What Business Transformation Approach is Right for CIOs

Transcription

1 What Business Transformation Approach is Right for CIOs An Overview of Opportunities and Tools. Author: Imad Al-Murib - Lean Vector Consultancy Background The Head of Global Business Transformation Unit of AIG Insurance is sponsoring a global program to help AIG regional CIOs lead and/or support the Business Transformation efforts at AIG offices world wide as part of the AIG Way Business Transformation. Lean Vector is acting as the Lean Transformation advisor to the Head of Global Business Transformation Unit of AIG Insurance. This document is part of a series proposing several approaches for Lean Business Transformation and Business Digitization, discussing opportunities, risks, tools, and methodologies. Analyst Background Imad Al-Murib is a Lean Six Sigma Black Belt Senior Consultant specialized in Business Transformation for Financial sectors. He has over 12 years of experience in leading and managing Lean Transformation programs. Imad is also the author of several papers establishing the foundation of the Seven Stars Service Rating framework. The Seven Stars Service Rating is a framework for service improvement in the financial sector based on Lean Management System (LMS) and Customer Experience (Cx) best practices. The framework uses customized Lean tools to provide a different perspective to Value and Customer Experience in the financial sector. Throughout his career, Imad worked in different roles for different financial institutions and consultancies leading Lean transformation programs for insurance companies, banks, venture capitalist and investment management groups. Summary CIOs have great opportunities to lead business transformation (BT) efforts in the organization. The CIO role in the business transformation (BT) efforts and the type of the BT initiative is considerably determined by two main factors: The level of confidence the organization has in its CIO as a business leader versus a technology expert. The general investment profile of the organization.

2 Based on the factors above, the CIO role --and hence, the IT department role-- in BT could be one of four roles: IT as an Engine Room of the Organization. IT as a Business Capability Enabler. IT as a Business Process Optimizer. IT as a Digital Service Leader. While there are no hard demarcations between the roles above, we believe that the IT organization (led by its CIO) should move from gradually from one role to another. Each role uses different tools to achieve its objectives. The Head of Business Transformation has a very crucial role in helping CIO form their strategies and chose and customize the set of tools to be used.

3 Table of Content A. The four roles of the CIO in BT 1. IT as an Engine Room of the Organization. 2. IT as a Business Capability Enabler. 3. IT as a Business Process Optimizer. 4. IT as a Digital Service Leader. B. Proposed Roadmap(s) to move successfully from one BT role to another. C. Tools that could help the CIO in each Business Transformation role.

4 A. The Four Roles of CIO in Business Transformation IT departments play a significant role in creating the competitive advantage for insurance companies. The CIO, as the leader of the IT department, could be a key player in shaping the organization and transforming it. Depending on the level of confidence the organization has in their CIO and the general expansion appetite of the organization, the CIO could play one of four roles in BT: 1. IT as an Engine Room of the Organization. 2. IT as a Business Capability Enabler. 3. IT as a Business Process Optimizer. 4. IT as a Digital Service Leader. In the paragraphs below we will go through the details of each role highlighting the tools and techniques we recommend. In Section B of this document, we will explore each tool in more detail. In Figure A-1, we summarized the four roles above.

5 Higher Confidence in IT Customer External Customer Internal Customer within the business IT as a Business Process Optimizer COO role: Business Process Re-engineering. Business Operation Excellence. Business Cost Optimization, Cultural transformation: Operational excellence & Customer Experience Tools Business Lean Transformation. Enterprise Value-Stream Cost Optimization. Reporting Enterprise PMO IT as an Engine Room CTO role: IT Service Management IT Cost Optimization, IT Governance, Tools: IT Service Portfolio Management Lean IT IT Value Stream Cost Optimization IT PMO IT as a Digital Service Leader CDO role: Business Model Digitalization Talent Acquisition and Development Strategic Digital Business Growth Cultural transformation: Digital Innovation & Customer Experience Tools Business Model Generation. Distribution, Innovation and Inspiration. Business Capability Mapping IT as a Business Capability Enabler CIO role: Business Capability Developer Business Automation Custodian of Benefit Realization Tools: Business Portfolio Management Business Capability Mapping Strategic Enterprise PMO Enterprise Architecture Fig A-1: Organization is Expanding Operational Focus Focus Strategic Focus The four business transformation roles of CIO

6 1. IT as an Engine Room of the Organization. Ten years ago, this used to be the defacto MO of the IT department. Many IT teams still operate this way these days especially when the organization is not in a spending mode and there is a little confidence in the CIO as a business leader. IT as an Engine Room The Engine Room mode is an operationfocused mode where the internal business users are the primary customers of the IT services. The CIO would be focused on IT Service Management using ITIL principles. Cost optimization practices and governance methodologies such as PMO are common in this mode to run IT efficiently. The CIO will be acting more as a CTO with focus on infrastructure project, service desk and other initiatives to improve SLA with the internal customer: The business units. CTO role: IT Service Management IT Cost Optimization, IT Governance, Tools: IT Service Portfolio Management Lean IT IT Value Stream Cost Optimization IT PMO Although there is a little-to-none business transformation influence when the IT department operate as an engine room, we still think that this role could be an important launchpad for any other role the CIO might play. In another word, even if the CIO has enough credibility to engage in other roles in the organization beyond IT, the IT department should be ran like an efficient engine room. It goes the other way too; if the CIO is to be given other BT roles, he needs to prove himself in his own department first. IT as an Engine Room CIO acting as a CTO Confidence in CIO Organization Focus CIO focus The IT Customer Low Operational Excellence and Cost Reduction. Operational Internal Business Customers To do so, we believe the first tool the CIO should start with is IT Service Catalog and Service Portfolio management. This tool will establish the foundation on which IT Cost Optimization, Lean IT, and Portfolio Management could be achieved. If the CIO could demonstrate a successful Lean implementation in IT, that might give him the momentum he requires to implement Lean in other departments. Example: The common example of IT as Engine Room operation excellence is around infrastructure services. Good CIOs will have comprehensive IT Service Catalogs (ITSC) for all the services their department delivers. The Catalog will include the service from the perspective of the end customer (the business unites in this case) and not the systems. Microsoft Exchange Server for example can be the source for few services such as: , Calendar, Meeting Room Management, Archives, etc Take the service for example. In the ITCS there will be an entry for the service, the users and department they utilize it, the SLA associated with this service, its risks, availability, and dependencies. The ITCS should also contain detailed information about service cost aggregated in detailed as explained in the IT Cost Optimization section.

7 Running an efficient engine room means that the CIO will not only try to improve SLA and quality (warranty and utility aspects, using the ITIL jargon) of the service but also to reduce its cost to the minimum and achieve a level of cost transparency with the business to help them customize their profiles. Do they really need 10G storage for their inbox? How important is mobile access for them? Are they willing to pay for the difference in cost? What options can the CIO offer them to effectively get the service they need with minimum cost? 2. IT as a Business Capability Enabler. In order for the organization to succeed in serving its customers and compete in the market it has to possess certain capabilities. Some of these capabilities are infrastructure and support services such as human resource management and accounting, other are more of differentiating capabilities such as those in the marketing and sales domain. Regardless of the nature of the business capabilities in the organization, they are either automated or manual. While doing certain processes manually could provide some limited flexibility for a startup or small enterprise, these capabilities have to be automated for better performance, scalability, accuracy and a whole set of advantages. This is where IT can add a significant value by partnering with the business units and helps them automate their processes and business capabilities. As in the Engine-Room role, the Business Capability Enabler role considers the internal business users as the primary customers of the IT services. However, in this mode the IT team will be more focused on Strategic business services rather than only the operation. The CIO and his IT leadership team will be spending more time engaging with the their colleagues in the business units, analyzing the business capabilities and designing IT solutions around them to maximize their value outcome. Due to its unique position as the hub of business demand, the IT department will eventually start playing another role beyond the mere development of the business IT as a Business Capability Enabler CIO role: Business Capability Developer Business Automation Custodian of Benefit Realization Tools: Business Portfolio Management Business Capability Mapping Strategic Enterprise PMO Enterprise Architecture capabilities. As demands will start pouring to IT from business to create new capabilities and do more automation, and as part of running a smooth engine room and acting as a faithful enabler of the business capabilities, the CIO will start demanding a clear benefit realization commitments for each new project. This is often give IT an important role in verifying benefit realization before IT project starts and after they are delivered. Business Capability Enabler Confidence in CIO Organization Focus CIO focus The IT Customer Low-Medium Expansion. Investment. Strategic Internal Business Customers The BT role for the CIO when the IT department is acting in the Business Capability Enabler mode will be more focused on helping the business invest the IT resources more wisely on what is strategically best for the organization. To do so, the CIO will need to use certain tools to analyze business capabilities and design the best solutions around them. The Business Capability Mapping is one important tool that could be linked with other Enterprise

8 Architecture best practices. The CIO should also contribute to Portfolio Management practices usually led by the CFO. If this role is to take its full potential, the IT department will be the go-to business function to fill the Air Gap in business strategy. The Air Gap is common situation where the strategic goals are not linked to real execution strategy of all departments. To mitigate this situation, organizations usually implement different practices that could be all summed up under the function of the Strategic Enterprise Project Management Office. Although this role is more focused on having a clear IT strategy that addresses proper management of the Supply of technology and the required Governance to make sure it meets the business Demand, however, lean principles will be imperative in project delivery practices, testing, coding, and other activities. One final note here: Although this role requires more confidence in the CIO, we believe that it is still significantly lower than that of the two next roles. In a way, the CIO and his IT department are still not trusted enough to make decisions that will have direct impact on the external customers. The IT team is still being proxied by the business. The main difference from previous role is that now the organization is spending and expanding and rather than focusing on providing the bare minimum operation services, IT is engaging in enabling new strategic services to the business. Example: An example of business capability enabler role is the CIO involved in CRM implementation. The CRM software covers several business capabilities for any given organization. Using the Business Capability Mapping tool, the CIO could, for example, compare between the cost and efforts required to upgrade and improve all the discrete systems versus that of implementing a CRM. Enterprise Architecture practices might also show that customer centricity and master data management issues could be better addressed with a CRM system. The CIO could then use portfolio management practices to support and govern the CRM project case. Depends on the market and the industry, the CRM might be considered as an infrastructure capability. In some industries (or some parts of the world) investing in a CRM could be treated at a differentiator capability. Proper profiling of the project will help establish better benefit realization, investment decisions, governance, and project management priorities, all tools used by the Strategic Enterprise PMO office. It is important to notice that in this example, the CIO wasn t the one sponsoring the CRM initiative. As a Business Capability Enabler, his contribution was to supply the technology and the required governance that will ensure best fit to the business demand. 3. IT as a Business a Business Process Optimizer Being the department in charge of automating business processes which often includes requirement gathering and analysis of information flow, most CIOs find themselves getting more and more involved in optimizing the business processes rather than just automate them or provide communication and data-mining capabilities. When the CIO have enough credibility in his organization, it is only a matter of time before he start applying the same operational excellence tools he was applying in his Engine-room IT department to the business operations. This is especially true when the organization strategy is to focus on operational excellence and cost optimization rather than new investments. Despite being an operational role, the CIO and his IT team will often find themselves interacting with external customers as they are getting more and more involved in customer-facing processes.

9 CIOs who know how to mine the enormous amount of data buried in different systems to extract useful information that could be utilized in Business process reengineering and cost optimization have a great opportunity to drive a cultural change within the organization toward better Customer Experience and Operational Excellence. In other words, the CIO will play the role of the COO. Business Process Optimizer CIO acting as a COO Confidence in CIO Organization Focus CIO focus The IT Customer High Operational Excellence and Cost Reduction. Operational External Customers In order to achieve this, the CIO will need to expand the tools he used to streamline his IT operations such as Lean Transformation and Value-stream cost optimization. But merely expanding the scope of one tool is not enough to address process optimization challenges on the big scale. CIOs need to utilize the power of the information hidden within the data stored in the systems. ERP, CRM, Asset management systems, Financial software are examples of systems the IT department can mine for useful information that, if linked correctly with Lean and cost optimization tools, could produce a powerful mechanism for business process optimization. The availability of information at the disposal of the CIO could also help him play another role in the organization operation domain. This is the role of the Reporting Enterprise PMO. A Reporting EPMO is more of a passive role where information about projects and operations is gathered and summarized to form a knowledge that could help other decision makers within the organization to drive operational excellence. The Reporting PMO practices could be a role that CIO takes in order to prepare him for a more active role as a business process optimizer or COO. These practices could also be useful even if the CIO has already starts taking a COO-like responsibilities. Example: IT as a Business Process Optimizer COO role: Business Process Re-engineering. Business Operation Excellence. Business Cost Optimization, Cultural transformation: Operational excellence & Customer Experience Tools Business Lean Transformation. Enterprise Value-Stream Cost Optimization. Reporting Enterprise PMO To give an example of IT getting involved in business process optimization, consider this situation: A CIO of a bank that has a strategy of increasing revenue by reducing operational cost. The CIO was reviewing reports of the queuing system his team had installed in the ten branches the bank has in the city. The queuing system report showed a bottleneck in all branches after when customers were applying for personal loans. Further investigation (that involves querying other systems) showed that a credit check takes between 5-10 minutes and the client spends 5-10 minutes reviewing the policies and the terms and conditions before signing. The actual value the loan officer provides could be summarized in the twominute discussion he is having with the client and telling him about the different options. However for the other clients in the queue, they had to wait for around 20 minutes before their turn is over. The CIO also notice that HR were requesting new PCs and computer system accounts to be created for twenty more loan advisor to join the branches and help reducing the load and serve the customer better.

10 Applying Lean principles and tools, the CIO uses a tool called Single Minute Exchange of Die (SMED) to reduce the time each loan officer takes from 20 minutes to 6-10 minutes by working with his colleagues in the branches to optimize the process. After applying these changes, the CIO adopt the Plan-Do-Check-Act (PDCA) cycle to further improve and stabilize the process so it will always takes 4 minutes. 4. IT as a Digital Service Leader If it is true that change is the only constant in life, then it is the definitely true that in the business environment, organization that don t change and transform can t successes. One of the most powerful --and eminent-- business transformation is digitization. Digitization is does not mean using digital technology to replace analog ones. It also doesn t mean using IT systems in performing business processes. Digitization is the complete transformation of the entire business model to the digital world. Business Model elements include the customer segment, and the channels the organization uses to reach and sell to those segments and the feedback channels it employs to achieve customer satisfaction. From the value creation side, Business Model elements include the key resources and activities the organization performs to create value and the partners outsourced to deliver product or services that the organization needs but don t want to produce directly. The business model also includes the revenue and cost management with all the billing, IT as a Digital Service Leader CDO role: Business Model Digitalization Talent Acquisition and Development Strategic Digital Business Growth Cultural transformation: Digital Innovation & Customer Experience Tools Business Model Generation. Distribution, Innovation and Inspiration. Business Capability Mapping accounting and other activities. When an organization goes into business transformation it often involve changing its value proposition and hence all the elements above. Digitization may or may not change the value proposition of an organization but it most likely touches on all business model aspects of that value whether in the creation part of the delivery part. Digital Leader CIO acting as a CDO Confidence in CIO Organization Focus CIO focus The IT Customer High Investment. Strategic Differentiation. Expansion. Strategic External Customers Digitization goes beyond analyzing the Business Model, looking for opportunities of digitization. As any innovation, it often involves a great level of distribution. CIOs who want to lead their organization in the digital journey need to learn how to accept ambiguity, take risks and hire people outside the traditional skills set of IT and even the business. Using Business Capability mapping could also be a great tool to help CIOs explore requirements, opportunities, and risks related to digitization. By mapping all the detailed capabilities of an organization, the CIO could, for example, cross-check applications status with the capabilities they are supporting as a pre-request for digitization. Although it is not considered as a tool for digitization, the Lean principles are very important to help the business focus on the real value. Like automation, digitization is meaningless if it

11 covered the entire process activities including the wasteful ones. Digitizing the waste will not turn it into value, just a digital waste. Example: An example of Business Digitization is an auto insurance company transforming one of it s key activities, Risk Calculation, from the standard approach that uses the driver s history, age, record, and other traditional factors to a dynamic approach that utilize mobility, big data, and internet of things to calculate risks based on the way the driver is driving his vehicle, speed, load, the roads he chose and other factors that, not only gives better estimation of the risk involved but also allow drivers to be in control of how much their insurance will cost and even reduce the risk of them getting into accidents. The above innovation wouldn t be possible without proper collaboration of experts from different disciplines, examination of business capabilities, and, above all, a practical understanding of the true value behind the activity.

12 C. Proposed Roadmap(s) to move successfully from one BT role to another. Keeping in mind that the four roles we talked about are not demarcated by lines written in the stone, it is not unlikely to find an IT team playing all of the four roles above. However, we don t expect to find a CIO acting as a CDO for his organization while his IT department is not running an efficient engine room operation. That being said, the logic used to divide the four roles is useful to help CIOs decide which role they need to focus on and how to best move from one role to another. Take the typical case of a CIO working for an organization suffering from the economy s downturn and who has to deal with a CEO and who doesn t trust IT. Even if this CIO was the best digital expert in the industry, his best role within that organization is to focus on operational excellence (due to the inevitable choice of his organization to reduce operational cost) and to limit his services to the internal business users until the IT team is more trusted to deal with matters related to the external customers directly. This is basically an Engine Room role where the CIO is acting more of a CTO. How does knowing which role the CIO is in help? It helps in three ways: A. It highlights what are the Critical Success Factors (CSF) the CIO should focus. B. It suggests which tools the CIO should use to achieve those CSFs. C. It gives the CIO the path to take once the circumstances changed or the CSF were achieved. The same CIO/CTO in the example above after spending time focusing on cost optimization and operational excellence and conducting several successful Lean projects in IT could move to the Business Process Optimizer role provided that he could show case the positive results he got with IT operation and utilize the data the IT system provides him to optimize business operations as in the example mentioned earlier with the queuing system. At this stage it is of crucial importance to highlight this: The objective of moving the CIO from one level/role of BT to another is for the best interest of the organization. No matter what are the internal and external circumstances of the organization (difficult market, bad economy, sever competition, internal politics, etc ) taking confident steps in business transformation will always increase the chances of getting outside the box the business find itself in. The CIO, among all the candidate executives for the BT role, stand a better chance due to his unique position that allows him to play one of the three higher roles. The Digital Service Leader is obviously the most critical role among them. Not only it will open new revenue streams for the organization, but it is becoming a must-have strategy to be explored where new risks, and opportunities have to be properly addressed. It is important to mention that it is not the CIO who moves to the next level only. The IT team --at least the CIO s direct reports, and the tools the CIO is using have to be upgraded to the next level to match the increase in scope and complexity. Take the Lean transformation tools for example. When the CIO is acting in the Engine Room role, Lean is just about IT team and individual processes. This is sometimes called focused lean

13 Customer External Customer Internal Customer within the business IT Cost Optimization Practices + Value Stream Mapping = Enterprise Value Stream Cost Optimization IT PMO Practices + Increase in Scope + Operation metrics from IT systems = Reporting PMO Enterprise VSM + Operational Excellence + Innovation = Digitization of the Value Chain Lean IT Practices + Supply Chain management + Increase in Scope = Transformational Lean IT as a Business Process Optimizer IT as an Engine Room IT as a Digital Service Leader IT as a Business Capability Enabler IT PMO + Strategy Execution Model + Business Capability Mapping = Strategic PMO IT Portfolio Management Practices + Benefit Realization Practices = Business Portfolio Management Business Capability Mapping + Business Model Generation + Innovation = Digital Business Model Operational Focus Focus Strategic Focus Fig B-1: Moving from one role to another

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