Jerry Luftman is a professor, but his interest in alignment is by no means merely academic. It was his stint as a program manager at the Advanced Business Institute at IBM Corp., beginning in 1986, that first piqued his interest in the troubled relationship between IT and the company’s business managers. “In the trenches at IBM, I saw some of the difficulties that we had in partnering with the business,” he recalls. Today, he is Distinguished Service Professor and director of the graduate information systems program at the Stevens Institute of Technology in Hoboken, N.J., and alignment has become the major theme in his work as a researcher and consultant. In an interview with CIO Insight Executive Editor Allan Alter, Luftman discussed some of the changes needed to close the alignment gap at corporations.
CIO Insight: If alignment is so important, why is it so tough to achieve?
Luftman: Most people still don’t get what alignment is all about. Typically, folks see it as a one-way street. They ask how IT can be aligned with the business, not how IT and business can be aligned with each other. IT can both enable and drive business strategy. But communication is key. A lot of companies don’t have clearly defined business strategies, much less strategies that are effectively communicated and instilled in those who work at the firm. And typically, IT people at all levels are not effective communicators and negotiators. So if they have an idea—and it might be the best idea in the world—they often fail to sell it to the business side in a way that business will understand and support.
What can CIOs do to help close the alignment gap?
You have to set up ways for people to communicate better up and down the line. In your company, if somebody has an idea, how does it get aired? Who hears it? What’s the process for pursuing it? Who decides, “Gee, this makes sense”? The partnerships within IT itself and between IT and the business are key. You have to have the relationships. You have to have the trust to make these kinds of collaborative things happen. You have to set up structures—steering committees, if you will—to ensure that it happens.
If you’re a CIO and you don’t have the business side actively involved in your project, getting it approved, getting it executed, it’s not going to work. Sure, IT can drive business value, but it’s how the business changes because of the technology that provides the value to the business.
Some companies are creating a liaison role, someone whose job it is to be the intermediary between business and IT. Does this work?
Only if that role is defined properly. More often than not, it’s not. In many cases, unfortunately, the liaison is the only person who can talk to the business side, and often the only one who can talk to IT. That immediately sends a message that business is not supposed to talk to IT and IT is not supposed to talk to the business side. In my mind, that’s exactly what you don’t want to have happen. It’s exactly not the message you want to be sending.
It sounds a bit like you’re advocating a permanent diplomatic corps?
Maybe so. Basically, anything that can be done to formally drive an ongoing relationship between IT and the business is valuable. But I don’t want this diplomatic corps to be the only group that can talk to either side. Unfortunately, though, that’s often what happens.
I’ve been with several companies where, when they talk to each other or to me, they always refer to “your side, my side.” That’s wrong. It should be “we.” Everything should be “we” or “us.” I also don’t like it when IT calls the people who use IT services “end-users” or “customers” or “clients.” They’re not any of these. They’re partners. As long as IT treats the business side like customers and clients and end-users, IT will continue to have a problem. IT should be thought of—and think of itself—as being part of the team, part of one cohesive group, all marching forward together to attain the same business objectives.
How should IT be organized?
Theoretically, as long as people understand what their mission and objectives are and how they’re supposed to carry them out, it shouldn’t matter how a company is organized. But that’s not the reality of today’s world. So let me suggest that IT organizations create some type of federated or hybrid type of organizational structure. There are some parts of IT that clearly make good sense to have reporting directly to the corresponding business side, like the folks who are creating the applications that support a particular business unit or a particular business project. On the other hand, there are some common IT services that clearly make more sense to keep very centralized, such as e-mail, payroll, accounting and finance. I am very much a fan of this structure.
But organizing IT this way does not ensure success. I’ve seen companies that have been restructured that way, but they did not manage IT to make sure that what was going on in the business units was aligned with everything else. So they seemed to falter.
Governance, and by that I mean the people and processes by which decisions are made that pertain to IT, is critical, but it’s where most organizations fall down. Governance takes a look at what resources should be allocated—people resources, financial resources, what projects get done, what projects don’t get done. It should take a look at standards from the highest level and at integration across the lines of business. You need to have these kinds of people and processes in place to make sure alignment happens.
How would life be different in a well-aligned IT organization?
You wouldn’t be able to tell the difference between the IT person and the marketing person; the R&D person and the manufacturing person. They’re recognized as being part of the same team that’s contributing to the overall business objectives of the firm. And they’re measured the same way as the business people are. They’re treated the same way. Their ideas are considered. Whether at the highest or lowest levels of the organization, they’re communicating with the business people.
Would you also see IT and business people having regular meetings?
Ideally, they’d have such a great relationship that they would co-adapt with each other; they wouldn’t need to have formal meetings. If I’m a business person and I need to get to a particular IT person to get something to happen real fast, I know who to get. And if I’m an IT person and I’ve got a question or a problem or something I need to communicate with a business person, I don’t have to get on their calendar three months ahead of time, and then, two days before the meeting, find out that it’s been canceled. No, IT and business people in a well-aligned organization would be working together continuously.
Also important to achieving alignment is how well a firm manages people’s willingness to change. Now, too often, it takes a crisis. But change happens all the time, and IT people are the changers in that they’re driving the business side crazy every time they come up with a new technology, hardware, software, new application or new process. IT is also being driven crazy because vendors are constantly coming up with new products and new services. The business organization, meanwhile, is also constantly changing. Objectives change. We’re merging. We’re acquiring. We’re divesting. IT is caught right in the middle of being the changers and changees, and it can get very, very difficult.
We’ve talked a lot about how to encourage alignment. What are some of the big stumbling blocks? For example, does budgeting help or hinder alignment?
More often than not it is probably an inhibitor. We’re seeing more and more companies assigning a dollar number to every time someone hits the Enter key, or how many bits of information go over the network, or how many lines people print on a report, or what have you. But some companies are at least starting to realize that if IT is, in fact, going to be used as a vehicle to help the business attain business objectives, they don’t want to penalize people for using it; they want to motivate them to do so.
Are you saying that conventional chargebacks—charging the business side for the technology it uses—is a bad way to go about alignment?
Oh, absolutely. What the chargeback system tends to do is to treat IT as a cost center as opposed to an investment center or a profit center. Everyone needs to focus instead on what value will come of a particular investment in IT. The more we focus on cost, the less we focus on the benefit of what IT is contributing. And as long as IT is treated as a cost center, it will not be given the opportunity to move more into becoming a real contributor to the business.
Of course, part of the problem is that some folks have a hard time trying to understand what the IT contribution, beyond cost-cutting, is or could be. If an IT executive has a business idea and presents it to a business executive, and a business executive says, “It sounds pretty good; put a business case together,” then IT hasn’t sold the idea. If IT had sold it, the business person would have wanted to do it right there on the spot. The business person would see the benefits of investing in the project without asking for a rigorous prove-it process.
If you understand what the business is looking for, then you understand the business processes, or the things that need to be changed. That will help IT attain this business outcome. Then IT needs to take a look at what it needs to do to drive changes in the business processes. The budget shouldn’t be just for an IT item. It should be for what the business unit is going to do for the business, including the IT component. The biggest problem with budgeting and allocating and prioritizing IT projects is that this task is typically thrown into IT’s domain when it should be done with IT and business together.
How often do you need to go through budgeting and review cycles?
Most companies do it once a year. But many companies don’t even know what’s going to happen in the next 30 days, so more often than not, these budget processes are failing. Budget cycles need to be shortened, but how short depends on the frequencies of discussions on strategies and projects. More often than not, the budget is not included in strategy or alignment discussions. Most budget processes take weeks and weeks. And budgets don’t change even after the books are closed, so you’re stuck with them for the rest of the year. And very few organizations even look at them again.
The budget, in my view, should be on the agenda at least once a quarter, if not once a month, and it should be tightly linked to the overall strategy of the organization.
Take a look at how your own company’s IT budget is allocated. Now take a look at who is getting most of this money. I will bet you that most of the resources are not being devoted to the most important parts of the business. That’s not alignment. Are we investing our money in the most important parts of the business? If you are, that’s alignment.
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“I don’t like it when IT calls the people who use IT services ‘end-users’ or ‘customers’ or ‘clients.’ They’re not any of these. they’re partners.”
