.

Since this emerging environment is a discontinuity from the past, Tele-Nimble faced a transformationalimperative: move from a protected, regulated, and oligopolistic market environment to a hyper-competitive market environment, characterized by a focus on speed, surprise, customer intimacy, andoperational excellence. The business needed to become more agile in order to quickly seize emergingopportunities faster than their rivals.

Setting the Stage for the Business TransformationIn anticipation of the paradigm shift in its industry, Tele-Nimble’s CEO launched several significantinitiatives, including a major cultural change. One of the key challenges was to move its workforce froman “entitlement” mindset––in which employees expected to be taken care of by their organization––to anentrepreneurial workforce, primed for change. The new Tele-Nimble emphasized core values andbehaviors that focused on teamwork, quality, diversity management, and employee accountability.

Motivation for the IT TransformationWhen the new CIO took over the reins of the IT function at Tele-Nimble, he found an IT workforcewhose expertise was concentrated primarily in large mainframe applications that were appropriate for aregulated communications industry. IT had done a fairly good job of staying ahead of the demand curveand reducing unit costs. However, its resources were primarily devoted to the support of legacy systemsthat would soon outlive their usefulness. The existing managerial focus worked well in a structured andstable legacy environment, in which the applications were at least five to ten years old and the workforcewas rewarded for subject matter expertise and consistent, repetitive performance. Further, most of theemployees had an entitlement mindset. These values and capabilities would not be appropriate for an ITorganization expected to be proactive in building strategic applications that would enable IT-baseddifferentiation of the firm’s strategies, products, and services. Thus, it was clear to the new CIO that theIT organization needed to transform itself in anticipation of the business transformation. In the words ofthe CIO:

We needed to create the environment for a rapid-moving company with acquisitions, divestitures, andalliances overnight.


Acknowledging the prevailing performance gaps and the expectations that the agility transformationthrust would impose on the IT organization, the CIO sought to develop a change-ready IT organizationin order to:

• enhance competitive agility by delivering IT-based products, services, and business applicationswithin short development cycle times. Many of these IT-based applications could be of the first-mover type that surprise competition and potentially alter industry practices.

• build a highly skilled, empowered, and energized IT workforce with an entrepreneurial orientationtoward leveraging technological knowledge into business applications.

Setting the Stage for the IT transformation

Four key transformational goals were identified for the IT organization:

1. Move from a legacy, mainframe applications development environment, characterized by longdevelopment cycle times and excessive maintenance activities, to a more business responsiveenvironment, characterized by short development cycle times, a philosophy of continuous productinnovation, and delighted user clients.

2. Infuse strategic thinking within the IT organization to conceptualize and execute novel businessapplications that sustain the firm’s competitive agility and customer satisfaction.

3. Build a solid internal pool of skilled IT professionals, trained in current skills (client-server, object-oriented, networking), customer relationship management, and project management. Further, create aprocess for the rapid absorption of new skills and retirement of obsolete skills.

4. Build an IT workforce whose values change from an entitlement mentality (“the company isresponsible for my career progression”) to an entrepreneurial mentality (“I am responsible forenhancing my skill and career opportunities”).

The CIO’s first order of business was to build a team of senior IT executives who would be capable ofleading the transformation of the IT function. Some of these new hires were proven winners from otherfirms and consultant organizations. At the end of 1993, the IT organization was restructured to betteralign with a new business structure: five of the CIO’s direct reports served as divisional informationofficers with single-point-of-contact as well as systems development responsibilities for business clientsin the restructured lines of business.

The CIO also deliberately encouraged his management to “experiment” with innovative organizationaldesigns. The most significant of these initiatives was a radical redesign of one IT unit (LB&IT) withincorporate IT, first implemented in July 1994 under the visionary leadership of its Divisional InformationOfficer (DIO). This unit of about 250 employees was responsible for new applications development andmaintenance for three LOBs located within three major geographic clusters. The remaining sectionsdescribe the totally new IT organization for LB&IT that became a focal point for corporate IT’santicipatory repositioning strategy.

The Transformed IT OrganizationThe vision for the transformation of the LB&IT unit within the corporate IT organization at Tele-Nimblewas a skills-based “centers of excellence” (CoE) approach. An underlying assumption of the model was separating project delivery work from customer relationship management on the one hand, and


separating project delivery work from people development on the other. Further, skilled IT personnelwere viewed as strategic IT assets to be managed.2

Similar to the implementation of a totally new model for the IT organization at Material-System (seeChapter 5), the DIO at Tele-Nimble developed a design that embodies all three types of formalmechanisms in our iceberg metaphor: roles, groups, and processes. Here, too, changes in HR practicesproved to be a key part of the IT transformation. Our own graphic design of the key groups and roles inthis model is shown in Figure 7.1. The entire portfolio of coordination mechanisms is described in thefollowing sections.

AM

LB&ITManagement

Team

Centers of Excellence

CM

Delivery EngagementTeams

DM

Group

Role CM = CoE ManagerDM = Delivery ManagerAM = Account Manager

Figure 7.1: Key Groups and Roles for IT Organization Design at Tele-Nimble

Integrator Roles

Three new types of integrator roles were implemented: account managers, delivery managers, andcenters of excellence (competency) managers. The account managers were responsible for partneringwith their business clients in anticipating strategic opportunities for IT applications and by serving as theclient’s primary point-of-contact for the corporate IT organization. They worked without direct staffsupport. According to the CFO of one LOB, “the account manager is my window into IS. Now I have aclear face and clear interface into IS.” Although the account managers formally reported to the ITgroup, their partnerships with clients led them to “feel” a dotted-line reporting relationship with businessmanagement.

The account manager (AM) was responsible for initiating a “statement of work” with the business client,and using this document to monitor and communicate the project status to clients and IT directors on aregular basis. The AM was also responsible for getting signoffs for each project phase, working out anyclient relationship problems encountered during the project, and capturing formal client feedback at theclose of a project. The AMs also contributed biweekly “radar reports” to communicate the current and


future needs of their clients to other key managers within the LB&IT management team. These reportswere important for anticipating the human resource skillsets needed for future projects.

Delivery managers were responsible for managing projects for new applications or providing support forexisting applications. Their responsibilities included: (1) identify skills needed for delivery engagementmanagement teams based on the statement of work, (2) manage the team of IT resources assigned to theproject, and (3) deliver a quality project on-time within budget under a new time-box constraint:maximum of six months. These managers primarily focused upon the rapid delivery of applications,whereas the account managers were accountable for customer relationships.

Competency (CoE) Center managers were individuals responsible for managing one or more compe-tency centers. They had three primary responsibilities: (1) assign their competency center personnel tospecific application projects, (2) coach, groom, and counsel members to achieve high skill levels throughtraining and development, performance appraisal, and career management advice, and (3) develop rules,tools, and processes for the application of their competencies. Competency managers had the soleresourcing authority for all IT personnel below the level of the director. They received requests forskilled IT staff from the delivery managers and assigned specific members from their competency center to the projects. In making sourcing decisions, they weighed an individual’s needs for training and development against a project’s needs for expertise. Since the project teams were temporary assign-ments, the competency managers were also the “permanent report” for an employee and providedcontinuity to the counseling role.

The competency manager position was a clear signal of commitment to a separation of peopledevelopment work from project management and delivery. The competency managers were exclusivelyresponsible for development of the IT human resources for LB&IT. They also played a key role inmaintaining a state of IT workforce readiness: they were responsible for anticipating changes in demandfor current skillsets and planning for the acquisition of new skillsets.

Groups

As seen in Figure 7.1, three different groups were part of the design: IT management council (LB&ITmanagement team), centers of excellence, and delivery engagement teams. The IT management councilconsisted of the divisional information officer and his direct reports. This council served as the steeringcommittee responsible for achieving the functional strategy of the LB&IT unit and its ongoing conduct.It also acted as the planning team for the IT transformation, and the decision body for interface issuesinvolving other corporate IT units.

The centers of excellence (competency centers) were standing teams of technical specialists, or peopletrained in specific IT skills under the center managers. Each skill center was a “virtual homeroom” of ITpersonnel who strived for a high level of expertise in the specific skillset. The initial 12 skill centerswere defined using 3 overarching guidelines: (1) avoid skillsets that are too fine-grained, (2) keep thetotal number of members at or below 30, and (3) create skillsets needed for the future, even if there areno IT personnel to populate them currently. Grouping employees by skills was a major philosophicalchange: based on their current skillsets, all IT personnel below the rank of director selected a skill centerto be initially assigned to and one that they would like to belong to in the future.


Twelve competencies were initially identified and implemented as a separate center of excellence (CoE).Most of the CoEs were for technology and methodology skillsets (e.g., mainframe software engineering,client-server software engineering, data modeling, documentation and training). Three of the centerswere for competencies needed by the new integrator roles (i.e., account management, deliverymanagement, and CoE management). Some of the centers were of critical importance during thetransition but were expected to be significantly reduced (e.g., mainframe software engineering); othercenters were for desired skillsets (e.g., client-server software engineering) for which the IT unit hadvirtually no IT expertise at the startup.

Delivery engagement teams were temporary project teams created for each new approved development(or support) project. These teams were formed by drawing a delivery manager from the deliverymanagement CoE and individuals from other competency centers based on the project’s skill require-ments. The ideal team was appropriately skilled and tightly focused on delivering the application ontime, within cost, and according to client expectations. The teams were disbanded at the conclusion of a new development project. Most members were assigned to a different project, or a training anddevelopment stint; a small subset was assigned to an application support team to ensure knowledgetransfer.

Processes

Three new processes were developed for the new CoE design: statement of work, resource planning,and competency center life cycle management. The statement of work process was utilized by accountmanagers for conceptualizing value-creating applications for their business clients. The process involvedcollaborating with managers in their LOBs in order to identify innovative ways in which IT couldfacilitate new products and services, reengineered work processes, or reconfigured relationships withexternal customers and other stakeholders. As managers of customer relationships, the account managerswere not only heavily involved in the conceptualization of innovative IT applications, but also indefining business requirements, scheduling prototype evaluations, and planning roll-outs. The outcomesof this process were documented in a Statement of Work (SOW), which became a critical mechanism forlinking the activities of the account manager and the delivery manager responsible for developing theapplication.

Resource planning was an integration process for aligning the account management, deliverymanagement, and CoE management activities. For example, the account and delivery managers workedinterdependently to ensure client satisfaction with the delivery of an application. Similarly, the CoE anddelivery managers worked together to ensure the availability and appropriate use of skilled IT staff onprojects. Finally, the account and CoE managers worked together to cultivate skillsets in anticipation ofthe future application needs for the business.

The resource planning process involved biweekly meetings of all senior IT executives and all accountand CoE managers. These meetings monitored progress on current projects, availability of IT staff withappropriate skills, and the staffing needs of future projects. They drew on three inputs: project statusreports (submitted by the delivery managers), “radar reports” on client projects in early planning stages(by each account manager), and “resource movement” analyses and projections of future skillsetdemands (by each CoE manager). The resource planning process was a critical integration mechanismfor achieving agility.


The CoE life cycle management process viewed each competency center as having a life cycle—movingfrom birth (creation), to growth and expansion, and then to retirement (decline) and eventually phase out (disbandment). The life cycle process was a renewal process for IT competencies: identification of desired skills, creation and growth of a competency center through reskilling, and retirement ofcompetency centers when the skillsets are no longer required for either current or future projects. The pace at which a center traveled through its life cycle depended on the business demand for the ITcompetency. Information gathered from the Resource Planning process was a key input to the life cyclemanagement process.


Additional mechanisms were needed to create more opportunities for geographically dispersed ITmanagers to communicate with key LB&IT leaders, especially as anxieties about career path issuesarose. IT community briefings in the form of brown-bag sessions were held at different geographic sites,and IT employees were encouraged to express their concerns in person or via telecommunicationschannels.


The IT professionals within LB&IT were expected to begin to manage their own careers in an environ-ment that was less paternalistic, less entitlement-oriented, and more skill- and performance-oriented. Anappraisal process that placed high value on customer satisfaction, as well as successful project teaming,was considered to be a key element of moving to a change-ready environment. For example, the newappraisal process that was implemented for IT specialists was based on input from business clients aswell as multiple IT bosses: the CoE manager(s) and all project managers during the prior 12-monthperiod. These multi-input appraisals were to be used for annual raises and bonuses, as well as forpersonnel development planning.

Navigating the Transformation JourneyWhat were some of the challenges that Tele-Nimble faced as it repositioned the LB&IT unit, and whatplanned solutions and management improvisations were devised to address them?

Jumping in with Both Feet

The IT transformation within the LB&IT unit at Tele-Nimble was a radical reconfiguration of structures,processes, and incentive systems. Early on, the CIO decided not to overplan the implementation but tomake adjustments in response to emerging challenges during the transformation journey. Only a fewmonths were devoted to establishing the new structure and “selling it.” He was convinced that anincremental approach would not be an effective implementation tactic for an as-yet “unproven” design.Instead, a “jump-in” approach was taken, with the expectation that new mechanisms would be developedas needed along the way.

Gaining Buy-In of Key Stakeholders

Since this transformation was initiated in anticipation of the new business transformation, no crisis wascurrently at hand. This presented a unique challenge not faced by the other five cases in our study: howto create a sense of felt-need and urgency in order to mobilize commitment among the key businesspartners and the IT unit itself.


The buy-in of the corporate IT organization was achieved in two ways. First, the CIO himselfencouraged organization design experiments in the different IT units. This provided the LB&IT DIOwith the autonomy to innovate. Second, the DIO’s knowledge about the proposed organizational model,gained while working at another organization, was recognized as an IT management asset during hisown hiring process. Soon after his arrival at Tele-Nimble, he presented his ideas to the corporate ITmanagement team. He argued that the new LB&IT unit (created in January 1994 as part of therestructuring of the corporate IT organization) was large enough in personnel and range of responsi-bilities to be a “microcosm” of an IT organization. In March 1994, he received peer approval for moving forward with his vision of the CoE model.

The challenge relative to the business clients was to convince them that the new structure would notdisrupt their existing services, but instead deliver greater business value. Business clients within LB&IThad traditionally worked with their IT development staff for long periods, so that their subject matterexpertise and working relationships were highly valued. This was a “comfort factor” for the clients,and some business managers had come to expect “a lot of handholding.” Therefore, these clients wereconsiderably skeptical about the proposed organizational changes. Since all the IT staff below the levelof the director were reassigned to specific competency centers, clients were anxious about losing “their”IT people.

The six-month time box for applications delivery also turned out to be a major mindset change for bothLB&IT clients and developers: they perceived it as too severe a change. Special efforts were needed toeducate the IT staff and clients about the role of six-month delivery goals in facilitating agility and theneed to modularize requirements for larger projects to meet this time box. Some “early wins” with rapiddelivery of applications that delivered strategic value helped them overcome early concerns. The LB&ITmanagement team persisted with their vision and continued to sell the transformation as a way to bringin business value by positioning IT as an enabler of change. A determination to not waiver from this newprinciple was critical for the transformation journey.

Evolving Formal Coordination Mechanisms

The new IT organization structure had new roles for account, delivery, and competency centermanagement. Therefore, an important challenge was to ensure coordination across those who playedthese different roles. Initially, traditional monthly meetings of the LB&IT management team were reliedon to achieve alignment and integration. However, a few months into the implementation, symptoms ofmisalignment problems began to surface. For example, IT staff were not being freed up fast enough forother projects, a lot of time (e-mails, phone calls, and so on) was being spent tracking the status ofparticular IT staff members, and the CoE managers were experiencing difficulties in anticipatingdemand for current and future skills. Monthly meetings were insufficient for this new change-readyenvironment; new mechanisms were needed.

The new resource planning process (described earlier) was established at this time. Additional biweeklymeetings were set up to focus on current and future skillset needs and people training, and new formalvehicles were developed for input to the process. Other formal mechanisms also evolved to improvealignment across the three new sets of IT managers. First, the Statement of Work process (previouslydescribed) was formalized in order to improve communication and hand-offs between these manager


roles. Meetings between just account and delivery manager CoEs were also initiated. Both formalmechanisms helped build new interpersonal networks among specific managers that were needed forproblem solving on an ad hoc basis.

Managing Employee Anxieties

About half of the LB&IT workforce was skilled only in mainframe application tools at the outset of theIT transformation. Some of these IT professionals had been “heroes” in the old environment. But in thenew IT organization, they faced the prospect of their skills becoming obsolete.

Further, some individuals who had legacy skills were not being freed up for new training or otherassignments as quickly as they wanted since their delivery managers were afraid that the old systemswould fall apart if individuals with specialized subject matter expertise were moved to otherassignments. This group of employees was disgruntled at having to wait their turn for training.

To soothe these anxieties, transition plans for specific individuals became a priority. Customized planswere developed by the CoE managers responsible for the IT professionals in the legacy skill CoEs. Theplans were first reviewed with the delivery managers responsible for the support of the legacyapplications and then communicated to the affected individuals. As IT staff began to be transitioned outof their legacy roles without the initial fears of their delivery managers being realized, the concept ofcustomized transition planning for individuals took hold, and these morale problems subsided.

An informal mechanism, IT community briefings (described earlier), was also implemented at multiplesites to help control rumors and allay fears. These brown-bag sessions with senior LB&IT leadersprovided information “straight from the horse’s mouth” and enabled the staff to voice their individualconcerns and receive personal advice/counseling in one-on-one discussions.

Finally, not all employees were uniformly receptive to the transformation from an “entitlement” to anentrepreneurial mindset in which employees take more responsibility for their career development. Someemployees expected their supervisor to still create opportunities for them. A variety of human resourceprograms (newsletters, training, and so on) were developed in partnership with the HR department tohelp the competency managers in moving more reluctant LB&IT employees toward an entrepreneurialset of values.

Fine-Tuning New Appraisal Systems

The new appraisal process was based on assessments by multiple IT managers as well as businessclients. The concept of client evaluation was totally new for the IT organization and led to someimplementation problems. In particular, IT staff who received less-than-satisfactory team ratings fromclients expressed tremendous anxiety relative to their job security and promotion prospects within notjust LB&IT, but also the IT organization as a whole. Rather than motivating all team members to bemore customer-oriented, the unintended result for some IT staff was a perception of having littlepersonal control over their own performance ratings. Two factors contributed to these anxieties: (1) Thebusiness client ratings were at the project team level, not the individual employee level; therefore,individual employees often felt frustrated about being penalized for lack of performance by their peers.(2) The client ratings were collected at year-end; therefore, there were concerns about unfair clientbiases due to recent events that might be unrelated to the project team being rated.


At Tele-Nimble, performance ratings were traditionally used not only to determine annual raises, butalso to establish the “organizational worth” of an individual—including identification of prospects forpromotions as well as candidates for career counseling or layoffs. Given the increasingly turbulentbusiness environment and the organization’s move away from an “entitlement” workforce, a rewardsystem that differed from the rest of the IT organization became too threatening for too many of theLB&IT personnel, and forced a retrenchment on this issue. Effective January 1996, the LB&ITmanagement team was forced to make a major adjustment to the use of the client evaluations to respondto these anxieties: client ratings began to be used only for determining annual bonuses.


The experiences of these two case firms as they repositioned their IT organizations to enable thebusiness transformation thrust of agility suggest some key guidelines.

Guideline 1Create an environment of experimentation along with strategic partnerships.

Agility requires the ability to develop a deep understanding of the undercurrents in the businessenvironment and the prospective forces associated with the “fleeting windows of opportunity” in themarkets. Further, as IT becomes the key element in the firms’ ability to be agile, the IT organizationmust build strategic partnership relations with the business clients. These partnerships are vital for the ITorganization to learn about the business drivers and risks and raise awareness about how the existing ITinfrastructure could be deployed for winning products and services. Without partnership relations, the ITand business executives are less likely to be able to capitalize upon the emerging market opportunities.

Guideline 2Manage IT human resources as strategic assets.

Guideline 3Exploit external contractors for developing internal IT personnel.

Competitive agility requires the ability to rapidly assimilate information technologies and IT skills intothe organization and leverage these skills across a stream of applications. Further, this transformationthrust requires an entrepreneurial workforce that is primed to recognize opportunities for marketadvantage and seize these opportunities through rapid deployment of IT applications. The experiences ofboth firms in our study reveal the importance that they placed on grooming their human resources asstrategic assets. These two firms implemented competency centers and explicitly assigned the managersof these competency centers with responsibility for coaching the IT staff and nurturing their IT skills,attitudes, and values. The development of IT human resources as strategic assets requires this type ofexplicit focus.


The development of IT human resources as strategic assets also requires an organizational commitmentto valuing these resources and sustaining opportunities to deploy their expertise within the organization.Many firms have traditionally used external contractors for gaining quick access to new IT skills orexpertise not available internally. However, such a strategy is likely to demoralize the internal IT staffand contribute to turnover. Therefore, the role of external contractors must be redefined. First, mostapplications projects requiring valued new IT skills must draw on internal expertise. Second, if theinternal expertise does not exist, contractors can be used to diffuse the valued expertise to the internalstaff. Contractual arrangements must explicitly include mechanisms and measures for developing themduring the course of the project.

Guideline 4Institutionalize change-readiness as a necessary IT capability

by building on corporate values.

Change-readiness is more than skill acquisition; it is a mindset. The development of change-readinesscapabilities requires instilling a new set of values into the institutional fabric of the organization. Thistype of cultural transformation therefore needs to build on corporate values—right from the top.

Guideline 5Find the right balance between “jolt” and “nurture” for those

that are more entrenched.

IT transformations such as these that radically alter an employee’s reporting arrangements, processes,and incentive systems are likely to elicit a variety of reactions from the employees undergoing thechange. Some are likely to embrace the change enthusiastically, others are likely to be willing to bepersuaded, and some others are likely to be apprehensive and require significant handholding along thetransformation journey. At both case sites, the CIOs leveraged their newness to initiate a new way ofworking and an abandonment of the old order. The LB&IT unit at Tele-Nimble implemented compe-tency centers and relocated all IT professionals into these centers as part of a radical reorganization.Pub-Enabler outsourced all legacy applications work and implemented competency centers for valued ITskills. These actions quickly shifted attention toward the skills, values, and attitudes associated with thetransformed IT function. However, as specific groups of employees experienced anxieties about theimplications of the new organization for their own career prospects, senior IT executives devotedsignificant efforts toward “nurturing” them: leveraging the new competency center managers, sponsoringspecial information sessions in which their concerns could be voiced, and fine-tuning change efforts asneeded to allay fears.

Guideline 6Approach changes to appraisal systems as long-term strategies, not quick fixes.


Modifications in appraisal systems are a key part of transformation efforts, but such systems aretypically under the purview of a corporate human resources department. Since standard procedures andmeasures facilitate cross-unit moves and a sense of equity, it’s not always possible to move the ITorganization ahead of the rest of the business. Although short-term changes may be possible, the long-term nature of this part of the IT transformation effort needs to be taken into account.

Endnotes

1 Significant portions of this story have also been told in a paper that received a SIM Paper Award in1996 and was subsequently published in a revised form. See C. E. Clark, N. C. Cavanaugh, C. VBrown, and V. Sambamurthy, Building change-readiness capabilities in the IT organization: Insightsfrom the Bell Atlantic experience, MIS Quarterly, December 1997, 425–455.

2 Ross et al. advocate that IT human resources be viewed as one of three strategic IT assets. See J. W. Ross, C. M. Beath, and D. L. Goodhue, Develop long-term competitiveness through IT assets,Sloan Management Review 38 (1), 1996: 31–42.

CHAPTER 8

REPOSITIONING IT ORGANIZATIONS:THE NAVIGATION MAP

For our concluding chapter, we highlight our findings in the form of recommendations for how to repo-sition the IT function to play a heightened role in today’s hypercompetitive environments.

We found three systemic thrusts for the development of sense-and-respond capabilities: process integra-tion, knowledge leveraging, and competitive agility. Each of these business thrusts required a height-ened role for the IT function as a strategic differentiator of competitive strategy and value chain activi-ties.1 While we cannot claim that our six case studies represent all of the ways that IT organizations arebeing transformed, we do contend that several common themes can be found across them.

Our learnings for how to navigate an IT transformation are therefore presented below by commontheme. First we describe the new IT role as a strategic differentiator. Then we describe our recommen-dations for navigating the IT transformation journey under four themes: IT capabilities, high perfor-mance designs, five IT transformation vectors, and the CIO as a transformational leader.

IT As a Strategic Differentiator

The first step is recognizing the critical new role that IT plays as a strategic differentiator and enabler of these business transformations. The three strategic differentiator roles of IT can be summarized asfollows.

Glue for ConnectednessIT enables the implementation of common, global processes as a means for sensing emerging marketopportunities and responding to them in winning ways. IT-enabled enterprise-wide processes facilitatethe development of more intimate customer relationships and integrated solutions to customers’ needs.Therefore, IT acts as the glue for binding enterprise-wide activities across business units and geographi-cal regions.

Links for Knowledge LeveragingIT architecture standards are critical for building an organizational intelligence capability. Once theseare in place, IT also enables the capturing of relevant internal and external information, the cross-link-ing of different sources to facilitate innovative solutions to emerging market needs, and the creation andrenewal of a knowledge asset used for responding to customers, markets, and competitors.

Platform for Competitive AgilityAn IT function whose workforce is poised to be entrepreneurial, and to continually reskill, can respondquickly with innovative IT applications. These, in turn, enable the firm to deliver a stream of innovativesolutions to exploit fleeting windows of market opportunity.

87


IT Capabilities

Based on Hamel and Prahalad,2 we define capabilities as the distinctive organizational skills for com-bining available resources and sustaining superior performance. What IT capabilities are critical forsustaining the new strategic differentiator roles of IT?

We found five types of IT capabilities to be critical. As illustrated in Table 8.1, the first two—strategic thinking and partnering orientation—appear to be primary skills for all three strategic differentiator roles.

Strategic ThinkingStrategic thinking refers to the ability to envision the value-added business structures, processes, andbusiness capabilities enabled by IT.3 Strategic thinking therefore raises the prospects for IT applicationsthat produce high impacts.4 As strategic thinkers, IT managers must be able to interact with their busi-ness unit peers and “seed” them with innovative ideas for IT use. A strategic thinking capability isattained when IT professionals are able to apply systems logic to devise ways in which the IT infra-structure can be deployed to create new business applications for process integration, knowledge lever-age, or competitive agility.

Partnering OrientationA partnering orientation refers to the willingness and ability of IT professionals to work collaborativelywith their business clients as well as with each other in rapidly developing innovative IT solutions. Two

Table 8.1: IT Capabilities and the Three Strategic Differentiator Roles

IT Capabilities Strategic Differentiator Roles of IT

Links for PlatformGlue for knowledge for competitive

connectedness leveraging agility

Strategic thinking Primary Primary Primary

Partnering orientation Primary Primary Primary

Seamless IT infrastructure—Process Primary Secondary Secondary

Seamless IT infrastructure—Knowledge Secondary Primary Secondary

Change-Readiness Secondary Secondary Primary

Chapter 8 Repositioning IT Organizations: The Navigation Map 89

specific types of partnering are important: (1) IT-business partnering and (2) IT-IT partnering. IT-busi-ness partnering enables IT professionals and their business clients to collaboratively assess opportunitiesfor the strategic use of IT and share in the risks and leadership of the development of their solutions.5

IT-IT partnering is needed for the CIO and other senior IT executives who may be reporting to businessunit heads to work together to manage the “IT business of the business.”

The experiences of Bio-Leverage and Pub-Enabler demonstrate how such councils can quickly link pre-viously dispersed IT heads. The experiences of Bio-Leverage, Material-System, and Tele-Nimble pro-vide evidence of how a partnering capability with business leaders and human resource specialistsproved critical to performing new IT leadership roles.

Seamless IT InfrastructuresSeamless IT infrastructures enable the movement of data, information, and explicit knowledge acrossthe enterprise, regardless of geographic, technological, organizational, and cultural barriers. The deliv-ery of such infrastructure capabilities requires top-level support for the business value associated withthese IT investments and a workforce skilled in managing mainstream and emerging IT.6

Two types of seamless infrastructures were sought:

• IT-enabled process infrastructures that are built through the implementation of global ERP packages to deploy common global processes for key value-stream activities (such as customerorder fulfillment).

• IT-enabled knowledge infrastructures that are built through the implementation of collaborative(e.g., Lotus Notes, intranets) and data warehousing technologies (e.g., data storage, data mining).

An IT-enabled process infrastructure is a primary skill for the pursuit of process integration. An IT-enabled knowledge infrastructure is a primary skill for the pursuit of knowledge leveraging.

Change-ReadinessChange-readiness implies the ability of the IT function to:

• deliver a stream of strategic applications with rapid cycle times.• absorb emerging technology skills into the existing base of IT knowledge.• nurture an entrepreneurial workforce that actively embraces the values of innovation, risk taking,

knowledge and skills renewal, and customer orientation.

The soft skills associated with managing customer interactions and delivery of projects on a tight cycletime are as important as the technical skills, such as client-server technologies, object-oriented develop-ment, or relational databases.

The experiences of Pub-Enabler and Tele-Nimble suggest that investments in a change-ready IT func-tion can quickly bring strategic value to a firm facing considerable industry turmoil. Change-readinesscapabilities are of primary importance for firms pursuing competitive agility.


High Performance Designs

How can IT organizations nurture the IT capabilities that are fundamental to their strategic role?Several of our case firms developed high performance designs that recognized the need to balance thedemands for IT product and service delivery and IT capability development.

Three principles that characterize these high performance designs are as follows.

Design the IT Organization Around Customers, Products, and SkillsThe strategic value of IT organizations is closely linked to how well they manage attention to customers(business clients), products (development projects), and skills (IT human resources).

Account management facilitates attention to the business clients. Account managers are an importantelement of IT organization design because they facilitate intimate relationships with business clients. AsIT becomes an important ingredient in enabling the “sense-and-respond” competitive strategies, it iscrucial that the IT organization facilitate attention toward development of an intimate understanding ofthe strategic drivers and value-streams of the business. Further, it is equally imperative that IT organiza-tion enable its business clients to develop an appreciation of the reach and range of the IT infrastructureand “seed” them with innovative ideas for the strategic use of IT. Effective account managers under-stand the markets, strategies, and competencies of their business units, adopt systems thinkingapproaches to identify ways of coupling the IT infrastructure with business drivers and processes, andcollaborate with their business clients in evolving innovative IT applications.

Delivery and services management facilitates attention to the rapid delivery of applications to businessclients. Delivery engagement teams are assembled by pooling professionals who possess the required ITskills for delivery of the specific application or service solution. A delivery manager skilled in projectmanagement leads each team. Development teams are focused on delivering IT applications on timeand according to the specifications developed by the account manager. At the end of the project, theteam is disbanded so that the members can be assigned to teams for other applications projects.

Skills management facilitates attention toward the currency of the IT knowledge and the development ofan appropriate portfolio of skills in the IT function. Skills management is best facilitated through thedevelopment of competency centers, in which the goal of each competency center is twofold: (1) devel-op a corps of IT professionals who are competent in the specific skillset and are able to apply thoseskills consistently across development projects, and (2) develop processes and methodologies for theapplication of those skillsets in projects. Each competency center is managed by a coach who is respon-sible for the human resource development of the IT professionals in that competency center.

Institutionalize the Human Resource Development Capability Within the IT FunctionThe rapid pace of change in IT skills and the extraordinary shortages of skilled IT professionals hasplaced significant strains on the ability of business firms to absorb emerging IT skills and leverage themfor competitive advantage. Some of the firms in our study explicitly incorporated the HR activities intothe IT organization and developed skill-based employment relationships.

New contractual relationships between the organization and the new breed of IT professional who pos-sesses valued organizational skills have emerged: the organization is expected to provide stimulating


opportunities for the deployment of their skills, reward the market value of their skills, and facilitateopportunities for the employee to periodically revitalize and renew their skills and knowledge. An inter-nal HR capability is needed to develop effective HR strategies and tactics to manage these new contrac-tual relationships.

Redefine the Role of External ConsultantsTraditionally, IT organizations have relied on external consultants for supplementing their knowledgegaps: consultants have been hired to lead projects that require knowledge and skills not available insidethe firm. Underlying this strategy was the assumption that the firm would develop a stable set of skillsand hire consultants for the state-of-the-art skills and knowledge needed for specific projects.

This traditional role for external consultants is not viable in IT organizations that need to compete on ITcapabilities. One way to internalize emerging IT skills and knowledge is to redefine the role of externalconsultant from project expert to facilitator of knowledge transfer. Consultant engagements must explic-itly define expectations for knowledge transfer to internal IT personnel within specific timeframes.Some of the firms in our study paired external consultants with key IT professionals to ensure knowl-edge transfer during the consultants’ engagement with the firm.

Five IT Transformation Vectors

As introduced in Chapter 3, we found five vectors to be key to repositioning an IT organization.

Vector 1: Infuse IT Management TalentThe senior IT executives must be visionaries who are willing to undertake high levels of career risk,fabricate innovative organizational architectures, and persist in pushing major organizational transfor-mations to their successful completion. Leaders with well-honed business and IT skills and experienceswill be required. If leaders with these profiles do not currently exist in the organization, infusing talentfrom the outside will be requisite for the IT transformation effort.

Vector 2: Redesign Governance for Enterprise-wide IT CapabilitiesSome degree of centralization appears to be essential if the IT function is to enable the development ofenterprise-wide capabilities for sense-and-respond strategies. For example, instituting seamless IT infra-structures for process integration or knowledge leveraging requires enterprise-wide authority. Five ofthe six firms in our study that had previously had significant levels of local business unit authority fordecisions related to IT use and innovation also recentralized these responsibilities to some degree. Twofirms recentralized formerly decentralized units and three others introduced matrix reporting of divisionalIT heads (to the CIO) to increase accountability for enterprise-wide concerns.

Vector 3: Choose a Pacing Strategy forthe IT Transformation That Matches the Business ContextThree alternative pacing strategies are feasible for guiding IT transformations relative to the businesstransformation thrust. The choice of the pacing strategy appears to depend on conditions surroundingthe business transformation and the nature of the IT transformation imperatives, as described here:

• Concurrent pacing. The IT transformation occurs gradually and in alignment and synchronizationwith the business transformation thrust. Concurrent pacing is appropriate when the business trans-formation thrust is already underway and the IT function is expected to evolve along with other key

TalentInfusion

Governance

Pacing


business functions as part of the overall transformation thrust. This strategy allows the changes tothe IT function to be legitimized since the transformation is packaged as part of the overall businesstransformation thrust. The strategy’s value lies in reassuring business clients that the IT functionwill not change dramatically and potentially disrupt existing services. Obviously, IT executives mustconsider this strategy when no significant gaps exist in the performance of the prevailing IT func-tion. The risk associated with this strategy is that the pace of change might be so gradual that it failsto mobilize enough commitment and energy across the firm.

• Anticipatory pacing. The IT transformation occurs at a faster pace and in advance of the businesstransformation thrust. The most significant reason for selecting this strategy is if there are significantconcerns about the performance of the prevailing IT function and a realization that this prevailing ITfunction will not be able to sustain the impending business transformation thrust. An anticipatorypacing strategy is appropriate when the IT executives recognize that a new set of IT capabilities arerequired and they must be instituted before the business transformation thrust can meaningfully takeshape. Such a strategy is also appropriate when senior IT executives have a strong vision of the idealIT function that their business would need in light of the emerging competitive, industry, and techno-logical forces. The risks associated with the pacing strategy are that not everyone might buy-in to orunderstand the IT transformation vision; therefore, a lot more energy and effort is required to sell thevision and persist with it in face of initial skepticism about the change.

• Dynamic balancing. The pace of IT transformation switches between concurrent and anticipatory.This strategy is appropriate when senior IT executives recognize a competing set of concerns sur-rounding their transformation actions. On one hand, significant gaps exist in the performance of theIT function and it is clear that a new IT organization and capabilities are vital for sustaining thebusiness transformation thrust. At the same time, the business transformation thrust is underway andan expectation exists that the IT function should evolve in synchronization with the business. Adynamic balancing strategy allows the IT function to quickly acquire some of the needed capabili-ties in advance of the business transformation and then evolve concurrent with the business transfor-mation. However, the risk associated with this strategy is its cost and complexity. IT executivesmust carefully monitor their pacing to determine when to switch between the anticipatory and con-current modes. Further, the dual clocks impose greater burden on the IT staff and key managersguiding the change.

Vector 4: Utilize Sourcing Strategies to Release Resources and Redirect EnergiesBusiness firms have traditionally utilized outsourcing for the procurement of expertise not availableinside the firm or for locating assets with external partners who can manage those assets more cost-effectively than the internal IT function. In our study, we observed another crucial role for outsourcing:as a vector of IT transformation. In particular, the outsourcing of legacy systems helps to “fence off”this work in order to release IT workers to develop the new skills and knowledge required for guiding“sense-and-respond” business transformations.

Vector 5: Use Formal and Informal Mechanisms to Evolve a Lateral Coordination CapabilityEach one of the firms in our study recognized the importance of developing a new lateral coordinationcapability as a part of their repositioning strategy. Their portfolios included new formal (integratorroles, groups, processes) and informal (informal relationship-building, human resource practices) mechanisms.

Sourcing

LateralCoordination

Capability


In Chapter 4 we presented a framework for mechanism benchmarking. Formal mechanisms thatappeared especially important for IT repositioning included the following:

• New integrator roles. High performance designs require new IT linking roles such as account man-agers and competency center managers. Integrators are also needed to link division initiatives withenterprise-wide solutions and to manage external alliances that have enterprise-wide impacts.

• IT management council. Composed of the CIO, senior IT managers who are direct reports, as wellsenior IT managers who are also IT heads with business units under a federal design, this type ofgroup mechanism plays a critical role in overseeing the development of appropriate IT capabilities,assessing the appropriateness of the prevailing organization designs, and tracking the effectivenessof the transformation actions along the five vectors of transformation.

• Processes for lateral linkage. New processes are needed to integrate the actions of IT managersresponsible for account management, delivery management, and competency development. At bothMaterial-System and Tele-Nimble, these lateral processes for resource coordination ensured that theaccount and delivery managers were aware of the current and anticipated skills in the IT competen-cy centers; competency center coaches were aware of the stream of projects emerging from thebusiness; and delivery managers were aware of the HR issues impacting the performance of IT pro-fessionals assigned to their project teams.

The CIO As Transformational Leader

To be successful in a transformational context, CIOs need to be able to effectively play four transforma-tion roles.

Business StrategistCIOs must be able to understand and visualize their business transformation thrust and the allied com-petitive, economic, and industry forces impacting their business. They must be capable of plotting strat-egy with their executive peers, including the CEO, COO, and other senior business executives. Being aneffective business strategist also requires being a member of the firm’s executive leadership teams.

Infrastructure VisionaryCIOs must be able to envision the appropriate infrastructure for their business and sell this infrastruc-ture to the executive leadership. Seamless IT infrastructures for integrating processes and leveragingknowledge are large investments for which senior management may find it difficult to assess their busi-ness value and ongoing operational costs. Therefore, CIOs must be capable of articulating the businessvalue of infrastructure investments and harnessing the skills and resources for implementing them.

Organizational ArchitectCIOs must be competent organizational architects who are able to envision and design the appropriatebuilding blocks for a transformed IT function: governance arrangements, sourcing arrangements, andlateral coordination mechanisms. They should be able to develop the logic guiding the new IT organiza-tional architecture and devise metrics for assessing its proposed value.


Transformation ChampionCIOs must be high-energy champions of the business transformation and skilled navigators of the ITtransformation. Guiding organizational transformations requires persistence and commitment, as well asthe willingness to improvise in the face of emerging challenges. They must assemble an appropriateteam of senior IT leaders to execute the transformation process, advocate the compelling logic ofchange to key stakeholders, and pilot the change process through the maze of organizational politicsand unanticipated dilemmas.

Closing Thoughts

IT has finally entered center stage in a business world characterized by hypercompetitive environmentsand pressures for a new sense-and-respond paradigm. Our study has provided several frameworks forstrategizing IT transformations. The specific recommendations for repositioning the IT function arebased on insights from six successful exemplars, honed by two scholars with a keen interest in uncover-ing best practices.

This is clearly the time for enlightened IT leadership. We thank the visionary CIOs of these transformedIT organizations who shared their stories with us so that others might learn from them and effectivelyrise to the formidable challenges that lie ahead.

Endnotes1 S. P. Bradley, and R. L. Nolan, (Ed.), Sense and Respond: Capturing Value in the Network Era,

Harvard Business School Press, Boston, Maine, 1998. 2 G. Hamel, and C. K. Prahalad, Competing for the Future: Breakthrough Strategies for Seizing

Control of Your Industry and Creating the Markets of Tomorrow, Harvard Business School Press,Boston, 1994.

3 D. F. Feeny and L. P. Willcocks, Core IS capabilities for exploiting information technology, SloanManagement Review 39 (3), 1998: 9–22.

4 V. Sambamurthy and R. W. Zmud, Information Technology and Innovation: Strategies for Success,Morristown, N.J., Financial Executives Research Foundation, 1996.

5 J. W. Ross, C. M. Beath, and D. L. Goodhue, Develop long-term competitiveness through IT assets,Sloan Management Review 38 (1), 1996: 31–42; J. C. Henderson, Plugging into strategic partner-ships: The critical IS connection, Sloan Management Review 31 (3), Spring 1990: 7–18.

6 P. Weill and M. Broadbent, Leveraging the New Infrastructure: How Market Leaders Capitalize onInformation Technology, Harvard Business School Press, Boston, 1998.

APPENDIX:

RESEARCH METHODOLOGY

This book is based on findings from a research study sponsored by the Advanced Practices Council of the Society for Information Management (SIM International) between January 1995 and October1996. Our research design consisted of two separate phases, as described below. Phase II is the primarysource for this book; the results of Phase I were used for the identification and analysis of one of the ITtransformation vectors (vector 5: lateral coordination capability) and to identify potentially interestingcase studies.

Phase I: Field Survey

The primary goal of this phase of the project was to develop a detailed understanding of the horizontalmechanisms implemented by senior IT executives in order to develop a lateral coordination capabilityfor the IT function. After synthesizing the literature on this topic, we identified about 75 companies that had recently been highlighted in the trade press for their exemplary IT management or IT use (e.g.,Computerworld and CIO listings) or had been recommended to us via professional colleagues or oursponsors. A one-page prospectus was mailed with a cover letter to the senior IS executive (CIO) in eachof the targeted companies. About 44 executives indicated their willingness to participate in the researchvia a follow-up telephone call, and a phone interview was scheduled with one of the researchers. Allinterviews took place during the first six months of 1995 and lasted approximately one hour. Most of theparticipants were CIOs at Fortune 500 companies.

Each interview began with a reaffirmation of the purpose of the study and our interest in mechanismsthat linked corporate (central) IT and business units, as well as mechanisms that linked corporate IT anddispersed IT units. A semistructured interview guide with open-ended questions was used to elicit the“three to five most important mechanisms” for achieving a cooperative IT management climate, as wellas the mechanism intent and implementation challenges. To help ensure shared meaning, the participantswere referred to mechanism categories and definitions that were provided in the one-page prospectus.After completing the interviews, we mapped the responses from each firm into our a priori framework,including the five categories described in Chapter 4: integrator roles, groups, processes, informalrelationship-building, and human resource practices. After receiving feedback from our sponsors on ourinitial presentation of the survey findings, finer-grained analyses were conducted and reported in a 104-page guidebook (as cited in endnote 5 of Chapter 4).

Phase II: In-Depth Case Studies

The goal of Phase II was to develop insights about strategies and tactics for repositioning the IT functionwithin firms that had significant business transformations underway. Six case studies were selected forthis phase. Three of the case studies were identified during Phase I of the project; the remaining three

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cases were identified via personal contacts after preliminary indicators about the success of the transfor-mational efforts had been obtained.

Once an agreement to participate had been achieved, one or both researchers conducted on-siteinterviews over multiple days at one or more locations of each case firm. A minimum of 8 and maximumof 22 IT and business managers were interviewed for each case study using semistructured interviewguides in order to learn about:

• The nature of the business transformation and the motivating factors • The nature of the IT transformation and the motivating factors• The specific strategies, tactics, and “lessons learned” associated with each IT transformation,

including the building of a new lateral coordination capability (as defined in Phase I).

The researchers were also given access to relevant archival documents.

Following the completion of the interviews at each case site, a confidential descriptive report that aggre-gated the findings for that firm was prepared for validation by the primary IT contact. Anonymous casesummaries for each of the six sites were then prepared for our sponsors and the participating organiza-tions. Cross-case analyses were performed after the preparation of the case summaries in order toidentify the primary business transformation thrusts and to analyze the IT transformations associatedwith each business transformation thrust.

The narrative case descriptions and cross-case analyses presented here are primarily based on our Phase II results. The descriptions for Material-System, Bio-Leverage, and Tele-Nimble also reflect some insights gained from subsequent contacts with the key IT executives at these organizations for the purposes of preparing published reports (as footnoted in the text) after the conclusion of the APC-sponsored study. Our analyses based on the five IT transformation vectors and the conclusions in the final chapter of this book are presented here for the first time, and therefore benefit from theopportunity for further reflection

ABOUT THE AUTHORS

Carol V. Brown (Ph.D., Indiana University, 1989) is Associate Professor of Information Systems at the Kelley School of Business of Indiana University. She has been conducting field research on ITorganization and management issues for more than a decade, including projects sponsored by the Centerfor Information Systems Research (CISR) at the Sloan School of Management at Massachusetts Instituteof Technology, the Advanced Practices Council of the Society for Information Management (SIM), theLattanze Center, and IBM. Her current research addresses topics such as the design of IT process-basedorganizations, the adoption and implementation of ERP systems, and the recruitment and retention of IT professionals. Professor Brown has been an invited speaker on IT organization issues at severalforums for senior IS managers, including the SIM Interchange. Her research results on IT organizationdesign alternatives and IT business partnering have been published in major journals such as MISQuarterly, Organization Science, Information Systems Research, Journal of Management InformationSystems, and Information Systems Management. She is a coauthor of the third edition of the MBAtextbook Managing Information Technology published by Prentice Hall in 1999 and is the editor of The IS Management Handbook 2000 to be published by Auerbach. She is currently serving as the Vice President for Academic Community Affairs of the executive board of SIM International.

V. Sambamurthy (Ph.D., University of Minnesota, 1989) is Associate Professor of Decision andInformation Technologies at the Robert H. Smith School of Business at the University of Maryland atCollege Park. He has conducted extensive research on the capabilities and organization design logics of firms that are able to continuously sustain IT-based innovation. Some of the specific areas of hisexpertise include the design of IT governance arrangements, the architecture of coordination mechanismsfor IT innovation, IT capabilities for innovation success, and the roles of the CIO and top managementteams in promoting effective IT use. He has worked with the Advanced Practices Council of SIMInternational and the Financial Executives Research Foundation on several of these projects. ProfessorSambamurthy is a frequent speaker in executive forums of senior IT and business executives on ideasrelated to leveraging business value from IT investments. His work has been published in a variety ofjournals, including the MIS Quarterly, Information Systems Research, and Decision Sciences. Currently,he is an associate editor on the board of MIS Quarterly.

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