Performance Management Meets IT Strategic Planning Sidney Finehirsh cmxgroup

1. KCCMG April 29, 2003 Performance Management Meets ITStrategic Planning Sidney Finehirsh www.cmxgroup.com THE CMX GROUP, INC 65 BROADWAY SUITE 1806 NEW YORK CITY NY 10006 (212) 346-7560

2. Agenda • The State of IT • IT Information Architecture • New Emphasis on IT Strategy • Balanced Business Scorecard • Applying the Scorecard to IT

3. The State of ITThe Business Climate • Uncertain economy • Trend in investment spending still negative • Marketplace more competitive • Criticism from analysts, shareholders, and customers • New pressures on CEOs

4. The IT Spending Trend* 8 7 6 5 Growth 4 3 2 1 0 * Gartner Inc,. & SoundView Technology Group Inc. The State of IT Economic Uncertainty and IT Budget

5. The State of IT The CEO’s Questions to the CIO • What is our IT Strategy? • How does IT advance company strategy and objectives? • Is IT working as a partner to business units? • What is the measure of successful execution of our IT strategy?

6. The State of IT The CIO’s Challenge* • There is so much data; so little information • Are we measuring the right things or the right way? • Cost does matter • We need better information now • How do we demonstrate value? * Based on CMX survey of CIOs 2001

7. Venture Partner 00’s Utility 90’s Glass House 80’s Back Office Operations 70’s The State of IT Evolution of IT

8. Analysis Collection Infrastructure Measurement Data Structures & Topologies IT Information Architecture Strategy Tactical Reporting Measurement Database

9. NT Linux UNIX OS/390Z/OS AS400 Web HelpDesk Network IT Finance Business Transactions Measurement Data Structures & Topologies IT Information Architecture

10. Collection Infrastructure Measurement Data Structures & Topologies IT Information Architecture

11. NT Linux UNIX OS/390Z/OS AS400 Web HelpDesk Network Collection Infrastructure IT Finance Business Transactions IT Information Architecture

12. Collection Infrastructure Measurement Data Structures & Topologies IT Information Architecture Measurement Database

13. Measurement Database Requirements • Open Interface to various formats • Single Access Method • Central Location(s) • Summary by time periods • Relational Characteristic

14. Analysis Collection Infrastructure Measurement Data Structures & Topologies IT Information Architecture Measurement Database

15. Analysis Supply Demand Service Utilization Growth Capacity Limits Optimization • Costs • Resources • Transaction • User Charge • ABC/M Availability Responsiveness Turnaround Incidents Closed Systems and Applications Management

16. Analysis Collection Infrastructure Measurement Data Structures & Topologies IT Information Architecture Tactical Reporting Measurement Database

17. Requirements Decision Oriented Immediately Understood Easy to Access Web Enabled Types Exceptions Trends Recommendations Quarterly Summary Tactical Reporting The Operations Dashboard Metrics Required for Daily Operational Excellence

18. Analysis Collection Infrastructure Measurement Data Structures & Topologies IT Information Architecture Strategy Tactical Reporting Measurement Database

19. New Emphasis on IT Strategy • Always desirable now indispensable • Drive looking through the windshield instead of the rearview mirror • Balance cost reduction with service demands and business initiatives • Focus on Return on Capital Expended (ROCE) • Provide leadership to the IT organization • Communicate with the business organization

20. IT’s view of the Enterprise Perception IT’s quality is high and costs are low End users are never satisfied Enterprise creates strategy without us We’re going to be outsourced The enterprises viewof IT Perception Slow and unresponsive Unreliable Expensive Out of touch with business needs Disconnect The Need for IT Strategy: Communicate Source: R.Gold, BSCOL

21. IT’s View of the Enterprise The Enterprise’s view of IT New Emphasis on IT Strategy Communicate Expectations • Contain cost • Aligned with business • Flawless service • Competitive cost • Source of productivity • Competitive advantage

22. Balanced Scorecard*What Is It? • A balanced scorecard is a management process that: • synchronizes strategic measurement to operational success • allows organizations to align corporate strategy with strategy in operational and tactical units • facilitates communications within organizations • Is the process of processes that oversees other management tools * orignially developed by Robert Kaplan and David Norton

23. Balanced ScorecardWhat Is It? • While traditional methodologies utilize a vertical structure, Balanced Scorecard examines the organization horizontally • Includes analysis of both tangible and intangible assets • Measurement in support of strategy • Leading as well as lagging indicators • Drivers as well as milestones • Effectiveness as well as efficiency

24. Ultimate Measures Drivers Balanced ScorecardThe Four Perspectives The balanced scorecard helps measure the impact of strategic decisions on the enterprise by factoring metrics from four key areas:

25. Applying the Scorecard to ITStrategic Themes and Metrics • Develop IT strategic themes • Define the Customer perspective to include both business units and corporation customers • Identify unique metrics in support of IT strategic themes • Seek IT Business crossover measures

26. Applying the Scorecard to ITDeveloping ITStrategic Themes • Strategic themes are driven by: • External business drivers • Business climate • New technologies • Regulation • Corporate strategic plan • Market development • Products and service innovation • Infrastructure requirements • Profit targets • Tactical business initiatives

27. Applying the Scorecard to ITITStrategic Themes • Current strategic themes • Lower growth of IT expense with equal service • Protect business units from fraud and intrusion • Achieve operational excellence • Improve customer relations • Enhance business unit revenue • Increase profitability through IT innovation • Leverage technology for competitive advantage

28. Applying the Scorecard to ITStrategic Measurement IT Metrics Business Metrics IT Scorecard

29. Applying the Scorecard to ITExample • Strategic themes • Lower growth of IT expense with equal service • Strategic measures • Efficiency and effectiveness

30. Applying the Scorecard to ITTheme: Lower growth of IT expense with equal service • Measures for the Human Perspective • Efficiency • %Turnover of knowledge workers • Average tenure of knowledge workers • Effectiveness • %IT hours in maintenance / %IT hours in development • %Improvement in cross training index

31. Applying the Scorecard to ITTheme: Lower growth of IT expense with equal service • Measures in Internal Process Perspective • Efficiency • % Average utilization increase across servers • % Average utilization increase across storage • % Change in Cost per CPU hours / IT FTE • % Change in Cost per gigabyte-month / IT FTE • Effectiveness • Application failure rate • % of severity 1 defects / development hour

32. Applying the Scorecard to ITTheme: Lower growth of IT expense with equal service • Measures in Customer Perspective • Efficiency • End-to-end response time • Effectiveness • % of SLAs met

33. Applying the Scorecard to ITTheme: Lower growth of IT expense with equal service • Measures in Financial Perspective • Efficiency • % Reduction in cost per CPU hour • % Reduction in cost per gigabyte-month • Effectiveness • Business unit revenue per transaction / IT cost per business unit transaction

34. Ultimate Measures Drivers Balanced Business ScorecardThe Strategy Map • Shows linkage of driver through perspectives CPU $ Reduced Disk$ reduced BU Margin Service SLA’s % Disk Util %Fail Defect rate %Server Util CPU$/FTE Disk$/FTE % Turnover Avg. Tenure % Maint/ Dev Train Index

35. Venture Partner 00’s Utility 90’s Glass House 80’s Back Office Operations 70’s Evolution of IT