Organisations that feel their IT department is still failing to deliver but can’t figure out why should take heart – university researchers in the US may well have the answer.

Researchers in the Center for Information Systems Research (CISR) at the Massachusetts Institute of Technology have looked at the IT departments in a variety of companies and determined they typically come in two flavours – order takers and business-change drivers.

Order takers are stuck within companies that have a one-way dialogue with their IT department – where techies are treated as drones whose role is simply to unquestioningly provide the IT services demanded by business managers.

In contrast, business-change drivers have an understanding of how the IT services they provide serve the goals of the organisation, how to maximise the benefits of technology for their bosses, and are more likely to have an input into overall business strategy.

CISR researchers found that organisations whose IT departments are business-change drivers typically enjoy bigger profit margins, spend less money on running their IT infrastructure (62 per cent of IT spend as opposed to 70 per cent among order takers) and on average deliver business benefits from IT change projects 33 per cent faster than order takers.

However, despite the evidence showing the benefits of being a business-change driver, Dr Jeanne Ross, director of CISR, said roughly half of organisations today are still running their IT departments as order takers.

Ross sat down with silicon.com to discuss the difference between the two IT department models and how an organisation can make sure its tech function is a business-change driver.

sloan school of management

CISR is part of MIT’s Sloan School of Management, the brown building seen across the river
(Photo credit: MIT)

What characterises failing IT departments? The order takers

“There is this idea that all the creative thinking about the business is the business people’s job and it is the IT people who deliver,” Ross said.

As a result, organisations have historically been focused on trying to make IT a better order taker. However, in doing so, they are trying to fix what is a broken system, Ross said.

“The most problematic outcome of this is that you get business silos, because you have so many people with individual business objectives, each placing individual orders,” she said.

The fragmented nature of this IT infrastructure means it is difficult to get the company’s technology working together as a coherent whole, Ross said, and so realise the greatest efficiencies.

What characterises successful IT departments? The business change drivers

Where an organisation treats the IT department as a business-change driver, IT staff are not just implementing the organisation’s technology but are helping decide what tech should be implemented in order to push the business forward.

“It’s about the IT department working with the business people to make sure that enterprise-wide objectives – and their impact on technology and process – are better understood, so IT becomes this strategic cog in the wheel,” Ross said.

“If we are going to get more strategic in our use of technology and the design of our business processes then the IT department is the critical player in making that happen.”

If the IT department is going to be able to perform this strategic role, Ross said it is necessary for the organisation to ensure the CIO and his staff understand the business side of the organisation, from corporate goals to the workings of business processes.

“As individual business people come up with ideas, it becomes the responsibility of IT people to position those ideas within the bigger picture,” she said.

“In most organisations IT departments have to…

…see this as their calling, or progress towards enterprise objectives will be slow and their use of IT will continue to be sub-optimal.”

How to turn an IT department into a business-change driver

The journey to becoming a business-change driver must start with making the organisation’s underlying IT infrastructure robust and reliable, Ross said, minimising the annoyances that result from setbacks like service outages and network lag.

“To become a change driver the first thing that companies do is to get their IT act together. Before the IT department can talk to the business they must be first rate at what they do,” she said.

According to Ross, this can be achieved in a number of ways, from tech infrastructure revamps to staff training, but she said business-change drivers typically follow clear guidelines on how to get the best out of the IT infrastructure.

“The business-change drivers have installed best practice – that might be Itil practices but they certainly have implemented their own discipline around project methodology and around infrastructure services, and tend to invest more heavily in IT staff development,” she said.

This robust approach to detail extends to contracts with IT service providers too.

“They also often have service level agreements that really drive lowering costs and improving quality,” she said.

The key outcome is that the IT infrastructure is reliable enough on a day-to-day basis that business people have confidence that technology can support and transform business operations.

“You need everyone in the company to believe that IT underpins their business processes – that they can be confident that IT is going to deliver,” she said.

“As you become more of a business-change driver, you are saying ‘Whatever you do, don’t worry about the technology, it will be there for you’.”

What skills does a successful CIO need today?

“When you have got to clean up IT, you need one kind of a CIO – who’s strong technically, who’s a turnaround artist, who doesn’t mind bruising a few feelings,” Ross said. “Someone who will say: ‘I’m pulling out cost, I’m doing things differently, I’m making things happen’.”

The successful CIO will work closely with the management board to align IT programmes with business goals.

“They work with the senior management team to define the role of IT, to better understand enterprise process, to initiate and sometimes head up process improvement,” she said.

Often the most important skill that the successful CIO should have is not technical ability but rather the ability to manage people and the vision of how to achieve corporate goals.

“That’s a manager who often comes from the business side, as is the case at companies like Intel for example,” Ross said.

“This is an example of companies saying ‘Here is a great manager, let’s put this person in charge of IT’.

“This transitions you from a focus on making IT good, to making the company operationally superior – which really requires a different skillset.”

jeanne ross

Dr Jeanne Ross, director of the Centre for Information Systems Research at MIT
(Photo credit: Mark Ostow)

Why mega-projects must die

Ross feels that even the largest and lengthiest of IT change programmes should be broken into smaller parts so they can be delivered more quickly.

“I would argue that when you have a six-year ERP implementation, you can’t say ‘OK guys, you will see some benefits in six years’,” she said.

“You have to break that down to smaller modules so the organisation will start seeing benefits straight away – you need to get something in in the next year, so the organisation can see and use it, and understand how to drive value from it.”

The other benefit of this piecemeal approach to project delivery, Ross said, is that project managers can learn from setbacks and successes in early modules, and refine their approach when implementing later stages.

“The ideal is 90 days, which is not real – I don’t think we can boil everything down to 90 days,” she said.

“But I do think we can take the big projects and say, instead of trying to achieve all the things we want, what is the single most important thing and how do we get it in?”

Business backing is vital to an IT project’s success

“If you don’t get that business engagement it is over and done – stop,” Ross said.

“If they are not fully committed, they won’t…

…make resources available or work with IT to make sure that as the project is progressing that any obstacles that are preventing success are eliminated.”

Shared services and the successful IT department

On average, business change drivers receive the majority (60 per cent) of their IT services through shared services, CISR research found.

“They are more reliant on shared services, and those shared services are more mature,” Ross said.

“They have more discipline around defining those services, pricing those services, delivering those services and defining the role of the product manager and service manager.”

Ross said that once organisations became proficient at establishing and running internal shared services centres for back office services, such as HR and finance, they are more likely to branch out into offering further shared services within the organisation.

“When you get good at back office you ask yourself ‘Are there other things that don’t qualify as back office that we all share?'” she said.

“For example at Procter & Gamble they have 250 product managers that share needs, and they have been able to move into offering shared services for things like packaging design.”

Why organisations should steer clear of running shared services centres that provide services to outside organisations

While an organisation may be able to make money by expanding its internal shared services operation to sell services to third parties, Ross said that such an approach should be avoided.

“These do not tend to be long-term successes and there are obvious reasons why,” Ross said.

“You have this problem of sub-optimising what you are doing internally in order to meet the needs of external customers.

“I don’t think that we have ever learnt how to resolve that.”

How analysing business data will provide organisations with a competitive edge

“Becoming really good at using information effectively is really hard but essential. It absolutely is going to be a source of competitive advantage,” Ross said.

Before organisations can effectively analyse business information they need to first identify where the same information is being captured multiple times across the variety of databases that will exist within the average business, Ross said.

“We need them to be consistent – that’s why there’s so much emphasis on master data management,” she said.

Once an organisation has simplified the way it captures data it can begin properly linking that data to other information that it has, and use it to gain insights into the best way to run that organisation.

“You read the literature and you would think that this had been going on since 1990, but this hasn’t been going on because we couldn’t work out how to do it. It’s incredibly hard to do this well,” Ross said.

An example given by Ross is 7-Eleven Japan, a Japanese retail store studied by CISR, which uses data such as what products sold yesterday or on the same day last year to help predict what goods are likely to sell on any particular day.

However, Ross believes that, in general, organisations are still too uncertain about the exact nature of the information that is being captured to be able to use it to gain truly useful insights.

“There’s still much confusion around what are the attributes of the customer that we can all agree on across the organisation and how to capture those attributes consistently,” she said.

“It’s not like that’s a technical problem – if nobody knows what they’re talking about and you can’t fix that technically.”

There is also a lot of potential for organisations to gain useful insights from unstructured data: data that is not stored within the organisation’s databases.

Ross gave the example of how 7-Eleven Japan could use weather reports to predict what kind of meals might be popular on a given day, for instance in general hot meals would be more likely to sell on a cold day.

However, said Ross, most organisations are a long way from being able to routinely analyse such information.