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this is a special edition of an established title widely used by colleges and universities throughout the world. Pearson published this exclusive edition for the benefit of students outside the United States and Canada. if you purchased this book within the United States or Canada you should be aware that it has been imported without the approval of the Publisher or author.

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Global edition

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it Strategy:

Issues and Practices M

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James D. McKeen • Heather A. Smith

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IT STraTegy: ISSueS and PracTIceS

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IT STraTegy: ISSueS and PracTIceS

T h i r d E d i t i o n

G l o b a l E d i t i o n

James D. McKeen Queen’s University

Heather A. Smith Queen’s University

Boston Columbus Indianapolis New York San Francisco Hoboken Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto

Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

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Editor in Chief: Stephanie Wall Head of Learning Asset Acquisition, Global Edition: Laura Dent Acquisitions Editor: Nicole Sam Program Manager Team Lead: Ashley Santora Program Manager: Denise Vaughn Editorial Assistant: Kaylee Rotella Assistant Acquisitions Editor, Global Edition: Debapriya Mukherjee Associate Project Editor, Global Edition: Binita Roy Executive Marketing Manager: Anne K. Fahlgren Project Manager Team Lead: Judy Leale Project Manager: Thomas Benfatti Procurement Specialist: Diane Peirano Senior Manufacturing Controller, Production, Global Edition: Trudy Kimber Cover Image: © Toria/Shutterstock Cover Designer: Lumina Datamantics Full Service Project Management: Abinaya Rajendran at Integra Software Services, Pvt. Ltd.

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Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England

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© Pearson Education Limited 2015

The rights of James D. McKeen and Heather A. Smith to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

Authorized adaptation from the United States edition, entitled IT Strategy: Issues and Practices, 3rd edition, ISBN 978-0-13-354424-4, by James D. McKeen and Heather A. Smith, published by Pearson Education © 2015.

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ISBN 10: 1-292-08026-4 ISBN 13: 978-1-292-08026-0

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ConTEnTS

Preface 13

About the Authors 21

Acknowledgments 22

Section I Delivering Value with IT 23

Chapter 1 The IT Value ProPoSITIon 24 Peeling the Onion: Understanding IT Value 25

What Is IT Value? 25

Where Is IT Value? 26

Who Delivers IT Value? 27

When Is IT Value Realized? 27

The Three Components of the IT Value Proposition 28 Identification of Potential Value 29 Effective Conversion 30 Realizing Value 31

Five Principles for Delivering Value 32 Principle 1. Have a Clearly Defined Portfolio Value Management

Process 33

Principle 2. Aim for Chunks of Value 33

Principle 3. Adopt a Holistic Orientation to Technology Value 33

Principle 4. Aim for Joint Ownership of Technology Initiatives 34

Principle 5. Experiment More Often 34 Conclusion 34  •  References 35

Chapter 2 DelIVerIng BuSIneSS Value Through IT STraTegy 37 Business and IT Strategies: Past, Present, and Future 38

Four Critical Success Factors 40

The Many Dimensions of IT Strategy 42

Toward an IT Strategy-Development Process 44

Challenges for CIOs 45 Conclusion 47  •  References 47

Chapter 3 MakIng IT CounT 49 Business Measurement: An Overview 50

Key Business Metrics for IT 52

5

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6 Contents

Designing Business Metrics for IT 53

Advice to Managers 57 Conclusion 58  •  References 58

Chapter 4 effeCTIVe BuSIneSS–IT relaTIonShIPS 60 The Nature of the Business–IT Relationship 61

The Foundation of a Strong Business–IT Relationship 63

Building Block #1: Competence 64

Building Block #2: Credibility 65

Building Block #3: Interpersonal Interaction 66

Building Block #4: Trust 68 Conclusion 70  •  References 70

Appendix A The Five IT Value Profiles 72

Appendix B Guidelines for Building a Strong Business–IT Relationship 73

Chapter 5 BuSIneSS–IT CoMMunICaTIon 74 Communication in the Business–IT Relationship 75

What Is “Good” Communication? 76

Obstacles to Effective Communication 78

“T-Level” Communication Skills for IT Staff 80

Improving Business–IT Communication 82 Conclusion 83  •  References 83

Appendix A IT Communication Competencies 85

Chapter 6 effeCTIVe IT leaDerShIP 86 The Changing Role of the IT Leader 87

What Makes a Good IT Leader? 89

How to Build Better IT Leaders 92

Investing in Leadership Development: Articulating the Value Proposition 95

Conclusion 96  •  References 97

MInI CaSeS Delivering Business Value with IT at Hefty Hardware 98

Investing in TUFS 102

IT Planning at ModMeters 104

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Contents 7

Section II IT governance 109

Chapter 7 effeCTIVe IT ShareD SerVICeS 110 IT Shared Services: An Overview 111

IT Shared Services: Pros and Cons 114

IT Shared Services: Key Organizational Success Factors 115

Identifying Candidate Services 116

An Integrated Model of IT Shared Services 117

Recommmendations for Creating Effective IT Shared Services 118

Conclusion 121  •  References 121

Chapter 8 SuCCeSSful IT SourCIng: MaTurITy MoDel, SourCIng oPTIonS, anD DeCISIon CrITerIa 122 A Maturity Model for IT Functions 123

IT Sourcing Options: Theory Versus Practice 127

The “Real” Decision Criteria 131

Decision Criterion #1: Flexibility 131

Decision Criterion #2: Control 131

Decision Criterion #3: Knowledge Enhancement 132

Decision Criterion #4: Business Exigency 132

A Decision Framework for Sourcing IT Functions 133

Identify Your Core IT Functions 133

Create a “Function Sourcing” Profile 133

Evolve Full-Time IT Personnel 135

Encourage Exploration of the Whole Range of Sourcing Options 136

Combine Sourcing Options Strategically 136

A Management Framework for Successful Sourcing 137

Develop a Sourcing Strategy 137

Develop a Risk Mitigation Strategy 137

Develop a Governance Strategy 138

Understand the Cost Structures 138 Conclusion 139  •  References 139

Chapter 9 BuDgeTIng: PlannIng’S eVIl TwIn 140 Key Concepts in IT Budgeting 141

The Importance of Budgets 143

The IT Planning and Budget Process 145

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8 Contents

Corporate Processes 145

IT Processes 147

Assess Actual IT Spending 148

IT Budgeting Practices That Deliver Value 149 Conclusion 150  •  References 151

Chapter 10 rISk ManageMenT In IT 152 A Holistic View of IT-Based Risk 153

Holistic Risk Management: A Portrait 156

Developing a Risk Management Framework 157

Improving Risk Management Capabilities 160

Conclusion 161  •  References 162

Appendix A A Selection of Risk Classification Schemes 163

Chapter 11 InforMaTIon ManageMenT: STageS anD ISSueS 164 Information Management: How Does IT Fit? 165

A Framework For IM 167

Stage One: Develop an IM Policy 167

Stage Two: Articulate the Operational Components 167

Stage Three: Establish Information Stewardship 168

Stage Four: Build Information Standards 169

Issues In IM 170

Culture and Behavior 170

Information Risk Management 171

Information Value 172

Privacy 172

Knowledge Management 173

The Knowing–Doing Gap 173

Getting Started in IM 173 Conclusion 175  •  References 176

Appendix A Elements of IM Operations 177

MInI CaSeS Building Shared Services at RR Communications 178

Enterprise Architecture at Nationstate Insurance 182

IT Investment at North American Financial 187

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Contents 9

Section III IT-enabled Innovation 191

Chapter 12 TeChnology-DrIVen InnoVaTIon 192 The Need for Innovation: An Historical

Perspective 193

The Need for Innovation Now 193

Understanding Innovation 194

The Value of Innovation 196

Innovation Essentials: Motivation, Support, and Direction 197

Challenges for IT leaders 199

Facilitating Innovation 201 Conclusion 202  •  References 203

Chapter 13 when BIg DaTa anD SoCIal CoMPuTIng MeeT 204 The Social Media/Big Data Opportunity 205

Delivering Business Value with Big Data 207

Innovating with Big Data 211

Pulling in Two Different Directions: The Challenge for IT Managers 212

First Steps for IT Leaders 214 Conclusion 215  •  References 216

Chapter 14 effeCTIVe CuSToMer exPerIenCe 217 Customer Experience and Business value 218

Many Dimensions of Customer Experience 219

The Role of Technology in Customer Experience 221

Customer Experience Essentials for IT 222

First Steps to Improving Customer Experience 225 Conclusion 226  •  References 226

Chapter 15 BuSIneSS InTellIgenCe: an oVerVIew 228 Understanding Business Intelligence 229

The Need for Business Intelligence 230

The Challenge of Business Intelligence 231

The Role of IT in Business Intelligence 233

Improving Business Intelligence 235 Conclusion 238  •  References 238

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10 Contents

Chapter 16 TeChnology-enaBleD CollaBoraTIon 240 Why Collaborate? 241

Characteristics of Collaboration 244

Components of Successful Collaboration 247

The Role of IT in Collaboration 249

First Steps for Facilitating Effective Collaboration 251 Conclusion 253  •  References 254

MInI CaSeS Innovation at International Foods 256

Consumerization of Technology at IFG 261

CRM at Minitrex 265

Customer Service at Datatronics 268

Section IV IT Portfolio Development and Management 273

Chapter 17 ManagIng The aPPlICaTIon PorTfolIo 274 The Applications Quagmire 275

The Benefits of a Portfolio Perspective 276

Making APM Happen 278

Capability 1: Strategy and Governance 280

Capability 2: Inventory Management 284

Capability 3: Reporting and Rationalization 285

Key Lessons Learned 286 Conclusion 287  •  References 287

Appendix A Application Information 288

Chapter 18 IT DeManD ManageMenT: SuPPly ManageMenT IS noT enough 292 Understanding IT Demand 293

The Economics of Demand Management 295

Three Tools for Demand management 295

Key Organizational Enablers for Effective Demand Management 296

Strategic Initiative Management 297

Application Portfolio Management 298

Enterprise Architecture 298

Business–IT Partnership 299

Governance and Transparency 301 Conclusion 303  •  References 303

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Contents 11

Chapter 19 TeChnology roaDMaP: BenefITS, eleMenTS, anD PraCTICal STePS 305 What is a Technology Roadmap? 306

The Benefits of a Technology Roadmap 307

External Benefits (Effectiveness) 307

Internal Benefits (Efficiency) 308

Elements of the Technology Roadmap 308

Activity #1: Guiding Principles 309

Activity #2: Assess Current Technology 310

Activity #3: Analyze Gaps 311

Activity #4: Evaluate Technology Landscape 312

Activity #5: Describe Future Technology 313

Activity #6: Outline Migration Strategy 314

Activity #7: Establish Governance 314

Practical Steps for Developing a Technology Roadmap 316

Conclusion 317  •  References 317

Appendix A Principles to Guide a Migration Strategy 318

Chapter 20 eMergIng DeVeloPMenT PraCTICeS 319 The Problem with System Development 320

Trends in System Development 321

Obstacles to Improving System Development Productivity 324

Improving System Development Productivity: What we know that Works 326

Next Steps to Improving System Development Productivity 328

Conclusion 330  •  References 330

Chapter 21 InforMaTIon DelIVery: PaST, PreSenT, anD fuTure 332 Information and IT: Why Now? 333

Delivering Value Through Information 334

Effective Information Delivery 338

New Information Skills 338 New Information Roles 339

New Information Practices 339

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12 Contents

New Information Strategies 340

The Future of Information Delivery 341 Conclusion 343  •  References 344

MInI CaSeS Project Management at MM 346

Working Smarter at Continental Furniture International 350

Managing Technology at Genex Fuels 355 Index 358

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PrEFACE

Today, with information technology (IT) driving constant business transformation, overwhelming organizations with information, enabling 24/7 global operations, and undermining traditional business models, the challenge for business leaders is not simply to manage IT, it is to use IT to deliver business value. Whereas until fairly recently, decisions about IT could be safely delegated to technology specialists after a business strategy had been developed, IT is now so closely integrated with business that, as one CIO explained to us, “We can no longer deliver business solutions in our company without using technology so IT and business strategy must constantly interact with each other.”

What’s New in This Third Edition?

• Six new chapters focusing on current critical issues in IT management, including IT shared services; big data and social computing; business intelligence; manag- ing IT demand; improving the customer experience; and enhancing development productivity.

• Two significantly revised chapters: on delivering IT functions through different resourcing options; and innovating with IT.

• Two new mini cases based on real companies and real IT management situations: Working Smarter at Continental Furniture and Enterprise Architecture at Nationstate Insurance.

• A revised structure based on reader feedback with six chapters and two mini cases from the second edition being moved to the Web site.

All too often, in our efforts to prepare future executives to deal effectively with the issues of IT strategy and management, we lead them into a foreign country where they encounter a different language, different culture, and different customs. Acronyms (e.g., SOA, FTP/IP, SDLC, ITIL, ERP), buzzwords (e.g., asymmetric encryption, proxy servers, agile, enterprise service bus), and the widely adopted practice of abstraction (e.g., Is a software monitor a person, place, or thing?) present formidable “barriers to entry” to the technologically uninitiated, but more important, they obscure the impor- tance of teaching students how to make business decisions about a key organizational resource. By taking a critical issues perspective, IT Strategy: Issues and Practices treats IT as a tool to be leveraged to save and/or make money or transform an organization—not as a study by itself.

As in the first two editions of this book, this third edition combines the experi- ences and insights of many senior IT managers from leading-edge organizations with thorough academic research to bring important issues in IT management to life and demonstrate how IT strategy is put into action in contemporary businesses. This new edition has been designed around an enhanced set of critical real-world issues in IT management today, such as innovating with IT, working with big data and social media,

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