An Economist Intelligence Unit report sponsored by SAP

IT Excellence:Achieving Optimised Business Outcomes

© The Economist Intelligence Unit 2007 �

IT Excellence

IT excellence: Achieving optimised business outcomes is an Economist Intelligence Unit report, sponsored by SAP. The Economist Intelligence Unit bears sole responsibility for this report. The Economist Intelligence Unit’s editorial team conducted the interviews and wrote the report. The findings and views expressed in this report do not necessarily reflect the views of the sponsor. Bill Millar was the author of the report and Rama Ramaswami was the editor. Richard Zoehrer was responsible for layout and design. Our thanks are due to all the interviewees for their time and insights.

February 2007

Preface

� © The Economist Intelligence Unit 2007

IT Excellence

Achieving Optimised Business Outcomes

Information technology (IT) is ubiquitous in organisations, but what distinguishes top-notch IT from merely adequate IT? Ask any two or more companies, or even any two

executives at the same company, and you are likely to hear varying definitions of IT excellence. There is little doubt, however, that no matter what company they are part of, IT

departments are increasingly being called upon to define and pursue excellence. The following discussion focuses on how leading companies enable IT to perform optimally.

lthough the quality of IT can be measured on many criteria, the

consensus among senior executives is that it must align with and help advance business objectives. “IT excellence is all about business enablement: If we get it right, we enable our businesses to do things faster, smarter and better,”says Ron Kifer, chief information officer (CIO) of the global nanotechnology manufacturer Applied Materials.

The view is much the same at international silicones supplier Dow Corning, where, as CIO

Abbe Mulders explains, IT is “a partner with the business units. It’s our role to

enable improvements throughout the business.” Ultimately, says

Ms Mulders, “IT excellence isn’t about IT so much as

it is about IT’s role as a business partner

and a business enabler.”

A slightly broader perspective—yet one that also keeps business objectives in mind—comes from Dominique Congnard, a senior executive from SAP. To some companies, says Mr Congnard, “IT excellence simply means achieving the right balance between IT value and IT cost.” But in fact, he maintains, the issue is more complex. “It’s also about making sure the organisation correctly prioritises its IT investments,” he says. “It’s about achieving alignment between business objectives and IT investment and implementation.” Overall, adds Mr Congnard, IT excellence “is an approach that addresses all IT-related technical, functional and strategic issues from the perspective of optimised business outcomes and enhanced competitive advantage.” The objective is to position IT to assist the organisation in obtaining optimum

performance. But getting it right “requires a comprehensive strategy and a vision,” says Mr Congnard. “It won’t happen on its own.”

The Dow Corning approach: Six Sigma-driven IT excellenceSix Sigma management techniques, with their focus on continuous improvement towards defined goals,

A

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IT Excellence

have long been associated with the achievement of process excellence. The Six Sigma approach is a disciplined, statistically based method to eliminate defects in any process, whether it is manufacturing or customer service. Not surprisingly, it is a Six Sigma-focused company, Dow Corning, that offers an intriguing example of the pursuit of IT excellence. Ms Mulders believes that IT excellence connotes different things to different companies. “You have to start with ‘What are we trying to do as a corporation?’” she says. Since Dow Corning is “focused very heavily on customer relationships,” she says, for her company IT excellence means “that IT and the businesses are marching to the same priorities and initiatives—that IT is partnering with the businesses to deliver value for our customers.” In Dow Corning’s execution of a Six Sigma environment, a core basis of collaboration is what Ms Mulders refers to as a multi-generational plan framework. Each relevant business unit or functional group within the company develops a business plan that includes IT needs. Then, says Ms Mulders, “the IT people work with the owners of those plans to develop an [overall] roadmap.”

Project prioritisation Mapping Dow Corning’s IT needs is an exercise in collaboration. A standing project approval committee, consisting of a senior IT applications manager and functional executives from manufacturing, sales, and research and development (R&D), meets quarterly to review the project pipeline and decide on priorities. “We listen to and discuss the most important initiatives that match our corporate priorities,” says Ms Mulders. Competent development and management of such roadmaps create real value for the company,

she adds. “This gives us a good view into our infrastructure plan,” she says. “What’s happening with our infrastructure and our software? What drives when we should replace servers or PCs?” Looking at all of these elements in the puzzle, says Ms Mulders, gives the company a good view into its capital plans and makes it “more efficient and effective” in its one- to five-year planning. Collaboration with business units also creates visibility into decision-making, investment and execution. For example, says Ms Mulders, the supply chain team leader wanted to build out additional scorecard capabilities. “But to do that, it meant we needed to implement a new release of our SAP portal.” By looking at the IT roadmap to gather such information, Dow Corning is able to better prioritise its activities.

Measures of Excellence

Although it is difficult to quantify IT excellence, the Six Sigma approach to business performance measurement can be a good starting point. According to statistical experts, Six Sigma teams usually take a process approach, measuring each business process by looking at three factors:

For some companies, IT excellence simply means achieving the right balance between IT value and IT cost.

1 Output or outcome (eg, deliveries, defects, profits, customer satisfaction)

2 Processes, or any activity that can be tracked and measured over time

3 Input, or materials that enter the process for transformation into output

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IT Excellence

Productivity gains An intriguing aspect of the Six Sigma approach to IT is the idea that every activity needs to deliver some form of return to the company. Return, says Ms Mulders, can take any of three forms: earnings before interest and taxes (EBIT), sales revenue growth, or net value added (NVA). Each quarter, Dow Corning looks not only at the progress of IT projects but also at the quality of returns being generated. Moreover, the company routinely reviews the success of each IT project after implementation. “We’ve found that if you do an audit 12 months post-implementation, that gives you a good snapshot as to how successful it was and whether or not you’re on the path to achieving

what was expected,” says Ms Mulders. In general, IT projects hit their targets 80% of the time. Customer intimacy is a huge focus for the business units of Dow Corning. For IT, that means a lot of time spent on building customer-focused capabilities. For example, the firm’s sales and marketing staff will soon see their personal digital assistants (PDAs) enabled with significant customer data. Says Ms Mulders, “They’ll be able to get a status [report] on the customers. Are there any complaints? What orders have they placed? Where are their shipments?” As with any Six Sigma-focused organisation, improvements will be continuous. In the near future, the company expects to expand those capabilities into manufacturing and the supply chain. “We’ll have more enhanced forecast, ordering and delivery tools,” says Ms Mulders. “We’ll know customer inventories and delivery dates.” Essentially, she adds, the IT department is working with the business units to focus on customer needs; IT excellence, therefore, “means

EIU: Most organisations spend up to 80%

of their IT budgets on maintaining existing

solutions and infrastructure. How does your

Six Sigma approach enable you to pay so

much attention to new projects?

AM: Our project portfolio consists of

projects that create new capabilities, but

also those projects that build upon imple-

mented capabilities, thus extending and

maintaining installed applications. We view

maintenance projects in the portfolio on

their own merits for what they return to

the company.

EIU: How do you balance delivery on cur-

rent IT service levels when

you are focusing on longer-

term strategic projects?

AM: Since the business

leaders are involved in

managing the pipeline of

projects, IT makes sure that there is good

education and understanding among the

committee members on tactical, strategic

and research work projects. The discussion

and lineage to corporate priorities helps

keep a good balance.

EIU: How do you integrate new solutions with

the existing landscape in an optimised way?

AM: As new technologies and

solutions are selected, there is

a good set of processes within

the IT department to inte-

grate the new with existing

platforms. The new technolo-

gies also offer new challenges and opportuni-

ties for IT employees to expand their skill

sets and solve the integration issues that

arise during the development process. Com-

munication and teamwork are absolute “must

haves” as the new technologies and solutions

are brought forward during the R&D and

development processes.

Q&A with Abbe Mulders, CIO, Dow Corning

Each quarter, Dow Corning looks not only at the progress of IT projects but also at the quality of returns being generated.

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IT Excellence

implementing improvements that lead ultimately to increased customer satisfaction.”

The Applied Materials approach:IT-enabled business transformationFounded in 1967, Applied Materials creates and commercialises the nanomanufacturing technology that helps produce virtually every semiconductor chip and flat panel display in the world. The company recently entered the market for equipment to produce solar arrays and energy-efficient glass. According to Applied Materials CIO Ron Kifer, the firm’s investments in IT are enabling business strategies and creating differentiation. “Our leadership is committed to the idea that IT is vital to business strategy,” says Mr Kifer. “But IT excellence is also very important.” At his company, he says, that means more than merely enabling business strategies—it also means “taking a leadership role” in business and process improvement, if not transformation.

Cross-functional support Mr Kifer believes that the concept and value of IT excellence are best understood in a broader context. Businesses today, he explains, realise that they need to be world-class in every functional area like manufacturing, supply chain and customer relationships. But the only way to achieve real excellence in any one or more of these areas, says Mr Kifer, is to achieve a state “where they’re each one cross-functionally supporting all the others; they’re optimised with one another.” Here, says Mr Kifer, IT departments are “uniquely positioned to play a leading role.” Consider just about any company, he says: “If you look at the processes and the data flows within processes, between functions, within the supply chain or with

customers, IT is the unique thread—it’s the one function that sees everything.” What this means, says Mr Kifer, is that achieving IT excellence becomes a crucial enabler for achieving excellence in virtually any other area of

any business. Put another way, if a company is not pursuing excellence in IT, “they’re just not going to be as effective or as optimised in other parts of the business.” So what is IT excellence? Mr Kifer believes that it needs to be pursued along a spectrum of core competencies. Take cost management, for example. “This used to be all about fiscal responsibility—with a controller, a budget and actuals or supporting data,” says Mr Kifer. But today, he explains, the focus is just as much on strategy and evaluation of effectiveness, not merely fiscal responsibility. “We do a financial analysis around all decisions,” Mr Kifer says. “What’s our staffing model? What were our technology choices? We take a critical look at everything we do to ensure we are making the most effective or appropriate decisions.”

The only way to achieve real excellence is to ensure a state of cross-functionality, each function supporting all the others.

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IT Excellence

The role of outsourcing It is this willingness to look at IT decisions critically, says Mr Kifer, that leads a company towards IT excellence. For example, today Applied Materials improves its strategic focus and reduces cost by outsourcing significant elements of its IT infrastructure. “Context work—the back-end stuff and administration—those are the IT commodities of today, and we can purchase those cheaper than it costs for us to do them ourselves,” says Mr Kifer. To take advantage of these opportunities, however, Applied Materials needed to manage third-party providers more effectively. Mr Kifer notes that it became a priority for the company to “reorganise

and develop skills in negotiation and management of vendor relations.” Once these and related basics are in order, a company can begin to take advantage of IT’s unique view across functions and processes. In the case of Applied Materials, the IT department is becoming “increasingly focused on enabling business optimisation and transformation—taking a leadership role,” says Mr Kifer. “You have to have core competencies and then you have to have a portfolio approach to make sure you align [IT projects] with the needs of the business.” With these elements in place, says Mr Kifer, “you’re in a position to lead improvements across the company. Your IT strategy and the surrounding management of that, and the way you use IT to transform your business, become critical success factors.”

Applied Materials reduces cost by outsourcing significant elements of its IT.

EIU: What are the major benefits of out-

sourcing for enabling business? Is it freeing

up capital? Cash? Resources?

Management focus?

RK: Using an outsourcing ap-

proach for enabling business is

beneficial because it allows for

a more flexible and cost-

effective staffing model that

can adjust rapidly to changes in the busi-

ness environment. Outsourcing frees inter-

nal resources to focus on value-added core

competencies such as change leadership,

process optimisation and technology in-

novation. So it allows IT to take the fullest

advantage of the maturity of the outsourc-

ing service provider while maintaining man-

agement control of the delivered services.

Outsourcing also provides better vis-

ibility to quality metrics and

performance against service-

level commitments without a

tremendous internal invest-

ment in resources to capture,

collate and report these

measurements. The bottom line is that this

model allows the ratio of IT spent to shift

more towards business-enabling change

initiatives that can deliver a competitive

advantage, and away from sustaining activi-

ties in support of the day-to-day business

operations.

EIU: How do you manage integration

and consolidation of new projects where

outsourcing is involved?

RK: Here we employ an integrated im-

plementation methodology that encom-

passes project, programme and portfolio

management disciplines and methodolo-

gies. We also have a strong programme

management office with highly skilled and

professionally certified practitioners that

maintain oversight and accountability for

all projects. Our outsourced service part-

ners provide the skilled teams of technical

resources who perform the work, just

under the control and direction of our

own programme management staff.

Q&A with Ron Kifer, CIO, Applied Materials

Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in the report.

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