The Executive Committee Agenda for IT

8/12/2019 The Executive Committee Agenda for IT

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WORKING COUNCIL FOR CHIEF INFORMATION OFFICERS

May 2004

THE EXECUTIVE COMMITTEE AGENDA FOR IT:

CIO BRIEFING ON BUSINESS PRIORITIES FOR IT AT LEADING

CORPORATIONS

SummaryCIOs have expressed keen interest in gaining insight into the most critical challenges

faced by their peers across the executive suite to support goals of proactively partneringwith business leadership and contributing a clear IT voice to discussions at the executive

table. With this mandate, the Working Council has harnessed its unique perspective aspart of the Corporate Executive Board to inventory emerging interests and priorities from

other executive constituencies including CFOs and heads of Audit, Sales, Marketing,Procurement, Human Resources and Operations. The attached briefing highlights:

The Most Critical Cross-Functional Corporate Imperatives

High-Priority Agenda Items for Key Functional Areas

Emerging IT/Business Communication Gaps


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Note to Members

This project was researched and written to fulfill the research requestsof several members of the Corporate Executive Board and as a result

may not satisfy the information needs of all member companies. The

Corporate Executive Board encourages members who have additionalquestions about this topic to contact the Board staff for further discussion.

Descriptions or viewpoints contained herein regarding organizationsprofiled in this report do not necessarily reflect the policies or viewpoints

of those organizations.

Confidentiality of Findings

This project has been prepared by the Corporate Executive Board for theexclusive use of its members. It contains valuable proprietary information

belonging to the Corporate Executive Board and each member should

make it available only to those employees and agents who require suchaccess in order to learn from the material provided herein, and who

undertake not to disclose it to third parties. In the event that you areunwilling to assume this confidentiality obligation, please return this

document and all copies in your possession promptly to the Corporate

Executive Board.

Creative Solutions Group Staff

Lead Graphic Design Specialis

Jon Prinsky

Publications Editor

Lacey White

Working Council Staff

Managing DirectorsVikram Capoor Jaime M. Capell

Practice ManagerKris Hurley van Riper

Project ManagersAndrew Horne Matt McWha

ConsultantsDeb Goldberg Carsten Schmid

Senior AnalystsEric Tinson

AnalystsRich Flanagan Kiran Mishra

Vidhya Balasubramanian

Senior DirectorBrian Foster

DirectorsSheldon Himelfarb Matt Kelly Stuart Roberts

Associate Directors

Ken Rona Audrey Taylor Ken Weitze

Legal Caveat

The Working Council for Chief Information Officers has worked to ensurethe accuracy of the information it provides to its members. This report

relies upon data obtained from many sources, however, and the Working

Council for Chief Information Officers cannot guarantee the accuracy othe information or its analysis in all cases. Further, the Working Counci

for Chief Information Officers is not engaged in rendering legal, accounting, or other professional services. Its reports should not be construed

as professional advice on any particular set of facts or circumstances

Members requiring such services are advised to consult an appropriateprofessional. Neither the Corporate Executive Board nor its programs

is responsible for any claims or losses that may arise from (a) any errorsor omissions in their reports, whether caused by the Working Counci

for Chief Information Officers or its sources, or (b) reliance upon anyrecommendation made by the Working Council for Chief Information

Officers.

Working Council for Chief Information Officers

Corporate Executive Board2000 Pennsylvania Avenue NWWashington, DC 20006

Telephone: 202-777-5000Fax: 202-777-5100

The Corporate Executive Board Company (UK) Ltd.Victoria HouseFourth Floor3667 Southampton RowBloomsbury SquareLondon WC1B 4DRUnited KingdomTelephone: +44-(0)20-7632-6000

Fax: +44-(0)20-7632-6001

www.cio.executiveboard.com


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THE EXECUTIVE COMMITTEE AGENDA FOR IT 3

TABLE OF CONTENTS

1. Overview Materialsi. Orientation to This Research Brief 4ii. Executive Summary 5

2. Summaries of Executive Suite Prioritiesi. CFO/Finance 7ii. Audit 10iii. Sales and Marketing 12iv. Procurement 15v. Human Resources 18vi. Operations and Logistics 21


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ORIENTATION TO THIS RESEARCH BRIEF

Occasion for the Research

Many CIOs report that their greatest current challenges often have less to do with solvinginternal technology issues, than in serving executive peers to derive value from deploying

technology to solve business problems across functions. Frustrated by the IT trade pressand IT research groups preoccupation with issues and perspectives internal to theinformation technology function, member CIOs approached the Working Council with arequest for feedback on the top technology issues arising from across the executive suite.In response, we have leveraged our parent the Corporate Executive Board and itsunparalleled network of senior business executives and functional leaders to illuminate ademand-side agenda for IT by prioritizing challenges facing the functions internalcustomers including:

- CFO/Finance- Audit- Sales and Marketing- Procurement- Human Resources- Operations and Logistics

Ambition for the Research

This report has two key goals:

#1: Prepare the CIO for conversations with business and functional leaders byhighlighting emerging business priorities with a focus on projects for which businessenthusiasm exceeds technology maturity and demonstrated business returns

#2: Provide the CIO with an objective checklist against which to evaluate their

personal priorities as well as to screen potential business-initiated projects

A Word of Caution

In contrast to our typical case study-based research, the following brief highlights the topinterests and priorities from various executive constituencies and represents an editorialdistillation of trends to highlight what we consider the Business IT Agenda. Many ofthese interests are in early stages and will require greater scrutiny. We should note thatwe have notmade an attempt to assess their feasibility and business case - our intent is toprovide visibility and advance warning of potential demands on IT from the business.

Methodology

Starting with proprietary Corporate Executive Board research, the Working Councilreviewed the most salient issues, insights, and practices of IT relevance from more than adozen other functionally oriented best practices research programs serving more than1,800 member companies around the world.


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Executive Summary

THE BUSINESS IT WISH LIST - FIVE KEY DEMANDS

Amid a nascent economic recovery and early signs of pricing strength in many markets,

IT is being challenged to play a larger role in cross-functional, corporate-wide initiatives,while helping individual business units and functions advance their own value-creatingagendas. The following represent a synthesis of five recurring business demands fromIT:

#1: Data Visibility Across Business Units and Geographies

A confluence of factors is leading to a step-function increase in business demands for asingle version of truth for product, customer, and supplier data. Drivers of this urgencyinclude new financial regulations such as Sarbanes-Oxley and International AccountingStandards, the increased propensity of companies to establish strategic sourcingprograms, and the rise of global sales and solutions-based businesses.

#2: Managerial Dashboards and Early Warning Indicators

Senior executives appear to be deprioritizing democratic (all things to all employees)self-service portals, focusing instead on business performance dashboards that provideearly warning prompts for timely senior executive interventions.

#3: More Rigorous Documentation and Management of Risks Associated with

Process Outsourcing

While other corporate functions such as Finance, HR, and even Legal report an interest inleveraging ITs experience in outsourcing, corporate auditors have highlighted risksembedded in Business Process Outsourcing contracts as a near-term area of focus.

#4: Proactive Identification of Technology-Enabled Opportunities to Boost

Business Value

Mixed news for CIOs:While renewed business interest in technology solutions topressing problems represents a recognition of ITs strategic relevance and value creationpotential, the attendant downside is that business leaders believe IT leaders are notsufficiently proactive in bringing technology solutions to the table.

#5: Greater Systems Flexibility

Conversations across the executive suite have detected early glimmers of a businessbacklash against single-instance systems for Enterprise Resource Planning, with business

resistance centered on enterprise software suites inflexibility in accommodating jointventures, integrating acquisitions, and enabling extended enterprise collaboration.


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Executive Summary

FIVE CRITICAL IT/BUSINESS COMMUNICATION GAPS

While improving alignment requires attention across many fronts, leading CIOs are

focusing on the task of improving communications with ITs internal constituencies.Presented below are some of the key themes that CIOs within our membership areelevating to the attention of their peers within the executive suite.

#1: Costs and Complexity of Global Data Standardization

Our conversations across the executive suite reveal a wide divergence between businessleaders and IT executives estimates of the costs, complexity, and ownership of efforts tostandardize supplier, product, and customer definitions. Given the importance of datastandardization to both IT and the business, we believe that few other communicationchallenges are as important for the CIO this season.

#2: Overcomplicated Executive Dashboard ProjectsA recurring root cause of failure for business dashboards is an excess of metrics due to alack of discipline in winnowing business dashboard metrics to a handful of trulyactionable operational indicators. An emerging best practice requires that the executiveteam identify the controllable drivers of a single overriding business goal and focus onmetrics that are linked to employee performance and incentive plans.

#3: Optimal Sequencing of Business Process Standardization, Automation and

Offshoring

An emerging view suggests a nontraditional sequence leading to business processstandardization starting with migration to lower-cost geographies and then moving to

process standardization and automation. This sequence allows rapid migration ofnonstandard transactions to lower-cost geographies (such as India, Eastern Europe, andCentral America), thus enabling quick-hit savings to fund future automation andprocess standardization efforts.

#4: Increasing Costs and Competition for Indian Application Developers

Senior application executives suggest the business systematically overestimates costsavings from migrating applications to India. With applications executives projectingfurther erosion of labor cost differentials as Indian wage inflation and turnover increase,they urge CIOs to help the business frame offshoring business cases in terms of benefitsbased on flexibility and access to talent not labor cost arbitrage.

#5: Business Absorption as the Greatest Constraint for IT

Several CIOs cited the absorption capability of the business as a significant brake onIT. In the words of one CIO: We have gone from an era where IT was laborconstrained, to one where we were cash constrainedto one where our constraint isbusiness users ability to absorb more functionality. A key success factor of ITdepartments in the future will be their capacity for usability training and implementingsystems with intuitive interfaces.


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Section 1: CFO and Finance

THE CFOS IT PRIORITY LIST

Better Regulatory Compliance

#1: Global Chart of Accounts and Enterprise Information Rollups

Under pressure to comply with regulations ranging from Sarbanes-Oxley to International

Accounting Standards, CFOs are prioritizing technology solutions that expedite theaccounting close process. While the majority of CFOs favor the creation of a single

global chart of accounts, many remain skeptical of the need for consolidation of existingERP instances into a single global platform. Furthermore, they express optimism that

middleware and other integration technologies will provide adequate financial dataaggregation without the business disruption associated with end-to-end process

standardization.

Enterprise Performance Clarity

#2: Enterprise Dashboards

Reflecting their new role as enterprise performance stewards, CFOs are expressing

interest in online dashboards that enable click-through tracking of key operationalmetrics across all levels of the corporation. Specifically, CFOs are interested in being

able to cascade a handful of key enterprise metrics - such as Return on Invested Capital -to all levels of the corporation.

#3: Standardized Decision Support Templates

With a view toward embedding rigor in planning, budgeting, and forecasting processes,

CFOs are placing a premium on standardized analytical templates and work-flow tools,such as business unit planning templates and standardized business case templates forcapital budgets. ITs contribution in enabling these templates is ensuring that users have

access to a uniform set of economic assumptions.

#4: Pro-Forma Customer and Product Profitability

Frustrated with the cost, complexity, and confusion associated with profitability

algorithms that allocate 100 percent of costs to products and customers, CFOs haveexpressed interest in directionally correct profitability scorecards that capture revenues

accurately, but allocate only controllable variable costs to products and customers.

#5: Working Capital OptimizationAs many CEOs have highlighted working capital reduction as a critical goal, CFOs are

prioritizing IT investments that lead to greater inventory velocity via improvements inforecasting accuracy, or via in-process inventory tracking tools that provide visibility into

inventory at each link of the supply chain. Warehouse optimization, logisticsconsolidation, and returns handling are three investment categories cited by CFOs as

priorities in 2004.


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Greater Transparency into IT Costs, Risks and Value

#6: IT Risk Heat Maps

Facing Board scrutiny of the adequacy of risk mitigants, many CFOs have expressed

frustration with IT risk reports that list security incidents and quantify vulnerabilities interms of IT downtime exclusively. Driven by Board demands to quantify and prioritizerisks, many CFOs are demanding better visibility to all IT risks extending beyondsecurity to include risks such as project risks, vendor risks, skills risks, and processdisruption risks.

#7: Standardized Business Case Assumptions

CFOs are pressing for standardized business case templates that reflect empiricallyderived total life-cycle costs associated with applications comprehensive calibration notonly of design and build costs, but costs of requisite infrastructure upgrades, usertraining, lost productivity during implementation, and the eventual costs of system

retirement.

#8: Post-Project Benefits Audits

Reflecting the fact that IT now represents the largest category within most companiescapital budgets, CFOs are approaching IT project justification with the same rigor asother capital budget categories. One implication of the extension of traditional capitalbudgeting disciplines to IT project prioritization is the requirement of post-implementation benefit audits to verify achievement of gains stipulated in thebusiness case.

#9: Business Case for Security Investments

With information security budgets increasing at a faster clip than IT budgets, CFOs aredemanding greater rigor in security investment business cases forcing IT departments tosegment applications based on business criticality, and make informed trade-offs to focussecurity investments on the highest-value applications.

#10: Fast-Cycle M&A Integration

Early indications suggest that we are in a new era of M&A, acquisitions are guided by thedesire to acquire unique products or technologies, not rationalize capacity. In this era ofrapid integration, CFOs look to IT to forward-integrate the acquisition process to ensureDay One connectivity, while building a financials bridge to acquired institutions.

THE COMMUNICATIONS GAP

CIOs have identified three high priority areas that require concerted communications tomaximize transparency with the CFO and the finance function.


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#1: The Need for Finance to Play More Active Roles in Software Asset Tracking

As auditors subject IT assets to the same scrutiny as other capital investments, CIOsunderline the need for IT and Finance to work together to assign clear ownership for ITasset tracking. CIOs suggest that acquisitive and traditionally decentralized companieswill be especially challenged in this endeavor.

#2: The Business Case for ERP Standardization

CFOs are demanding greater rigor in the estimation of lost productivity and businessdisruption during ERP implementation. In addition, they are requiring greater precision inestimating the costs of future upgrade cycles. Finally, many CFOs are requiring IT tocompare the costs including opportunity costs of ERP upgrade cycles. Underlyingthis greater scrutiny of ERP investments is the view that upgrade costs are higher thantraditionally projected and a hypothesis that information integration tools such asmiddleware may offer faster, quicker routes to compress the financial close processthan end-to-end ERP standardization.

#3: The Business Case for Single-Integrated Customer Data StoresWhile CFOs are intrigued by potential revenue gains via the use of data mining tools foryield management and targeted segmentation, they are expressing concerns about thelong-lead times, multimillion dollar price tags, and low success rates from integratedCustomer Information Files (CIFs). More specifically, CFOs are concerned that thesefoundational data investments vastly overestimate the business readiness and ability todeploy these tools, and instead many projects were launched with the philosophy that ifwe build itthey will come to deploy analytics. CIOs attempting to build a cost-justification for these projects can expect to see resistance on two fronts: 1) todemonstrate that the user community maintains the skills and analytic capabilities toleverage the data effectively; and 2) a careful articulation of alternative approaches,especially those that consolidate proposed business projects already in the queue thatrequire building new interfaces to existing data stores.


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Section 2: Audit

THE AUDITORS IT PRIORITY LIST

#1: Business Continuity Planning

Guided by the Audit Committee to monitor business continuity threats, Internal Auditorshave made auditing the virus protection adequacy of their company a 2004 audit planpriority. The audits involve the following:

- Determining the current level of virus vulnerability- Establishing the current level of virus protection- Continuously monitoring the level of virus protection

#2: Business Process Outsourcing

Outsourcing to India, a country now seen as overwhelmed by the influx of offshorework, has become a particular focus of Audit Directors. Specific risks cited by auditorsinclude disruptions in service and compromised data integrity. In addition, Sarbanes-

Oxley creates compliance concerns as external auditors must attest to the controls inplace at outsourcing organizations. In response, many internal audit organizations plan tointensify contractor reviews, reviewing financial information indicative of the contractsoperational effectiveness and efficiency. Additionally, many internal audit departmentsplan SAS 70 - direct audits - of the vendors operations and controls.

#3: Privacy Legislation Compliance

The rise in identity theft and the introduction of privacy legislation such as CA SB 1386and 2004 revisions to the Fair Credit Reporting Act is bringing data security to theattention of auditors. Auditors are addressing this concern via proactive monitoring andtesting of companies policies for alerting customers of security breaches and by

collaborating with IT and Legal to construct new data management policies. Reviews ofthese policies will include checking the efficacy of records storage training programs,employee screening processes for sensitive record handling, and the technological recordstorage process.

#4: Customer Service

Depending on the industry and company business model, Internal Audit departmentsindicate that 2004 customer service audits will review controls for service accessibility,problem resolution response times, and customer service efficiency and accuracy.

#5: Software Capitalization

With IT accounting for more than one-third of the average large companys capitalbudget, auditors are paying greater attention to software depreciation cycles, requiring ITdepartments to match depreciation horizons to the useful life of applications.

#6 Document Management and Retention Policies

Auditors are requesting scrupulous documentation of company policies on how to shareand retain unstructured data, such as email, instant messaging, personal communications,


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and word documents. Early feedback from auditors suggests that there is a high bar forretention of unstructured data.


Many CIOs are concerned that auditors current year focus on viruses fails to fullyaccount for the increased complexity and diversity of security threats facing large globalcorporations. CIOs are increasingly taking upon themselves the task of communicatingthe importance of user compliance with security policies, the criticality of embeddinginformation security procedures in supplier and joint venture e-enablement projects, andfunding backup responses to ERP and other enterprise applications. Both auditors andCIOs report that a list of applications and infrastructure ranked by impact on keycustomer accounts, business processes, and internal users is a useful device for aligningauditor and IT priorities.


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Section 3: Sales and Marketing

SALES AND MARKETINGS IT PRIORITY LIST

Sales Management Tools

#1: Pipeline Sales Tracking

In contrast to prior years, sales heads this year are placing a greater premium on tools thatenable management visibility into the sales process, rather than on sales portals thatprovide a single resource for customer data, marketing collateral, and training materials.Within the rubric of managerial tools, sales heads are especially interested in pipelinetracking tools that provide managers with consolidated views of customer activities ateach stage of the sales cycle.

#2: Daily Account Updates

Sales managers are requesting key customer dashboards that are updated on a daily basis

and that provide a comprehensive view of customer interactions across channels. Salesmanagers have expressed particular enthusiasm for receiving proactive ticklers whenpreidentified thresholds are exceeded or when the company is in violation of service levelagreements. Driven by the increase in the number of sales organizations that areadopting Six Sigma and Voice of Customer methodologies, senior sales executives arealso requesting that customer dashboards include calibrations of customer satisfaction atmultiple levels of the client organization denominated in metrics that are most importantto the customer.

#3: Global View of Customer Buying Behavior

Expressing frustration regarding the multiyear timeframes for obtaining fully loaded

customer profitability analysis across business units, sales managers are clamoring for thespeedy rollout of holistic views of customer revenues, as well as relative estimates ofcontrollable cost drivers such as particularly onerous product configurations, SLAs, etc.The ultimate ambition, cited by many sales managers, is to use this information to createa simplified pricing scorecard that sales professionals may take with them on sales callsto help customers visualize the impact of specific functionality and features on productcosts.

#4: Lead Tracking Systems

As companies rely on cross-sales across business lines to meet growth targets, salesrepresentatives are anxious for visibility into all touches to their customers. Two

specific areas of concern include coordination of customer solicitations to prevent salesfatigue and ensuring that references across channels and businesses are appropriatelyhandled and do not fall through the cracks. To further their aim of seamless service,senior sales executives express interest in upgrading IT systems to enable end-to-endtracking of qualified leads across channels and business units.


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Sales Force Knowledge Management and Self-Service Tools

#5: Automated Work-Flow Templates

Closing the productivity gap between high-performers and average performers representsa high priority 2004 agenda item for sales forces across industries. To advance this goal,

sales managers are looking standardize sales process via online model process work-flow tools with embedded sales best practices.

#6: Improved Pricing and Sales Order Systems

Amid a general trend of sales forces prioritizing business intelligence tools over self-service tools, next-generation sales order-entry systems represent one self-serviceapplication that continues to be in high demand by the sales function. Specificenhancements requested by sales managers in next-generation tools include: expansion ofthe number of order elements that can be entered into a single order form, and therequirement that order entry systems recognize product ID codes and promotion codesfrom all producer areas. Additionally, systems that can generate suggested pricing based

on input parameters could greatly reducing the need to bring in additional resources tohelp with special pricing.

#7: Asynchronous Product and Service Training

While video and Web-based training continues to focus on sales executives technologywish lists, the 2004 version of this perennial request includes three nuances:- Online Discussion Forums Virtual communities of interest for internal networking ofexperts across business units- Employee White Pages Global lists of employees annotated with areas of expertisethat enable sales representatives to identify contacts based on expertise, prior workexperience, or educational background- Online RFP Configurators Online repositories of RFPs, approved contract terms, andcollateral used in past sales

Distributor Enablement Tools

#8: Web-based Extended Enterprise Collaboration Tools

Secure online venues where sales can collaborate with third-party distributors to sharemarket and customer intelligence.

#9: Channel Partner Hubs

Online resources for distribution partners that feature: order management systems withlead-time generators; dealer connect functionality (that enables dealers to sell or swapover-purchased or incorrectly purchased orders with other dealers); presentation, printadvertisement, and RFP repositories.


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Marketing Tools

#10: Marketing Performance Dashboards

Web-based dashboard links companys key strategic goals to marketing departmentgoals, metrics, and activities. Dashboard allows executive team to review progress

against goals at multiple levels of desired detail.

#11: Marketing Mix Management Systems

Sophisticated statistical tools to disaggregate the impact of various marketing investmentson volume including: advertising spending, advertising copy, trade spending, crosspricing, and couponing. Marketing executives hope to use these tools to isolate theimpact of each investment to optimize the portfolio and focus energy on the mosteffective levers.


#1: Poor Uptake of Existing Technology ToolsWhile sales leaders have been aggressive proponents of automation tools, evidencesuggests the sales force is struggling to use the technology that already exists in the field.For example, one CIO of a company that had completed a global Siebel rollout cited aninternal study that indicated that only 30 percent of the companys sales representativeshad always used Siebel as a sales tool. An additional 50 percent of representativesused the system only as necessary, while 20 percent of the sales force identifiedthemselves as reluctant or phobic users. CIOs suggest two implications forconversations with senior sales executives: 1) to focus on benefits capture via greaterutilization of existing systems; and 2) to include user-readiness assessments as anintegral part of the initial evaluation process for new sales-force technologies.

#2: Scarcity of Analytical Skills to Effectively Leverage Customer Data

As many CIOs look to the imminent completion of data standardization and enterprisedata warehousing projects that can (finally) provide a unified view of customer buyingbehavior, there is mounting concern that the business is inadequately prepared to use thisdata. CIOs have concerns on three levels: 1) business willingness to repudiate traditionalmarketing methods to embrace new revenue models that are made possible by enhancedinformation capabilities including risk-based pricing and yield management; 2) businesswillingness to steward the data allocating senior talent to ensure compliance with dataquality, privacy, and cross-sales policies; 3) Marketing and sales departments ability tohire and retain talent with the requisite skill sets to use this data effectively.

#3: Limited Business Value of Broadband Connectivity

While sales executives are eagerly anticipating the replacement of dial-up connectionswith broadband connectivity, many companies are reporting that sales representatives uselaptop computers primarily for basic functions, such as email access undermining theperceived necessity of high-speed connectivity. Anecdotal evidence suggests that somelarge corporations are choosing not to replace PDAs for the sales force and areinvestigating the replacement of laptops with cellular telephones.


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Section 4: Procurement

PROCUREMENTS IT PRIORITY LIST

Enhancing Visibility over Enterprise Purchasing

#1: Automated Data Cleansing and Aggregation Tools

Frustrated by the high level of abstraction in ERP spend data and the limited uptake ofe-procurement tools, procurement executives are keenly interested in software tools thatcan extract data from source systems (P-cards, ERP, e-procurement, etc.) and transformunstructured free-text fields into detailed data about purchases. These tools focus oncleansing, and normalizing data by extracting product configurations needed by sourcingsuch as configuration, size, weight, materials, colors, manufacturer, etc.

#2: Automated Links between Procurement and AP Systems

Seamless connectivity between systems to expedite purchasing cycles, maximize

compliance of procurement policies, and maximize transparency into purchasingbehavior at all levels of the corporation.

#3: Compliance Monitoring and Proactive Identification of Non-Standard Items

Online systems that sit in front of e-procurement and other purchasing systems andmonitor and discourage maverick purchasing proactively by capturing requests for off-catalog buys before the order is placed.

Leveraging Industry Standards

#4: Third-Party Product Catalog ManagementProcurement executives are advocating adoption (wherever possible) of industrymarketplaces and third-party catalog vendors for a master source of product codes,specifications, and promotions tracking.

#5: Services Buying Clubs

Anecdotal evidence indicates that procurement executives are looking to join with peersand competitors to leverage scale and buying power vis--vis oligopolistic technologysuppliers. A case in point is that a leading European services company is reputedlycreating a consortium to improve responsiveness from Indian IT outsourcers.

Expanding Procurement Oversight over IT Spending

#6: Functionality Benchmarking

Representing logical next step in procurement oversight over IT purchases, procurementexecutives are signaling that they intend to review functionality specifications embeddedin IT business cases. A hypothesis embedded in this expansion of procurements role isthat companies may have exhausted the low hanging fruit available in terms of


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extracting vendor price savings: the next frontier of savings lies in reducing the estimated50 percent of excess functionality that is never used by end users in typical IT softwareand hardware.

#7: Software/Maintenance Contract Reviews

Procurement executives have expressed concern that vendor contracts for manyenterprise applications now bar IT departments from migrating maintenance work for thatapplication in offshore locations. Concerned about potential long-term impact on ITmaintenance and enhacement costs, procurement executives intend to scrutinize theseonshore only maintenance clauses more closely.

#8: Reverse Auctions for IT Services

IT executives have traditionally maintained that wide variations in vendor capabilitiesand SLAs impede companies ability to submit IT service contracts to reverse auctionssuch as offshore maintenance. However, procurement executives point to the increasedsophistication of auction tools that enable IT departments to account for differences

between vendor capabilities and service levels and the cost savings achieved byretailers that have pioneered auctions for IT services to push for greater usage of real-time bids in this cost category.

#9: Vendor Risk Reviews

Concerned about consolidation in key IT software and hardware categories, procurementexecutives are pushing IT to map interdependencies between vendors to spotlightinstances in which critical enterprise functionality is dependent on services orinfrastructure provided by small or financially unstable vendors. In addition, procurementis advocating the tracking of vendors financial stability and recommending that ITdepartments create and implement contingency plans in case a critical vendor is acquiredor becomes financially unstable.

#10: Centralized Contractor and Consultant Sourcing

Concerned about cost creep amid a nascent recovery, procurement executives reaffirmtheir commitment to centralizing contractor and consultant sourcing activities. Anecdotalevidence suggests that procurement executives will look to migrate three sourcinginnovations from direct materials procurement to the IT services arena across 2004:value-based pricing that links a portion of fees to results achieved; clearly delineatedtimelines and expectations for midstream deliverables, and user surveys to createsatisfaction-weighted hourly cost estimates by vendor.


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#1: Providing Visibility to Applications Life-Cycle Costs

IT leaders are challenged to articulate and communicate a better understanding of theeconomics of applications across their entire life-cycle, beyond just the costs to acquire.

Simply focusing a purchase decision on a comparison of the initial price of a technologyinstallation could hide the fact that costs to acquire are typically dwarfed by the full costsof integration, upgrades, underlying infrastructure, and maintenance.

#2: Bulletproofing Requirements Definition

As CIOs explore more complex sourcing options such as large-scale outsourcing andoffshoring of applications development, they are feeling pressure to increase the level ofsophistication and clarity provided in requirements definition. This is a particularlyurgent requirement for the effective use of reverse auctions and fixed-price contracting.By effectively articulating specific service requirements and expectations, sourcingleaders can improve the comparability and accuracy of competing bids.


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Section 5: Human Resources

HUMAN RESOURCES IT PRIORITY LIST

e-HR

#1: Manager Tools

Mirroring a migration across the executive suites, HR executives are placing a significantpremium on managerial tools. High on the wish list of HR executives are access-protected management toolkits that enable managers to manage performance evaluationsand make compensation change decisions online, while using the tools to manageindividuals not meeting company performance expectations. Features prioritized by HRexecutives within this category include stock option decision-support tools that provideone-stop shop support for allocation decisions, and e-learning tools that help educatemanagers on levers within their control to achieve performance objectives.

#2: Standardized Employee and Location CodesHR executives have identified a core group of fields across geographies they believemust be standardized if HR is to reverse the current 70:30 ratio of departmental resourcesdevoted to transactional activities versus value-added analytics. Initial conclusions fromHR departments that have made headway in identifying essential data elements to bestandardized suggest employee location/site codes are a critical data input that needs tobe aggregated from systems outside HRs purview.

#3: Single Sign On

Authenticated role-level access to systems and applications.

Maximizing Returns from Shared Services

#4: BPO Outsourcing Lessons Learned

After initial headway, the pace of HR outsourcing appears to have stalled at the majorityof large corporations. Under pressure to reduce HR costs, senior human relationsexecutives indicate interest in leveraging lessons learned from IT in managingoutsourcing relationships.

#5: Data Masking

Concerned about violation of privacy regulations and security ramifications associated

with testing applications in overseas facilities using production data, HR departments areconcerned about the efficacy of data-masking technologies that purport to concealsensitive employee and customer data. Furthermore, they are anxious to benchmark theirapproaches to safeguarding this data with peers and best practices.


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Aligning the Enterprise

#6: Enterprise Performance Dashboards

Starting with board and executive team priorities, cascade derives talent implications ofbusiness goals and measures against each of those talent metrics prioritized by the

business. One enhancement to the core dashboard requested by many HR executives isfor proactive Code Red triggers that automatically flag business units and individualsbased on preidentified criteria.

Human Resources Excellence within the IT Department

#7: Standardized Roles Definitions

Concerned about the proliferation of IT roles one company counted 190 discrete ITroles and inconsistencies in role definitions across business units, HR departments areadvocating streamlining IT roles into a manageable number of standardized enterprise-

consistent categories, with each role defined by necessary skills and performanceevaluation criteria.

#8: Enterprise Sourcing Strategy

Concerned about the morale and productivity impact of poorly communicated offshoringplans, HR departments are urging IT to conduct forward-looking technology assessmentsto identify key skills to cultivate internally versus those to externalize. Furthermore, HRrecommends maximizing transparency regarding the roles that the firm intends tocultivate in house allowing employees to self-select whether they have the interest (orability) to stretch into these roles.


#1: Stock Option Rollbacks

With the most-likely advent of mandatory stock option expensing, companies arebeginning to rethink their approach to stock options. Three resulting trends include thereduction in the number of employees offered stock options, reductions in the number ofoptions offered, and the replacement of options by restricted stock or performanceshares are all likely to have impact on companies that have used options as currency toretain IT talent. In addition, two communication challenges arise including helpingemployees understand the need for stock options curtailment and working with HR toidentify alternative rewards such as increasing performance-based bonuses as a

percentage of total compensation.

#2: Career Planning Assistance for IT Staff

To help IT staff prepare for a rapidly globalizing and increasingly externalized sourcingenvironment, CIOs need to enlist HRs assistance in expanding the range of careerplanning tools available to IT workers. Among the tools needed are greater transparencyregarding core IT skills such as architecture, project management, etc. samplecareer paths, skills assessments, and job openings databases.


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#3: Alternative Staff Development Models

Pioneers in IT offshoring and outsourcing have identified a key human resourceschallenge with long-term implications for the function. In their effort to externalize noncore technical skills, while retaining project, vendor management, and architectural

skills, IT may have undermined the traditional development paths for future managerialtalent. Conversations between IT and HR need to center around ways to develop next-generation managers whether by selectively absorbing vendors staff who developfamiliarity with the companys business model, processes and systems, or viaaccelerating the onboarding of generalists to the IT function.


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Section 6: Operations and Logistics

OPERATIONS AND LOGISTICS IT PRIORITY LIST

Creating End-to-End Connectivity

#1: Supplier Collaboration Tools

Healthier supplier markets and renewed questions about supply security are causingcompanies that have shifted from strategic relationships to arms-length auctions-baseddeals to rethink their supply strategies. Many supply chain executives plan to modifytheir sourcing approaches to provide greater focus on supplier innovation and value-engineering and are architecting a shift toward more creative sourcing strategies thatcapitalize on collaborative product design. Finally, supply chain executives plan toexpand supplier benchmarking activities to look beyond price into a greater total costfocus. Supply chain executives view IT as a key enabler in this next era of strategicsourcing and are expanding their suite of integrated tools to include richer supplier

collaboration applications, which facilitate relationships between suppliers andcustomers, as well as among suppliers.

#2: Seamless Logistics IntegrationLogistics, specifically warehousing and transportation, is emerging as a focal point forsupply chain executives. Logistics executives cite three near-term priorities, each withimplications for IT: greater reliance on 3PL providers; greater optimization of reverselogistics and remanufacturing activities; and integration of inventory/logisticsmanagement applications with procurement systems. To achieve these three goals,logistics executives are relying on IT to enable expanded supplier visibility into customerforecasting data as well as more granular shipment-tracking capabilities.

#3: Low-Cost, Reliable China Connectivity

Driven by the large number of supply chain executives KPI that list increasingpercentage of direct sourcing from China as a key near-term goal and the emergence ofChina as a critical force in the world of manufacturing, operations executives are eagerfor inexpensive, secure ways to extend connectivity to Chinese suppliers and contractmanufacturers.

#4: Automated Supplier Quality Monitoring

Operations executives are interested in remote diagnostic tools that monitor quality andother process metrics incorporated directly into suppliers production lines.

Upgrading Legacy Systems

#5: Legacy Warehouse Management Systems Replacement

While many supply chain executives have resisted IT efforts to replace legacywarehouse-management applications with packaged software, increased recognition ofhome-grown systems limitations is causing this resistance to erode. These limitations


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include incompatibility with emerging scanning technologies, complex integration withpoint-of sale systems, and reliance on an ever-shrinking pool of programmers familiarwith the systems intricacies. High on the list of requirements for next-generationwarehouse systems are seamless receipt of purchase orders and compatibility with radio-frequency technology that enable employees to scan bar-coded items as they pack them.

#6: Integrated Demand Planning

Operations executives are keenly interested in integration architectures that enable themto obtain a single forecast by linking various functional areas. As they conceive attributesof such an integrated systems architecture, operations executives underscore three desiredcapabilities: multilevel visualization and data manipulation capabilities via OLAP tools;flexible reporting platforms that enable authorized users to access data components ingreater detail; and software that affords a daily view into suppliers work-in-progress.

#7: Dwell Time TrackingNewly enacted Hours of Service regulations in many markets require companies to track

dwell time at shipment destinations.

Standardizing Components for Fast Velocity Product Rollout

#8: Cost Estimators

Lack of apples to apples comparability of manufacturing costs across global sites hasbeen a rate-determining impediment in many companies attempts to optimizemanufacturing on a global basis. Driven by extensive trade press publicity of severalcompanies success in this area, manufacturing executives are citing interest in estimationsoftware that allows each manufacturing facility to define, break down, and quantify thetrue cost of every part of each product on a comparable basis. The key IT requirement toenable this capability is a database that links cost information, such as purchase items,materials costs, and labor rates, to individual plants.

#9: Certified Product Components Library

With technology reuse inhibited by the sheer number of different document formats anddocument repositories in use around the world, operations executives are clamoring foran integrated design repository that allows designers to conduct keyword searches acrossall global product, package, and material specification. From a supply chain perspective,this tool enables closer collaboration with product design teams to create products forcost competitiveness. This includes making sure designers specify an industry standardversus a proprietary component, for example, or preventing designers from creating newproduct codes and designing requirements for a component that already exists in anotherbusiness unit.

#10: Product Life-cycle Management

Looking beyond engineering design systems, manufacturing executives are interested inenterprise-wide systems based on industry standards. These include new data formatinitiatives emerging within the automotive industry that make it possible to view and


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share product data and dynamic images worldwide which enables broad-based access toconsistent plant and work-flow data across the product lifecycle from design inception,through manufacture, deployment and maintenance, and ultimately, culminating in itsremoval from service and disposition. In describing the key requirements for PLMsolutions, manufacturing executives cite the creation and enforcement of uniform

standards for creating and changing information as critical attributes for success.


#1: Impact of Product (SKU) Rationalization

While supply chain executives focus on the costs of complexity arising from processvariations across business units, many CIOs are focusing conversations with theiroperations colleagues on the additional costs ofproductcomplexities and SKUproliferation.

#2: Trigger Points for RFID DeploymentWhile CIOs and operations executives agree that the promise of RFID is real, CIOs arefaced with the challenge of educating the business about triggers for RFID adoption at theitem-level and in industries beyond consumer packaged goods. CIOs suggest that theirRFID communications with operations and supply chain executives track progressagainst the following variables cost per tag (currently $0.35 versus $0.05 estimatednecessary for item-level utilization), cost per reader (far higher than optimal forwidespread adoption), resolution of issues with object composition (still incompatiblewith metals and liquids), read accuracy levels (approaching 100 percent), and readdistances enabled by still-nascent antenna technology.

The Executive Committee Agenda for IT

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Transcript of The Executive Committee Agenda for IT