Goals Versus Outcomes

Examples of Goals

Revenue

Market Share

Sales Targets

Expanded Customer Base

Unicorn in 5 years — Cash Out (Kaching!)

 

Fairly common goals, right? Sorry, people. These are outcomes of goals, but they are not goals themselves.

I have seen too many people confuse them. I have worked for too many such “leaders“.

These are better goals.
– “Fuck yeah, those guys rocked.”
– “Those guys keep every promise they make.”
– We remember the little things, that the customers forget.
– Our software is incredibly easy to use.
– Customers cannot believe how fast we return the data.
– Our customers never knew how much they knew.

Is IT Value Intrinsically Linked to Organizaitonal Strategy?

Revenues of Inditex Group, Spanish parent of the global Zara fashion store chain, grew from 756 million euros in 19941 to 13.8 billion euros in 2011, a compound annual growth rate (CAGR) of 19%. The number of stores has risen from 424 to 5044 over the same period (CAGR 16%). Comparatively the apparel industry in the US grew 1.9 in 2010 and the entire apparel industry grew 5.83% in 2011.

Zara’s competitive success is the result of good strategy. In “Good Strategy, Bad Strategy: The Difference and Why It Matters” author Richard P. Rumelt identifies three necessary components of the kernel or core of a good strategy2:

1. A diagnosis of the main competitive challenges,
2. Guiding policies that address the diagnosis, and
3. Coherent set of actions that implement the policies

Zara, once a low-cost manufacturer, correctly diagnosed that as the industry moved toward low-cost manufacturing centers in Asia, a shorter supply chain with design and manufacturing remaining in Spain could compete by 1) remaining close to customers and 2) rapidly responding to quickly changing fashion trends.

Zara designed a coherent set of actions across the company to adapt and respond to these insights. Designers create new designs in two weeks. Manufacturing remained in Spain. Designers work closely with manufacturing to ensure the new design can scale up production quickly with reasonable controls on cost. Store managers watch customer trends closely and enter orders nightly via hand held terminals. Orders ship daily regardless of percent utilization of the vehicles (other stores will hold the shipment until the truck is full). The entire system is designed to keep feedback loops as short as possible.

The company does not advertise in order to shape or explain customer value. Instead Zara listens and responds to changing customer preferences much more rapidly than competitors. Inventory is kept small and discounting due to overstocks are lowest in the industry. Where is IT in this story? IT is not central to the organization, and spend is lower than the rest of the industry. Information Technology is used, for example, to optimize logistics routes to reduce shipping times and reduce CO2 emissions. IT support operational processes as at most organizations, and as a public company is used to manage risks. The technical environment is intentionally maintained as simple as possible and the number of applications are minimized in order to reduce costs and risks.

Zara is just one example of how Information Technology supports the organizational strategy. It is particularly revealing because the organization actually has such a strategy, but it is not the only example. Wal-Mart Stores have been analyzed in great detail already, but one point worth examining is Wal-Mart’s use of bar-code scanners. The adoption of bar-code scanners is almost synonymous with Wal-Mart Stores, but the firm did not invent even become an early adopter. Kmart began adopting bar-code scanners at the same time as Wal-Mart in the early 80’s, and they were in use in grocery stores before that. However, Wal-Mart seemed to benefit more than anyone else. The firm integrated bar-code data into its logistics system faster than its competitors, and traded its bar-code data with suppliers in return for product discounts.3 The important point for Wal-Mart is the use of bar-code data integrated with and supported the rest of Wal-Mart’s logistical system as part of a integrated and self-reinforcing design. They were not one CIO’s pet project that was tangential to the rest of the organization.

Organizations try to provide superior value to customers over a sustained period of time. However, this is insufficient. The organization tries to capture a significant portion of that value in a way that is difficult for competitors to imitate. As an internal Type I or Type II provider, the IT organization in general needs to support and enhance the strategy of the organization. Operational excellence (warranty) is at times necessary but is never sufficient. (Indeed the sole focus on operational excellence is a race to the bottom, as all industry participants have to spend more to produce decreasingly differentiated products.) Utility as defined in ITIL is not useful. More utility is not better.

Enough utility to enable, support, and integrated with the organization’s competitive differentiators is what we seek to create. The CIO deserves a seat at the table. As both information and technology change, improve, increase, and differentiate, the need to have the CIO at the table will only increase, both to manage risks and to define and improve the organization’s strategy. In addition, IT will need to execute that strategy as part of a coherent and integrated set of actions across the organization.

1 Spanish pesetas converted 166.386 ESP/EUR, the official exchange rate when it was converted in 1999.
2 Bad strategy, by contrast is not the absence of good strategy. Rather bad strategies are fat analysis documents that fail to focus resources and actions, or are performance targets that fail to diagnose underlying competitive challenges to growth.
3 Good Strategy, Bad Strategy: The Difference and Why It Matters

Empowered: More FLAWs than an Uncelebrated HERO

If nothing else, Empowered, Unleash Your Employees, Energize Your Customers, Transform Your Business has given the world several new FLAWs (four letter acronym words). At last reckoning there were three: HERO, IDEA, and POST, but one of these was introduced in an earlier book, Groundswell.

Empowered has given the world a lot more than that. My title is unfair perhaps, because I liked this book, and the further I read the more I liked it. You cannot read a business book these days that doesn’t introduce a new acronym, and I have come to see it as a proxy for strong knowledge or good writing. Fortunately Bernoff and Schadler are both knowledgeable and good writers, so I wish they wouldn’t resort to gimmicks.

The best part of the book is the specific examples of real companies doing real projects, mostly Forrester customers. Empowered ties together many trends that, although I was aware of them individually, was not seeing them so closely interlinked. Social media (Twitter, Facebook, and LinkedIn), mobile computing, project management, information security, and the traditional roles of customer service are among the topics that are addressed. The hero of the story is, of course, the HERO, or highly empowered resourceful operatives who are dragging companies, kicking and screaming, into the 21st century.

HERO means more than it seems. Imagine a 2-dimensional matrix forming a quadrant—yes this quadrant is in the book, but not until chapter 8. On the X-axis (from left to right) is empowerment. On the Y-axis (from bottom to top) is resourcefulness. At the bottom left of the quadrant are disenfranchised employees who are neither empowered nor resourceful, making approximately one-third of most companies. The next one-third of employees are those who are locked-down—empowered but not resourceful. The smallest percent, maybe one-eighth, are those who are the rogues who are resourceful but not empowered. The rest are HEROs. The goal of organizations, then is not to expand that quadrant as big as possible, but to get the best people into the HERO roles and to get the organization behind them. Easier said than done, but there is a lot of  substance in Empowered to help on the journey.

The book is divided roughly in half. Part one discusses HEROs and HERO projects in detail, including how they have saved organizations and how the lack of a HERO has led to substandard responses and embarrassing situations. Prominent here are the realities of social media and mobile technologies. Part two discusses actions organizations can take to enable the HERO. Similar themes run through the book, and this is not a collection of random blog posts.

Part one did turn me off in many places. The author seemed to target me, an IT professional and my colleagues as the chief disablers of HERO behaviors. I hope that we can be forgiven. We understand as well as anyone the complexity behind modern businesses, and how frail it really is under the hood. We are the individuals whose heads get beat whenever a server crashes or data is compromised, regardless of whether we had anything to do with the initial implementation. We’ve been SOX’ed, mandated, legislated, and audited to death. A little more respect would be nice.

Fortunately, the book delivers some more of that in part two. It recognizes some of the issues faced by IT and provides some guidance for IT professionals. It spends time on a couple IT leaders who have reached out to other business units to build creative and innovative solutions. Ultimately this is not about IT, but about the business leaders understanding the borders of the organization are no longer around its physical premise and its high-walled data centers. The borders around the organization are around its people. Employees and customers are using Twitter and YouTube, and the conduits for leakage is unfathomable. Employees have to exercise common sense and be professional. The emphasis of the Information Security office has to migrate from applying technical band-aids to engaging leaders and employees. It will happen, and I predict IT will be leaders in this process, not inhibiters.

Project Management Systems: Moving Project Management From an Operational to a Strategic Discipline

Abstract: This article illustrates one aspect of the concept of “fit” between an organization’s implementation of project management and its organizational context by exploring how the underlying drivers of an organization’s strategy might influence not only the nature of the projects that it undertakes, but also the appropriateness of the arrangements that it makes to manage those projects. Using a model conceptualized from the literature on strategic management, an analysis of four organizations that have made significant investments in project management over the past 5 years supports the hypothesis that the degree of “fit” between an organization’s strategic drivers of value and the configuration of its project management system influences the value it obtains from project management.

Reference: Project Management Journal, March 2009, Volume 40, Number 1

Authors: Terence J. Cooke-Davies, Lynn H. Crawford, Thomas G. Lechler

Link: http://doi.wiley.com/10.1002/pmj.20106

This article, though primarily theoretical, is nevertheless fascinating. The primary purpose is to explore the extent to which value is created or destroyed depending on the level of “fit” or “misfit” between the organization’s Project Management System (or PMS) and its strategic drivers of value. In order to get there, they explore each topic.

A PMS is defined as system of management structures, standards, and procedures. The characteristics of a PMS are grouped, as derived from the previous work “Value of Project Management (Thomas & Mullaly, 2008), into 4 groups: Policy, People, Structure, and Processes. Strategic drivers are derived from Porter’s (1985) work and are hereby simplified into two axes: the degree to which differentiation is required, and the need to improve process efficiency in order to create a quadrant:

Context 1: Low process economics driver, low differentiation driver (ad hoc)

Context 2: High process economics driver, low differentiation driver (classic project management)

Context 3: Low process economics driver, high differentiation driver (innovation)

Context 4: High process economics driver, high differentiation driver (entrepreneurship, intrapreneurship)

I have to admit that context 4 was most interesting to me, not the least because the word “intrapreneurship” was new to me. Project managers in organizations in this context need to act like business leaders, and need to be empowered to be entrepreneurial in exploiting market opportunities. The paper claims this is not easily done, and in fact I have known only a couple project managers who were successful in this context, and they were not generally popular with their subordinates. An important source of tension is (it is better to quote here):

Firms need both diversity and structure so that there is an inevitable tension between individual initiative and corporate attempts to impose uniformity

Well said. The paper raises more questions than answers, and although it discusses 4 specific firms within their respective strategic contexts, it does not seriously answer many questions about what specific PMS characteristics are suitable to organizations in each quadrant. Nevertheless the paper is an interesting read.

Wall Street & Technology CIO Round Panel

Here is an interesting round panel discussion on 2009 challenges in the financial industry from Wall Street & Technology. 

There is a major challenge for CIOs because they know what’s coming in the next year or two. They know they are going to be called upon to do much, much more with potentially much, much less. So potentially driving the efficiency in the IT organization is no small feat. They are going to have to figure out ways that technology can help.

The observations are specific to the financial industry, and as such are not very surprising. The industry remains beset by toxic assets on its balance sheets and declining (or highly volatile) asset values. Profitability challenges will constrain spending throughout 2009, on the top and bottom lines. Economists widely blame the current recession on “creative’ instruments and lack of regulatory oversight of the financial industry. In this environment leaders have little choice but to retrench on spending and deal with increasing regulatory scrutiny.

These observations don’t necessarily apply to other industries. Although the economic climate is challenged, there is opportunity in change, and 2009 may become a “breakout” year for aligning IT with organizational drivers. Alignment is a two-way street, and for many organizations it will not occur until IT is more successful in helping define strategic plans, rather than merely reflecting the organizational strategic plan in the IT strategic plan.

McKinsey Survey: IT Potential Unmet

In a December 2008 survey of C-level executives titled IT’s unmet potential: McKinsey Global Survey Results (free registration required), McKinsey Global Institute documents the discrepancy between the desired and actual business results of IT. It also demonstrates some differences between the expectations among IT and non-IT executives. Of particular interest:

  • Nearly two-thirds of executives believe their organizations are at risk of information or technology-related disruptions, and less than half believe they are prepared to manage these disruptions. Concern is greater among IT executives.
  • IT efforts are concentrated on improving the efficiency of business processes, but there exists stronger desire to improve the effectiveness of these processes. An even stronger gap exists between the ability and desire for IT to help create new products or services.
  • An even stronger discrepancy exists in the alignment of IT and business strategies. Whereas 67 percent of C-level executives desire strong alignment (“Business and IT strategy tightly integrated, influence each other”) only 22 percent said they actually are. Twice as many organizations said their corporate strategies are developed first.

The discrepancies between IT and non-IT executive responses were even more interesting:

  • IT managers were more likely to emphasize improving the talent of their IT staff (57 percent) than their non-IT counterparts (42 percent).
  • IT managers want to consolidate IT functions to a centralized IT (21 percent) than their non-IT counterparts (14 percent).
  • IT managers are more concerned about reallocating budgets to focus on value drivers and improving IT governance and oversight.
  • On the other hand, non-IT managers were more interested in outsourcing IT functions (22 percent) than were IT managers (18 percent).
  • Whereas more managers expect to reduce IT operating costs in 2009 versus increase them (43 percent versus 23 percent), the numbers are almost perfectly inverted when they look at new IT investments (26 percent versus 41 percent).

The final point suggests 2009 may become a turnaround year for IT executives, in which IT is able to influence organizational strategy in order to capitalize on strengthening their positions during this global recession. This final point is important: change begets opportunity, and those organizations who strengthen their positions during the downturn will benefit during the next recovery. Often the ability to seize the opportunities is inversely related to debt carried, so look for cash-strong companies to become stronger.

By the way, the outlook for IT project managers also remains relatively strong.