For example, to placate a call center manager, I once customized an enterprise resource planning (ERP) system so the order of data entry was customer name, telephone number, address. That altered the standard sequence of the system, which was customer name, address, telephone. The ripple effects of this seemingly minor change cost $100,000. I can already feel the fires of IT hell lapping at my feet.
As penance for this and other sins, a few years ago I began using a highly effective alignment model to improve IT decisions and to increase the value that IT adds to the business. The model is simple yet powerful. It defines business activities using two criteria. First, how much does (or will) this activity differentiate us in the marketplace? Second, how critical is this activity to our operations?
Next, these two criteria are evaluated against four types of business activities. Some activities are both differentiating and mission-critical; let's call these "differentiating." Some are mission-critical but not differentiating; let's call these "parity." Now, some are differentiating but not mission-critical, so here you would look more closely at partnering or outsourcing the effort. And some projects are neither, so they fall into the "Who cares?" quadrant and should be killed.
Most of the activities that IT supports are "differentiating" or "parity" processes. They either advance the business competitively or help it at least to keep pace with the rest of the market. This model can help improve IT decisions when we acknowledge that the purpose of differentiating activities is to be the best, while the purpose of parity activities is to be just as good (or as bad) as the competition. In other words, don't overinvest in the parity-oriented systems.
Here's an example: I am working with a financial services company that is redesigning its principal application. The initial plan anticipated a $2 million budget and an 18-month timeline. We started by defining the criteria we would use to filter its activities into the differentiating and parity types. Next, we aligned each software component with its business purpose: Be the best or be good enough. We then designed the components according to purpose. The result has been a much more streamlined project that simplified the parity components and focused resources on the differentiating ones. By the way, the budget dropped to $1.3 million and the timeline to eight months.
I firmly believe that my time in IT hell would have been shorter and less painful had I used this model when I was asked to change the sequence of order entry in that ERP system. I am confident the call center manager would agree that the sequence of order entry was probably not going to increase sales, customer satisfaction or market share.
In hopes of earning some redemption, I offer this model to you. Spend some time with your management peers and identify what makes your products and services unique -- and what doesn't. Then evaluate the IT decisions related to your products based on your company's differentiating and parity guidelines. This will properly align IT with the business, improve IT value and perhaps contribute to my penance for those ancient IT sins.
Niel Nickolaisen is CIO and vice president of strategic planning at Headwaters Inc. in South Jordan, Utah. To comment on this story, email email@example.com.
This was first published in August 2005