Building The Business Value of IT People

1. Option 2. Intro Title Page research consulting measurement community news Building The Business Value of IT People 21 May 2003 Portland SIM Chapter Rick Poppell, Vice President

2. IT – Provide Value?Some Facts • In US over $250B spent on Information Technology (IT) projects, with approximately 20% outside traditional IS organizations. • 30% of IT projects, once started, never come to a fruitful conclusion. • 51% of IT projects exceed budget by 189% while delivering only 74% of the originally stated functionality. • World-class IS organizations complete nearly 90% of their Application Development projects within 10% of budget & time estimates. Source: Gartner

3. The Value of Human Capital Management • Why is HCM important? • On average, organizations spend ~50% of their IT budget on HCM related issues, failure to optimize the HCM budget will negatively impact IT spending • Growth in IT spending is decreasing forcing organizations to do more with less • The variance in performance between solid and outstanding performers can be as high as twenty fold in some key IT positions • The role of IT is change requiring new competencies and behaviors from IT staff

4. What’s Keeping IT Leaders Awake At Night? • Determining current enterprise capability • Skills Inventory • Organization Assessment • Competence Assessment • Optimal organization design & business alignment • Does organization design align to current or desired processes? • Will organization design support IT Strategy • Address outsourcing/offshoring/contracting • Attracting and/or retaining the “right” IT talent • Critical business knowledge – hard to find, difficult to train or replace • Key technical skills • Emerging Technology • Database or data warehouse • ERP

5. Outsourcing/Offshoring/Contractors • Survey data indicates that 89% of companies outsource at least one IT function to some extent • IT functions may choose to outsource for a number of reasons: • Focus on core competencies • Train existing staff for emerging needs • Improve time to market • Reduce costs – convert fixed costs to variable • However, potential risks associated with outsourcing should also be considered in deciding whether to outsource: • Technical – Being forced to stay with a current architecture because the vendor does not support the company’s new needs • Business – Losing the capacity to make quick IT decisions or being unable to terminate/convert the contract easily in the event of an merger or acquisition • Economic – Discovering unexpected costs during the contract

6. The Changing Role of IT Climbing the IT Value Chain Where are you today? Strategic Leadership – Setting the strategic direction of the Enterprise Increased BVIT Consultative – Understand both business and technology, provides proactive solutions Where do you need to be? Business Partner – Seeks to understand business need, provides alternative solutions Transactional – Delivers on customer defined requirements, order taker Increased Competencies & Integration of the Primary HCM Processes

7. Efficiency Measures The “value” perception of IT increases as you internalize work processes and increase the capability of the organization Areas of Focus

8. Business Value of IT PeopleCharacteristics • Clear and articulated IT Strategy in support of a Business Strategy • Clear and articulated Mission, Vision and Values • Strong, ongoing communications (360 degree) • Formal and coordinated alignment with business units (BUs) (Often through an IT Business Office) • Project management office (PMO) and competency centers • Identified and formalized work processes • Formalized role definitions – people understand the requirements of their job and their part in the IT process • Position Description (Job Characteristics, Project Complexity, Education & Experience) • Required business, behavioral and technical competencies • Formal career paths

9. Job Family And Role Design Resource Optimization Organization Structure Resource Management HCM Strategy and Governance Business Value of IT PeopleCharacteristics • Formalized career development process in place • Performance management system in place, supported by a measurement culture • Rewards (cash and non-cash based) that align to individual goals and desired behaviors Alignment is key!

10. Business And IT Strategy Job Family And Role Design Business Results Resource Management Resource Optimization Organization Structure HCM Strategy and Governance Business Value of IT – HCM Model Aligning key Human Capital Management elements is the key to success. IT Operating Framework

11. HCM Model - Purpose Purpose Purpose Purpose Purpose • Understand degree of business alignment • Identify required IT functions • Build a process-aligned organization structure • Reinforce behaviors • Manage and measure performance • Sustain professional development • Reward and Recognize • Define job families • Define clear roles, skills and competencies • Define career and progression paths • Getting the right people in the right roles • Maximize utilization of people • Effective use of contractors and outsourcers IT Operating Framework Business And IT Strategy Job Family And Role Design Resource Management Resource Optimization Organization Structure HCM Strategy and Governance

12. Project 1 Customers P Tech. Biz 2 Project 2 Resources M Customers Business Office O COE Project 3 Customers Work Process Drives AlignmentHow Does IT Work Flow Through The Enterprise? • Areas To Address • Organization Focus • Business Linkage • Key Roles • Formal Process • Business Office • Role of the PMO • Who “owns” the resources? • How does work get accomplished • Cross-functional teams • Dedicated individuals IT Community

13. IT Reorganizes A Lot • Survey participants were very positive regarding the success rate of their recent reorganizations. Key to success participants named included: • Planning thoroughly and thoughtfully (i.e., is it necessary or are there other options?) • Keeping the lines of communication open as early on as possible • Learning from past experience (what worked, what didn’t) for future improvement Frequency of IT Reorganization Prior Two Years 0 Times 1 Time 32% 40% 2 Times 23% 3 or More Times 5%

14. CentralizedModel FunctionalModel DecentralizedModel Organization Design – The Swinging PendulumOptions and Impacts Efficiency Effectiveness IT organizations are usually not always completely Centralized or Decentralized, however some take on characteristics that drive them to operate to one of the extremes. An appropriate balance should be sought between flexibility and control based on the business needs, IT strategy and IT culture. Corporate/ Divisional Model Process Oriented Model

15. The Federated or Hybrid Model • Pros • Responsiveness • Business Awareness • Local Control and Prioritization of Applications • Leverage Existing Systems • Reduce Redundant Applications • Cons • Managing Inter-Departmental Dependencies • Limited Career Development Opportunities • Limited Enterprise Learning • Critical Success Factors • Strong Governance Processes • Business Unit/CIO Cooperation • Matrixed PMO Decentralized Functions Centralized Functions Division Officer Division Officer Division Officer Corporate Officer Business Unit CIO IT Director CIO VP MIS Applications Development Applications Development Applications Development Governance And Shared Services Characteristics • Business Units retain control of proprietary systems • CIO manages shared services and enterprise applications • CIO responsible for enterprise architecture and governance

16. Which PMO Makes Sense For Your Organization? The PMO can take on different functions within the organization, over time the functions can evolve from a repository approach to a manager approach. 1. The Repository Model Source of standardized project methodology, tools and knowledge Models May Combine Overtime 1. The Repository Model 2. The Coach Model PMO assumes willingness to share some project management activities and responsibilities across organization functional units and uses the office to coordinate communication 2. The Coach Model 3. The Manager Model Concentrates Project Management Capabilities and Responsibilities within the PMO and may provide the direct management of projects 3. The Manager Model

17. Building Consistent Position Definitions To Support Resource Development and Utilization • Career Development Planning • Succession Planning • Resource Planning Job Families • Recruiting — Interviewing • Project Staffing Requirements • Management Coaching • Training Plans Career Paths • The Right People in the Right Roles • Insource vs. Outsource • Resource Availability • Training to Fill Skill and Competency Gaps Skill and Competence Requirements Employee Assessments and Development Plans • Employee and Enterprise Data

18. Career Path Progression Within Job Families

19. Skills & Competencies • Skills - What I do... • Specific ability related to market based or internally developed products and services • Relatively easy to identify and develop • Relatively easy to develop through training • Poor predictors of long term performance • Competencies - How I do it... • Competencies are characteristics of an individual that are observable, measurable, and predicative of performance within a given role or job. • Harder to identify and develop in an individual • Can be developed through a combination of approaches (e.g., training, coaching, feedback) • Better predictors of long-term performance

20. The Restaurant Experience • What makes a “good server” vs. an • “outstanding” server? 20% Tip 15% Tip

21. Competencies of Today’s Technology Professional Holistic View Behavioral Business Technical Business Enterprise Knowledge Strategic Bus. Planning Financial Mgmt. Knowledge Information Sys. Knowledge Foundation Arch. Knowledge Enterprise Resource Planning Change Advocacy Results Orientation Visionary Leadership Leadership Bus. Process Knowledge Technical Consulting Bus. Process Modeling Knowledge of Emerging Tech. Bus. Requirements Analysis Project Cost Mgmt. Information Seeking Client Partnership Problem Solving Individual Contributor

22. Understanding Current CapabilitySkills Inventory What level of experience does each employee have for each skill? When collected together can we get a consistent organization view? What are our organizational skills strengths and weaknesses? What skills are possessed by individual employees? Individual Individual Collective Organization Skills Experience Reporting View • Consistent Skills Categories and Lists • Complete Organization View • Strongest Capability By Skill • Weakest Skill • Training Direction • Opportunities for Contractors or Outsourcing • Years of Experience By Skill • Date Skill Last Used • Level of Proficiency By Skill • Supervisor Validation • Current Technology Skills • Prior Technology Skills • Emerging Technology Skills • High Level Competencies

23. Staffing Strategy and TimingQuestions to Answer Strategy 3+ years ResourceAssembly 1 year Execution 1-to-6 months Planning 1-to-3 years Deployment 1 month • Whom shall we assign to what role? • For whatwork do we have the right skills? • Which gaps can we fill? • Which gaps can we not fill? • Who and what gets priority? • Where will our enterprise be? • Whatbusinesseswill we be in? • What kind of people will we need? • With whom will we partner? • What kind of investments must we make? • What will bethe role of the IS organization? • What skills, knowledge, proficiency, competencies will we need? • What should we focus on? • What delivery models shall we use? • Where are our gaps? • Which skills should we build? Buy? • Do we have prof’l devel-opment plans? • How many people shall we prepare? • With whom will we work?

24. Resource Optimization • Resource optimization is achieved by ensuring your key HR • processes are developing and rewarding the right behaviors • resulting in desired business results. • Key HR processes included: • Performance Management • Career Development • Reward • Cash • Non-Cash • Succession Planning • Selection

25. Performance Management and Career Development Win-win occurs when development for business need (performance) supports development for employee desired career goal. • Career • Development • Defined timeline (long term) • Linked to employee growth • Competency gap analysis • and development to close • gap for achievement of • career goal • Performance • Management • Specific time period for evaluation • of performance (short term) • Linked to compensation • Development of critical • competencies for current role • and achievement of desired • performance results for • performance year DEVELOPMENT

26. Linking Pay To PerformancePaying For What People Do And How They Do It

27. Developing a Total Reward Strategy for IT Affiliation Reward • Culture • Work Environment • Job matches skills/ competencies • Performance feedback • Job security • Personal growth • Career advancement Career Reward Indirect FinancialReward • Benefits • Pension • 401(k) • Healthcare • Disability • Vacation • Non-Cash • Recognitions • Pat-on-the back • Public recognition of achievement • Tech toys • Perquisites • Company car • Commute service • On-site amenities • Health club TotalRemuneration Direct Financial Reward • Long-Term Incentives • Stock option • Restricted stock • Deferred cash • Annual Variable Pay • Premium pay • Annual incentives • Project milestone • Project completion • Cash recognition (spot award) Base Pay Total Reward