Shaping IT Demand With an All-New Approach: Scaling Back
January 20, 2016 • Blog Post • By HPE Business Insights
IN THIS ARTICLE
- Demand shaping is an opportunity for business and technology leaders to decide the company’s path of least resistance for change
- Dynamic IT teams shouldn’t view scaling projects back as defeat, but instead, a smart resource decision
A radically different approach to IT projects could foster greater success, says MIT Sloan School of Management’s Jeanne Ross
There’s a compelling correlation between top-performing companies and their willingness to forego nice-to-have IT projects in favor of those with the biggest impact on business transformation.
Jeanne Ross, research director and principal research scientist at the Center for Information Systems Research, MIT Sloan School of Management, identified this link in her work with large multinational companies. By narrowing down the IT programs that get funded—and rejecting proposals for any IT projects that don’t advance one or more of those programs—organizations improve the value of their IT investment portfolio.
Ross refers to this phenomenon as “demand shaping,” an ongoing process in which business and technology leaders negotiate to come up with their company’s most valuable and achievable opportunities for business change. Through these negotiations, they engage in important conversations that facilitate continuous learning. At the end of all this, they develop a prioritized list of IT-enabled business capabilities.
We recently spoke with Ross to learn more about the process of demand shaping.
What distinguishes top-performing companies?
In the course of our research, we found out several things about companies with high-performing IT investment portfolios: They pursue the company’s most strategic opportunities, and they have realistic expectations for what changes the business can implement. In addition, they create reusable IT or business capabilities, and they intelligently sequence the development of those capabilities. Most importantly, we found that strong IT investment portfolios were highly correlated with improved financial performance.
What do you see in companies that haven’t yet adopted these practices?
Most companies have some kind of formalized process where ideas are vetted and somebody establishes priorities. So how good is this? It’s all relative. People have gotten quite skilled at creating business cases that support their pet IT projects. In fact, these business cases have become almost too good. Exciting technology opportunities abound. So, in isolation, you can make strong cases for funding a broad range of IT initiatives. But they’re not necessarily driving an overarching strategy that’s good for the company as a whole.
Can you give us an example of a company that was funding projects that weren’t important?
Hervé Coureil, CIO of Schneider Electric, is very open about this. The company had many different businesses. They let all of them develop their business cases and designate them as important, so there were hundreds, maybe thousands, of suggestions. It’s not as if any of them were frivolous ideas, but they probably didn’t come up to as high a level as they would have if they’d just added together the business cases.
The total value to the company was less than the cumulative value that the business cases argued for. They’ve now reduced the number of strategic initiatives significantly and are working to whittle them down even further.
What should companies do to avoid a similar scenario?
Organizations have to really get focused and stop funding new ideas that don’t add any value. They have to move beyond the stage of evaluating an individual business case on its merits and instead think about what they’re trying to achieve at a high level, identifying the next steps required to reach that level.
How should they go about this process?
They need to shift the focus from many individual IT projects to a few select programs. A program is a large IT initiative that is core to your business. This could be a customer engagement program, a financial management program or a product lifecycle management program.
Individual projects then fit within those larger programs. Although the projects are individually funded, that money is mutually interchangeable within the program. After all, the ultimate goal of each program is to improve business capabilities. If that means cutting back on one IT project within a program portfolio to accelerate another, then so be it.
Can you give us an example of a company that has successfully implemented demand shaping?
Financial services firm Fidelity Investments has always invested heavily in IT. But its decentralized approach to developing specialized systems for individual business units added substantial costs to IT operations, and the incompatible technologies being deployed became an obstacle to business innovation.
In 2013, recognizing that they couldn’t meet all the demands for IT services coming from business units, IT leaders began to sequence projects in ways that would deliver the most important capabilities to the company first.
Then, to stimulate ongoing conversations about IT issues, senior IT people with strong business knowledge and high credibility were chosen to serve as single points of contact to IT for business unit leaders.
Through intensive communication, these “advisors” ensured that the business understood the impact of its IT investment decisions in a holistic, integrated way. That way, IT’s strategic impact on the business was maximized.
Read the HPE Business Insights article “Don’t satisfy demand for IT services—shape it instead” to learn more about demand shaping.