IT Infrastructure: Corporate asset or liability?
A guide to how a bad IT infrastructure can push a highly successful company ... into the red.
A guide to how a bad IT infrastructure can push a highly successful company ... into the red.
[QQ]There are two ways that IT can make a real difference to the bottom-line performance of a business, and therefore the returns that shareholders achieve. The first is to build applications that give the business a competitive edge; and the second is to build an IT infrastructure that ensures information flows freely around the business, and every single activity is enhanced by having access to the right information.[QQ] The majority of IT directors spend the bulk of their time and energy on the former but often struggle due to the immense difficulty of anticipating market and customer needs. The smarter minority are reaping greater rewards for their organisations by focusing on transforming their IT infrastructures from expensive, poorly controlled inhibitors of the business, into a corporate asset that dramatically improves business performance – by directly supporting the business’s needs and aspirations (and hence those of its board of directors) in a fully cost-optimised way.[QQ] Why is IT infrastructure so important?[QQ] When we talk about “IT infrastructure”, what we mean are the IT and telecommunications systems (hardware, software, people and processes) that are used across the business to share and process information in a common way. These include electronic mail, other groupware, workflow platforms, desktops and standard desktop packages, LANs, WANs, servers, intranets, and Internet access.[QQ] The massive explosion in these technologies has made them increasingly difficult to manage, and there are good reasons why many organisations have so far failed to put the correct disciplines in place to facilitate this. One is complexity. With the increasing array of information technologies on offer, interconnecting and integrating them becomes ever more complex.[QQ] Secondly, the management of IT infrastructures is becoming more complex and costly.[QQ] While the decentralisation of IT departments ensures good support for local users, this is often at the expense of giving the overall organisation a uniform platform geared towards its wider business objectives. And thirdly, many organisations are faced with a legacy of ad hoc development.[QQ] Companies often find themselves with multiple e-mail systems, word processors, telephone systems, and so on, as a natural consequence of operating in highly competitive and changing markets, where investment in IT infrastructure has often been incremental and unplanned, and made by different business units.[QQ] Used effectively, the IT infrastructure can be a key business asset – not just in its own right, but also as an enabler of the exploitation of other assets such as information, people, finances, products and business relationships.[QQ] Attaining the “hygiene level”[QQ] To be an “asset” to the business, the IT infrastructure must be properly managed. For IT services to respond quickly and flexibly to business needs, key aspects of it must also meet a minimum standard across the business, which PA has defined as the “hygiene level”.[QQ] Where the IT infrastructure comprises a large number of different technologies, protocols and therefore, skill requirements, it gets increasingly difficult to achieve the hygiene level. Below this, the infrastructure becomes a liability, and ineffective as a channel for delivering business applications.[QQ] Increased use will incur additional costs, and the marginal cost of new users starts to climb. Above the hygiene level, the infrastructure becomes an asset, aiding the fast delivery of new applications that contribute to business performance. Increased use of the infrastructure will also reduce marginal costs, by increasing economies of scale (see Figure 1).[QQ] From PA’s work we have compiled a list of characteristics that can be used as indicators of an infrastructure that is below the hygiene level.[QQ] First, changes are chaotic. Hardware and software upgrades are difficult to achieve, involving a range of non-standard processes, and leading to days, weeks or months of new problems for users as the “improvement” settles in. Second, costs and charges are not well understood. No-one knows how much is invested in the infrastructure, but everyone agrees it’s more than appears on the books. New investments are made in isolation, and frequently through low-level budget sign-offs. Third, there are communications black holes where people, sites or even countries within the organisation cannot be reached by electronic communications. And fourth, performance is variable. Systems run out of steam when people need them most, and service quality depends on where you are.[QQ] If these symptoms sound familiar, then just some of the effects they’ll be having on your company will be that organisational change is being constrained by the IT infrastructure; business processes are not supported by the right information flows; customer and product information will often be unavailable during interactions with customers, even though they’re available elsewhere in the business; and market intelligence is unlikely to be gathered and disseminated systematically.[QQ] Optimising the IT infrastructure[QQ] PA Consulting Group has developed a benchmark enabling the corporate profile of an organisation to be matched against its current or proposed IT infrastructure. This allows the organisation to leverage maximum benefit from its investment, by managing the optimum balance between the IT infrastructure being a liability or asset. The benchmark measures nine key corporate characteristics and their associated IT infrastructure characteristics, which have to be aligned if the organisation is to derive maximum benefit from its infrastructure. These are shown in Figure 2.[QQ] The objective of the benchmarking process is to match the IT infrastructure to the previously established corporate objectives – not vice versa.[QQ] Each dimension in the diagram has been specifically chosen for the strength of fit between the IT infrastructure and the corporate characteristic that infrastructure is designed to support. The further each characteristic is marked away from the centre, the more strongly the corporate or IT infrastructure characteristic is exhibited within the organisation. (Corporate characteristics are in blue; IT infrastructure in red, in Figure 2.)[QQ] In the example in Figure 2, a hi-tech electronics development company has been analysed to see how well its infrastructure and corporate characteristics are aligned. The company has been financed by a venture capital organisation, with additional borrowings from the bank. It has relatively few assets – the key one being the intellectual property generated by employees – and its business focus is on providing customer-specific electronic sub-assemblies.[QQ] Financial base/capital revenue balance[QQ] Every organisation has a unique financial position. It may have an excess of money in the bank, and no obvious ways of investing it in the business; or it might be like the organisation in Figure 2, which is financially restrained, with a high cost of capital for which a number of projects are competing. The analysis of the organisation’s business shows that the IT infrastructure is financed so as to reduce the capital requirement to a cost-effective minimum. Hence there is a good fit between the corporate and IT infrastructure lines on the diagram.[QQ] Market leader or follower/leading edge[QQ] An organisation can decide to attack its marketplace in a number of ways.[QQ] It could produce me-too products at a price advantage, or aim to become a market leader by being first to market with new products. While this company’s objective is the latter, this is not reflected in its IT infrastructure, which employs relatively old technology. It is likely that the IT infrastructure has restrained the organisation from being first-to-market with a number of products.[QQ] Acquisition strategy/quantum expansion[QQ] Nearly all organisations want to expand – either through organic growth, diversification or acquisition. This corporate measure determines the organisation’s willingness and likelihood of acquiring other businesses; while from a technical perspective, the axis measures its capability to expand significantly and integrate other infrastructures in a short space of time. The organisation shown does not have a history of acquiring other companies, but would not be averse to doing so if the right option came along. Its IT infrastructure has the capability to integrate another organisation, but this would require investment in time and money.[QQ] Corporate agility/speed of change[QQ] At a strategic level, organisations can choose to focus on their core business, and not wish to look for, or be legally restrained from exploring, new opportunities in the marketplace. At the other end of the spectrum, they may be actively looking to develop new business, and have multiple new ventures ongoing at any one time. As a market leader, the organisation illustrated is regularly exploring new opportunities that have a good synergy with its core business.[QQ] To support this, the IT infrastructure needs to be flexible and adaptable to the requirements of the new ventures, and, because the organisation is continually redefining itself, must be able to respond quickly to these changing business drivers. The organisation depicted can keep pace with the changing business environment, but is not ahead of the game.[QQ] Attitude to risk[QQ] All organisations have a different attitude to risk. This is a cultural ethos that needs to be understood. By its nature, the organisation illustrated often takes risks – typically with new products developed in short timeframes to capitalise on market opportunities.[QQ] Attitude to risk from an IT infrastructure perspective is reflected in the propensity to utilise new products, the level of testing, the formalisation of release procedures and the level of backout planning. This organisation’s IT infrastructure team’s approach to risk management is strongly aligned with that of the business, with the focus being on getting the job done in a timely manner.[QQ] Reliance on systems/level of redundancy[QQ] Organisations, and in particular different industry segments, have varying levels of reliance on IT systems, and this scale primarily measures the business impact – be it loss of revenue, additional costs or customer loyalty – of the IT infrastructure being down. The cost of providing an appropriate level of redundancy should be matched to the business impact of the likely loss of service. Even though its IT infrastructure does not have a lot of resilience, this organisation can continue operating without access to its systems for extended periods of time.[QQ] Partnership strategy/standards based[QQ] Partnerships and alliances are becoming an ever-greater part of corporate life. Nearly all alliances have a significant requirement to share certain information, while at the same time maintaining the security of proprietary data. A common feature of successful partnerships and alliances is that they nearly always manage to share information successfully, while one of the reasons for failure is an inability to do this.[QQ] From a corporate perspective, this axis measures the propensity of the organisation to enter into partnerships and alliances, while in terms of the IT infrastructure it looks at the standards deployed that are required to gateway between organisations, and provide the security needed to ensure that only relevant, or authorised, information is shared. In the past, this organisation has partnered with others on a limited basis. Its IT infrastructure is roughly based on standards, but needs a strategy appropriate to working with new partners. Security is implemented on a case-by-case basis.[QQ] Customer focus/level of customisation[QQ] The “one-to-one future” is becoming a reality, with customers demanding services tailored to their particular needs. The more an organisation is focused on customers, rather than on its internal processes, the greater will be the need to customise the IT infrastructure for different groups of users and provide links to customers via extranets or the Internet.[QQ] The organisation illustrated wants to be focused on customer needs, but its systems are restraining it from doing this.[QQ] Corporate growth rate/organic expansion[QQ] Most organisations have a planned growth rate based on increased revenues and staff numbers. The IT infrastructure has to be able to grow with headcount, as well as with the incremental volumes of data generated from increases in revenue. Procedures need to be in place to monitor corporate expansion plans, and plan the future growth of the infrastructure on a regular basis. The growth rate of the organisation illustrated is well matched to the growth plans for the IT infrastructure.[QQ] The benefits of benchmarking[QQ] The emphasis given to each of the nine corporate characteristics – and therefore to each of the IT infrastructure characteristics – will vary from one organisation to another. In every case, however, the corporate alignment analysis allows the organisation to match its infrastructure investments to the business needs.[QQ] One of the key benefits of this approach is that it focuses on the major strategic issues, rather than on day-to-day business events. For the organisation illustrated in Figure 2, for example, the analysis has shown that investments in IT infrastructure need to be focused on the technology deployed and the level of customisation being offered to various departments.[QQ] The bottom line[QQ] All organisations should regularly review the alignment between their IT infrastructure and the needs of their business. The benchmarking method outlined allows you to measure and understand the extent to which alignment is being achieved. In addition, it makes the fit between IT infrastructures and the organisations they are designed to support, transparent – both to the teams responsible for implementing them, and the board members responsible for approving the required investment.[QQ] [QQ] Alan Oliver and Patrick Kelly are consultants with PA Consulting Group.[QQ] For more information about this briefing contact Stacey McGown at PA on 0171 333 5351 or by e-mail on firstname.lastname@example.org.