Feeny & Willcocks: IT Capabilities

Nine Core IT Capabilities

1. IS Governance/Leadership

"The CIO's understanding of technology is a given. But it is through a deep knowledge of the business that the CIO can not only understand what is necessary but also build credibility with line managers--and thus build the ability to influence them to move in appropriate technical directions."-- John Rockart, MIT

"My advice to CEOs is this: Your IT function should be run by a great general manager, not by a traditional technology manager...[IT Professionals] don't have the skills to integrate technology with the business. More and more, business considerations rather than technical ones drive investments in IT. Our businesses are asking, "Why not buy solutions rather than build them? and "How can IT serve the critical needs of the business rather than those narrowly defined by accounting and human resources?" Far too many IT professionals don't know how to frame questions like these, much less answer them." -- Gene Batchelder, CFO, GPM Gas

In a survey of 64 CIOs, Applegate and Elam (1992) found that 30% had only a technical background; 33% had only a business background, and 37 had a "hybrid background".

"I went to the city, I usually had one or two things to do. I made it a point when I went in, I went up to the chairman's office and many times his secretary was there when I'd get there. I'd say, 'tell the chairman and CEO, tell Harry I'm in the building. Could I talk to him? I'm available.' I went right down the hall to the president, who at the time was Michael, and said, 'I'm in town for a week if you have any questions about computing, I'd be happy to talk to you about it.' I would also visit every senior vice president on the executive floor. I would stick my head in the door and say, 'hey I'm in town, what can I do to help?'" -- VP of IS, PETRO2

"We'd make it a point that every one of our executives attended that four day class. Every time we got as many as ten or fifteen people at the general manager level who had not taken the course. I'd call to schedule the course. And we'd schedule it and we'd get the CEO's signature saying, 'You've been selected to attend a computer concepts class. Please be at the homestead on four o'clock on Sunday, signed, Harry Thompson, CEO." -- VP of IS, PETRO2

2. Business Systems Thinker

"At Walmart and at many companies, technology has become integrated with almost every aspect of the business. Once, we used technology to run core applications, such as general ledger, or to process key business information, such as sales and inventory. Those were applications that ran on big systems and stood alongside the business. Today technology plays a role in almost everything we do, from every aspect of customer service to customizing our store formats or matching merchandizing strategies to individual markets in order to meet varied customer preferences." --Bob Martin, CEO of Walmart

"To serve customers well in 1995, companies need to be proficient in half a dozen key areas: reduced cycle times, reduced asset levels, faster development of new products, improved customer service, increasing empowerment of employees, and increased knowledge sharing and learning. Information technology is a key resource for accomplishing those goals" -- John Rockart, MIT

The CIO of Texaco has a very good relationship with CEO. He participates on business committee to give an IT perspective. Here are some quotes from him:

• "Our Operating Committee are the top executives in the business. They are making decisions outside the IS world. And they look to my expertise, my management expertise and my knowledge of technology to help them make the right decisions." -- VP of IS, PETRO2
• "I feel like an oil man. I was an oil man first and a computer person second. And I think that has to be that...if that person wants to have credibility." -- VP of IS, PETRO2

Not all IS managers are welcome in this role. Corporate Planning Manager of PETRO3 said his senior management viewed IS as a cost burden:

• "The IS organization have a tremendous amount to contribute if they ever get out of the back room and be perceived as having an opportunity to participate in the resolution of problems rather than being one of those problems." -- Corporate Planning Manager, PETRO3

In cases of outsourcing, it is sometimes difficult for IT staff to transition from supply management to demand management:

• "We are forcing our people to think business not technology. But for some of the agencies, that's been a difficult transition. Like the engineering organizations is a well established IT group, those managers who managed the data centers, managed by kicking the tires. They still want to focus on inputs. The newer agencies, the ones not as skilled, they had a fresh start without all the baggage. They focus more on outputs." -- Contract Manager, PSB5

3. User-Business Relationship Builder

"Today's pace of business requires on-site, on-line information, placing a premium on communications and distributed networks. Managers also need this information to be accessible across the business. The new imperative requires companies to integrate systems that have long been isolated from one another; to connect purchasing and manufacturing information with logistics, sales, and to connect integrated business systems directly to customers and suppliers" --CFO, GMP Gas

"The senior managers within BAe and even more the managers within the business units, by and large didn't want to hear people talking pure IT. What they wanted was to hear people talking their language, the language of making airplanes. And we were able to do that, we were able to produce these people who talked their language." -- CSC Quality Manager (Transferred from BAe)

4. Technical Architect

"You shouldn't outsource technical architecture. Let's take our supplier. They have a standard operating environment and a global roll-out. As it turns out in our situation, they happen to overlap, like MS Office on their desktop. So we have synergy. But if you go to a different organization you may not have that synergy. Then are going to take your architecture where their business is going, not where you want to go. Those that let all their technical architects go, and we have an exposure their because we let most of ours go, and now as I skill up my group, I to build up an expertise that can keep up. It's probably most contentious in the mainframe area...suppliers want vanilla, and customers want chocolate. And we even have discussions on the supplier's standards. We want to run this security environment, not their standard security environment for these reasons." -- Contract Administrator, PBS5

5. Technical Doer

Why do we accept eccentric behavior from the technical doers?

6. Informed Buying Role

"If you are a senior manager in the company and you want something done, you come to me and I will go outside, select the vendor, and draw up the contract with the outsourcer, and if anything goes wrong it's my butt that gets kicked by you."

7. Contract Facilitation Role

Actual IT outsourcing contracts are impossible to execute from because they are typically massive documents written in obscure legal terminology. In the early days of a mega-contract, one of the major tasks of the centralized contract management team is to develop user guides to the contract. The guides are designed to describe what the supplier is obligated to provide under the fixed-fee structure in user terms. But at all companies we have studied, the contract and user guides are always open for interpretation, no matter how well the negotiating teams believe they nailed down the details.

"We find is anything you write down and distribute to a group of people, those people interpret it differently and they try to execute against their interpretation." -- Global Alliance Manager, CHEM4

Some examples serve to illustrate the ambiguity typically found in contracts. For example, the supplier is obligated to provide network enhancements under the fixed-fee, but customer is required to pay for network extensions. How do users know the difference between an enhancement and an extension?

"Now the difference between an extension and an enhancement. Say next door didn't have the network. Is that an extension or an enhancement because it's giving it to my secretary and it's the same network in theory." -- Account Executive, Division A

Another example: If customer needs system maintenance that requires supplier to bring the data center down over the weekend, who pays supplier overtime?

Helps manage user expectations of the contract:

"We have to sit with the agencies and EDS to make expectations reasonable . It's a balancing act. We get accused by the agencies, 'Why are you siding with the supplier, you are supposed to be on our side?' But you need to be even-handed. Suppliers have to make a reasonable margin to stay in business. You don't want them to lose money because the worse their business gets, the worse your business gets. At the same time you don't want them to make outrageous profits at your expense." -- Contract Administrator, PSB5

"There is always some hot spot somewhere or another that's not working entirely the way either side is expecting. And usually it's a misunderstanding of what people can expect from the contract, expect from the relationship. So once you get in there, it's not always difficult to find some way to improve the relationship. It's just that you don't always know until there is a bit of a stand-off." -- Account Manager, PSB1

Assesses and helps to prioritize user demands

"I think one of the things that the contract does is drive out a much better understanding with the individual business streams. What it is they are acquiring, they are forced to consider what it is they need in the first place. And they have to accept, like any commercial undertaking, that there is a price to pay." -- Customer Service Manager, PSB1

Determines if user demands will trigger contract excess fees
Determines if users are demanding too little from supplier

8. Contract Monitoring Role

"We need a significant number of people in-house to monitor service performance. In one business unit alone, we have 16 people working on contracts. Six exclusively on the monitoring side. Admittedly, we are still in the setting-in period, but I can't see the work declining that much." -- VP of IS

"Some people think that managing an IT contract is like managing a cleaning contract. I think that's amazing. Or they think it's like managing a building contract. But a building doesn't change its basic purpose over 20 years, whereas with IT it is only for at most 3 years. Like what we are doing with the internet 3 years ago. And there is a much closer relationship with the business and the technology. Other services you might procure are not as dynamic. But there is a perception that you manage IT contracts like any other contracts." -- Contract Administrator, PSB5

Solve disputes with suppliers

"For any disputes, we always get a matter of fact account of how that dispute manifests itself in terms of the contract. So we are always looking at what the clauses in the contract are saying about this area. We are looking to whether we believe that the contract was comprehensive in that area, whether it needs to have some changes because we are quite open to changes in the contract if they are beneficial. But we always view that in the context of what is the contract saying about this area of work." -- Account Manager, PSB1

Review chargeback reports
Develop/review service level reports
Refinement of performance measures

"I think our conclusion is that we seek no more than a dozen key performance indicators. Otherwise, yes the relationship is more complex than that. But unless you pick the 12 maximum most important keys, you again will have something which is unmanageable because you are trying to manage too many points." -- General Contract Manager, AERO2

"If you look at the way our central resource ordering process worked and compared it over the three years to the contract, it's significantly simplified now. We now run it with about 25 resource types rather than over 50. We run it on a quarterly basis rather than monthly. So we've come to an accommodation jointly as to how we handle that." -- Suppler, Account Manager

Benchmark existing contracts against developing market capability

"Our experience being honest is that I haven't been terribly happy with the benchmarking process. This is not happy for the customer nor the supplier. It's just the process seems to be a little bit naive." -- Contract Manager, Division B

Escalation procedures

"It's really us sitting down with the business counterpart and saying, 'legally this is a reasonable level of service that we can deliver. We are prepared to contract to deliver this and there's no conditions attached. Then the business can reasonably expect to have that level of service and to complain and seek some form of redress if it doesn't get that. If they want to renegotiate within the terms of commitments already made or funds that are available, then the scope is added." -- Customer Service Manager, PSB1

Negotiate detailed amendments

"By mutual agreement, we are trying to make it a little more volume related, but overall it won't change the bottom line profitability. It's really a readjustment of the pricing mechanisms within the contract, and provides protection for both sides...I see realignment as an ongoing, healthy, fresh aspect of the relationship." -- Supplier Executive

"But if you think what's happened in the telecommunications market in two years, and yet the contract is based on the 1993/94 view of life . So if you look at the fixed prices in the contract, they pay no account to technology change or market demand for telecom and the competition. So prices are outrageous. They are okay up to 1997, the prices are okay. But in 1998, I think we've halved our telephone prices by choosing different providers. The contract is not recognizing emerging technologies, a real issue for us has been it does not recognize that." -- Contract Manager, Division B

"We have changed the contract over the course where we thought it would be mutually beneficial. And one particular area is where we've introduced an incentive for EDS to reduce the capital costs of IT. Prior to that, they had an active dis-incentive in the contract because they get an agreed mark-up on any capital item they buy for the provision of our service. And if it costs less, they got less of a mark-up. So we introduced some arrangement within the contract that meant that it was worth their while to drive some harder bargains and deals and we would share the benefit of those decreased costs." Account Manager

"The easy way of managing this contract is the way we've always managed our contracts. That is, in terms of ticking and stamping and not varying from a fairly hard-nosed approach to our suppliers. But even before we lead this contract, we knew we didn't want that sort of relationship in the long run. Mainly because we knew that we couldn't possibly predict what our requirements would be and how they would change from day one through a life of a ten year contract." -- Account Manager, PSB1

9. Vendor Development Role

1. Business value-added, in which the supplier applies their expertise to help the customer exploit IT for business advantage.
2. Capacity value-added, in which the supplier infuses new skills and technologies in an effective manner.
3. Utility value-added, in which the supplier provides cheaper IT services.

"Yes, [the vendor] can achieve all the things that were proposed---but where is this famous "added-value" service? We are not getting anything over-and-above what any old outsourcer could provide." -- IT Services Director, Aerospace Company

"The focus had shifted to one which is described as 'value-added'. In looking at a comparison of the cost model between internal and external performance, it became clear that either option could be equally cost effective. However, the key question for the company was: Is there something which a third party (whose capability lay within exploiting IT) could bring to the business that we could not otherwise acquire? This question was considered for a period of two to three months." -- quote from an outsourcing report

"Value-added, it's one of the goals. It's value adding but has to be done on both sides. [The supplier] has to turn a profit and has to allow [the customer] to turn a profit. If you were signing up a partner, you wouldn't want your partner to lose money. You want your partner to be successful. So I think the value-added term is used with the implicit understanding that that implies that [the supplier] is also prospering to some level." -- Supplier Account Executive, AERO2

Nine Capabilities	Business Skills	TechieSkills	PeopleSkills	Strategy	Structure	Individual/Roles	Technology
Business Systems Thinker	X	-	-	X	-	-	-
User-Business Relationship Builder	X	-	X	-	X	X	-
IS Leadership	X	-	X	X	X	X	-
Technical Architect	-	X	-	-	-	-	X
Technical Fixer	-	X	-	-	-	-	X
Informer Buyer	X	-	X	X	X	-	-
Contract Facilitator	-	-	X	-	X	X	-
Contract Monitor	-	-	-	-	X	-	-
Vendor Developer	X	-	-	X	-	X	-

• Strategy: How does the business currently create value, and how might it create more value?
• Structure: How does the organization work?
• Individuals/Roles: How can I get this person to support what I want?
• Technology: How does this technology work?

Conclusion

"Overtime, some of the skills you want in, no one is an expert in everything. So what we want are good generalists who can tap into bought-in expertise, you buy-in your specialists. You have a core group of people here because you want them to have ownership and pride and care. So they are generalists. When you need expertise, they know where to go to get it, and how to get it." -- Contract Administrator, SA Government

"These skills fell into two broad categories...[Retained IT] people were largely responsible for managing the relationship with the supplier. The competencies and skills were managerial and technical in nature. Firstly, people were needed with the skills of negotiating, influencing, and coordinating. It was necessary to articulate business requirements to a supplier on a continuing basis. Secondly, people were needed with good technical skills who could also undertake an internal consulting role. These people were needed to articulate the IT-related solutions within a business context to the supplier." -- quote from a BAe outsourcing report