Eight Ways CIOs Use Capability Maps To Embed Business In The Management Of IT

Eight Ways CIOs Use Capability Maps To Embed Business In The Management Of IT

Isolating technology decisions and discussions from the business purpose relegates the CIO to a purely operational role with little impact on business outcomes.”

Business capabilities define what your organization does to execute its mission or support its position in the marketplace. These capabilities, such as “customer management,” “product development,” and “employee management” are the key building blocks of the organization.

The capability map — which identifies all capabilities and their relationships — provides the overarching framework the CIO can use to align IT with the business, rationalize the application portfolio, and communicate IT’s value to the users and consumers of IT’s services. CIOs must shift from an inward-looking perspective, where the technology infrastructure is a collection of platforms, to an outward-looking one, where the business and its structure frame all discussion and decisions — and thus elevate the CIO role from technologist to business partner.

IT AND ITS CUSTOMERS DON’T SHARE A COMMON VIEW

For far too long, IT organizations have organized themselves around technology platforms, with discrete groups managing different levels of the technology stack, such as networks, servers, databases, applications, and desktop devices. Budgeting, planning, and reporting to the business have often followed a similar platform-oriented structure. Even worse is the fact that more than three-quarters of IT organizations have not even had a consistent process for measuring the value of IT investments.

Before the supply side (IT solutions) can be optimized, a clear understanding of the value side of the organization (business functions) needs to be in place. Only then can IT re-orient itself to see how it supports the key business capabilities required for the firm to thrive in its marketplace.

Capabilities Describe Your Business

Business capability maps provide a framework for capturing key characteristics of a firm’s business model and core functions — the business capabilities — which can then be used to assess business needs, understand IT costs, and align investments with strategic priorities. Collected together, the “capability map” of the organization documents all the capabilities and their relationships that are part of the business operating model and value chain. While there are no “standards” for capability maps, most capability maps share a set of common characteristics:

• Capabilities are stable; how they are performed is dynamic. While the market may require dynamic changes in the way a capability is delivered, the capability itself is stable — only if a business radically changes its operating model would new capabilities be identified. As such, the capability map provides a useful midpoint between market requirements and internal processes. Both ends can change, while the basic goal of the capability remains the same.
• Capability maps within the same industry are often quite similar. Different organizations within the same industry are likely to use very similar capability maps. This is not to say that the output or goal of any individual capability or the way that the capability is delivered will not differ between competitors in a market.
• Simple capability maps are the most effective. Most firms using capability maps for some aspect of strategy and governance state that a top-level map of between 20 and 40 capabilities provides all the granularity they need — and when they define more, they learn they need to simplify. Simplicity is a key source of the power of a capability map as a management tool.

CAPABILITY MAPS REFRAME MOST CIO DECISIONS TO FOCUS ON BUSINESS IMPACT

The business functions described in the capability map provide the organizing framework for a wide range of decisions and communications. The capability map and the ability to relate IT to the business through the business’ view of itself allow the CIO to:

• 1. Clarify priorities and uncover common interests. Traditionally, business capabilities, IT assets, and technology investments are managed from discrete business-unit or product perspectives. Organizing the discussion around an enterprisewide view enables the identification of the key business capabilities and their relative maturities. Discuss each capability in terms of: 1) how core or differentiating it is for business; 2) its relationship to established strategies; 3) current-state gaps; and 4) how dynamic each capability is expected to be over the near and long term.

  Aetna, for example, uses capability maps to provide this holistic view of processes, information, systems, and technology as the organizing structure for its planning process. The capability map analysis allowed Aetna to identify potential business and systems synergies and achieve savings in both time and resources.

• 2. Improve the technology investment process. Because capability maps describe the enterprise as a whole, they provide a way to categorize project proposals according to the capabilities they affect. This allows investment review boards to look simultaneously at all the proposed projects that affect a capability, which enables them to better determine which ones to advance versus shelve. Multiple systems and projects can be gathered into a portfolio, evaluated as to how well they support the capability, and managed in light of the business’ desire to change or mature the capability.

  Planners can gain agreement on the relative level of investment for each capability in the enterprise. This discussion will involve the CIO and business execs who are making the investment decisions. Use this to gain agreement on the ideal allocation of investments as percentages over the next budget year as well as over a three-plus-year window; the criteria to be used in evaluating individual proposals against investment allocation; and any follow-on communications.

• 3. Connect business process and IT change initiatives. The success of large-scale business transformation efforts depends on numerous business and IT projects delivering the right functions at the right time. As projects grow in number and complexity, it becomes more difficult to ensure that each project is moving the organization closer to its goal and that all of the moving parts — the required people, process, and technology changes — remain in sync.

  Pfizer, the world’s largest pharmaceutical company, developed a high-level capability map to clearly define the target-state capabilities necessary to meet the company’s vision. Pfizer divided the overall transformation project into a set of one-year stages called waves, defining each wave’s goal in terms of capability enhancements during its time frame. At the end of each wave, Pfizer assesses how the capabilities have progressed against the ultimate vision to determine the overall status and future direction of the initiative.

• 4. Link the “bill of IT” to the business model. Much as a “bill of materials” defines what components comprise a product, the “bill of IT” defines what IT systems are required to deliver a business process or function. Starting at the top — the capability map — allows IT to identify the key hardware, software, and IT services related to the delivery of each capability.

  Thus connected, IT can take part in meaningful discussion related to business-oriented functions. When the CIO at a mutual fund was asked by the institutional trading business exec to cut the IT costs of a trade by 25 cents, he already knew which technologies and services were involved, which allowed him to make a quick and informed estimate of the effort required.

• 5. Have a better-informed discussion on the right SLAs (service-level agreements). Business-relevant SLAs are more than the determination of the likely performance or uptime of a system at a given budget level. Properly done, service-level management starts with the prioritization of the business capabilities and the concurrent prioritization of the IT services and systems supporting them. Then, the relative business value of different service levels can be weighed against the respective costs to achieve those levels.

  Operational-level agreements and underpinning agreements are now tied to services and capabilities, rather than a technology platform. Additionally, similar thinking can extend to business continuity planning by using criticality of capabilities and services to establish plans and performance targets.

• 6. Meaningfully rationalize the application portfolio. Application rationalization decisions — choosing which applications to keep and which to retire — require more than just a list of applications. Applications either support a part of a business process, such as product design, or embody a whole business process, such as expense reporting. Decisions around which apps to retire and which to keep therefore have process implications that require the buy-in of affected business areas. In addition to the business process implications, an application’s viability — or the viability of all the applications that provide a business function — from a technology or support perspective is an IT concern. Thus, application portfolio rationalization decisions need to integrate a business process view with a systems view.

  For example, customer service is a capability that may be delivered by many groups and be supported by an overlapping portfolio of applications. By looking at the processes by which a capability is delivered, and how different business areas execute these processes, a business decision on process rationalization can be made, supported by a consolidated set of applications. Then the business case for application rationalization is tied to the business’ process rationalization objectives.

• 7. Educate project teams on business context. CIOs often struggle to demonstrate IT’s value to business units that habitually take IT services for granted. Business managers often have little insight into centralized IT’s role in managing the overall IT landscape and finding synergies across lines of business.

  A natural resources firm uses its capability maps to organize projects around common business capabilities, which provides a business-centric framework that allows it to identify overlaps and new opportunities. The firm can now manage a number of previously disconnected projects as a portfolio focused on a common capability. Attaching costs to capability enhancement gives the CIO a clear way to communicate where IT’s dollars are going.

• 8. Guide innovation around business impacts. While the basic capability map for an individual company may not change very much over time, there can be significant change over time within each capability. CIOs can work with the business to define innovative future-state possibilities enabled by new technologies.

  For example, within the retail world, the business capability “product merchandising” has changed dramatically over time. Now, in addition to store layout concerns, the capability may be supported by smartphone applications, in-store kiosks, and real-time business intelligence. Similar examples abound in other retail capabilities and in how capabilities are delivered in all other industries.

RECOMMENDATIONS

BT REQUIRES A BUSINESS-CENTRIC PERSPECTIVE FOR ALL DISCUSSIONS

The classic triumvirate of “people, process, and technology” unites in the delivery of critical business capabilities. Isolating technology decisions and discussions from the business purpose relegates the CIO to a purely operational role with little impact on business outcomes. Capability maps provide the business-centric view of the organization relevant to the business consumers of IT’s goods and services. Use the capabilities as the organizing framework for planning, prioritizing, and strategizing on the role of technology to advance the business.

CIOs who are not yet embracing such a business-focused planning and communications model should:

• Socialize capability maps and their use among key business leaders. The primary value in defining capabilities lies in their ability to create new insight and perspective for business leaders. To accomplish this, IT must define capabilities in a way that resonates with business executives’ thought processes.
• Shift the discussion from technical availability to support for the capabilities. How well the organization is delivering on its capabilities and the role of IT in supporting those capabilities is a completely different discussion than one of storage capacity and application version numbers.
• Drive the discussion down through the IT organization. Expose the capability map and the relevant decisions broadly within the IT organization. It is important for everyone to understand the “why” of the decisions being made, rather than just the “what” of those decisions. Deep exposure will help to maintain the business focus as projects and systems are being developed or implemented.