Realizing Value from IT Investments

Brian KemperDirector, IT Program Management

Hospira, a Pfizer company

Introduction

• All IT projects are intended to deliver business value – not all succeed.• Business and IT leaders often disagree on the value delivered by an IT project, or

struggle to measure it. • Gartner and other experts recommend many “best practices” on how to plan and

execute IT projects to deliver business value.• This presentation describes several of these best practices to facilitate group

discussion – they fall into 3 general areas:1. Framing the business Innovation agenda (strategy)2. Designing projects around Benefits realization (planning)3. Creating a high-performing Project Management organization (execution)

Framing the Business Innovation Agenda Insure Project Value through Strategic Alignment

Innovation initiatives are about changing the business – IT leaders can drive value by:

1. Help business leaders define a bold business improvement objective enabled by IT, e.g.: o “Fifty percent of our revenue growth will come from online channels by 2017”. o “We will use big data analytics to halve the fraud rate by 2018”. o Flesh out these goals and the expected business outcomes, and IT’s role in their enablement.

2. Engage the key business stakeholders in planning: o “How will we achieve this objective? What must we change or enhance?”o “What new tools and capabilities do we need? How can IT help with technology expertise?” o IT can subtly drive the action - lead from the back, and let others feel they are in front.

3. Create a discretionary innovation budget within IT to invest in new technologieso This budget should be enough to fund ideas through pilot, or at minimum working prototypes.o If CEOs don't get business innovation ideas from IT, they will find them elsewhere.

• A survey of select US banks supports the axiom that “investing more is not as important as investing smart”.

• The survey showed no significant correlation between overall spending on IT applications and bank profitability.

• However, investing in certain areas of IT - automation, customer analytics, big data - was correlated with higher profitability.

• The data suggests that IT leaders need to be more selective – more analytical in assessing the benefits of new technologies.

Successful innovators follow a thorough process to analyze new technologies, which enables them to be “selectively aggressive” – an early adopter of only those

innovations that can have significant business value.

Framing the Business Innovation Agenda Be Selective in New Technologies - Spend Wisely, Not More

Planning Projects around Benefits Realization Guiding Principles

Principle Implications Consequence of Ignoring

The primary cause of poor outcomes in IT investments is a poor business case

Poor business outcomes are caused more often by poor planning about benefits than bad project execution.

Gartner estimates the consequences of poor business case approaches can be 40% of the total project spend.

Measures for key benefits must be defined in the business case

If benefit measures are not defined, there is no real way to determine if the project is successful.

Project objectives are not really clear until benefit measures, and the key dependencies for their realization, are defined.

Responsibility for project success must be owned by both business and IT

Business leaders must own the responsibility for achieving benefits from most IT investments.

IT is often held responsible for benefits as well as delivery, but has no authority to make the necessary changes in the business.

Establish a business-led Investment Management Board (IMB) to prioritize investments, and establish accountability for project benefit realization using these key principles.

Planning Projects around Benefits RealizationGuiding Principles (continued)

Principle Implications Consequence of Ignoring

Benefit measures must extend beyond typical accounting metrics

Accounting metrics alone are too high level for most projects; other performance indicators are needed.

Limiting benefit metrics can stifle innovation by ruling out good investments with “indirect benefits” from a financial standpoint.

Project benefits must ultimately tie back to financial value

For project benefits to create value, they must contribute to improving a financial metric in some way.

If “indirect benefits” (e.g. better cycle time) are not correlated to financial metrics, there is no way to assess the investment’s value.

Benefit assumptions should be verified early via proof-of-concept or pilot tests

Mitigate risks in new technologies by confirming benefits in pilots; ‘fail fast’ and iterate; roll out in phases.

Investing in a full implementation before measuring benefits in a pilot will significantly increase project risks.

Establish a business-led Investment Management Board (IMB) to prioritize investments, and establish accountability for project benefit realization using these key principles.

Creating a High Performing PMOPMO Leadership and Governance

• The PMO’s leadership approach plays an enormous part in its success o PMOs that focus on “policing” will not be very successful – a PMO must rally people around a

key goal that’s aligned with enterprise strategy.o The PMO’s leadership approach must enable effective governance, while being compatible

with the organization's culture and objectives.o The PMO leader must have the credibility and political skills to advise senior executives on

major initiatives, and influence people across the organization.

• Three types of organizational power are highly important for PMO effectiveness: o Legitimate - the formal right to make demands, i.e. the PMO can mandate PPM process

requirements and report on compliance. o Reward - the PMO provides incentives and recognition to drive adoption of desired practices.

o Expert - PMO leaders leverage skills and knowledge from multiple sources, and apply them to

opportunities that deliver value.

Creating a High Performing PMO Capabilities of an “Activist PMO” that Drive Successful Delivery

As they mature, PMOs should go beyond “compliance checking” to higher value capabilities.

Attributes of Passive PMOs vs Activist PMOs Passive PMO Activist PMO

• Requests project updates. • Probes for risk and issues, measures progress vs baseline, monitors delivery of value / benefits.

• Focus on reporting vs problem solving. • Creates data-driven recommendations for decisions.

• Lacks / avoids measurable objectives. • Creates metrics for continuous improvement.

• Waits on project approval to staff PMs • Pro-actively plans resources, provides ‘best-fit’ PMs.

• Offers scheduled training sessions. • Coaches PMs, creates a Community of Practice.

• Monitors projects as discrete items. • Connects IT deliverables to business strategy and related initiatives, drives organizational change.

• Avoids conflicts and politics. • Works across all levels of the organization to remove obstacles and insure successful adoption.

Creating a High Performing PMOPosition Your PMO Close to Those Who Must Be Influenced

• The PMO needs to be high enough in the organization to effect change as a proxy for the sponsoring C-level executive.

• The PMO leader should be a peer among the other leaders who must help execute the key changes needed to improve the organization's PPM capabilities.

A PMO’s place in the organization impacts its ability to drive changes needed to realize value:

• The PMO must be viewed as a leadership function by the project teams, as well as PMs outside the PMO, to have the authority to drive change and impact performance.

SummaryGetting Started

1. Identify bold business improvement objectives that can be enabled by IT

2. Pro-active assess new technologies for the ability to deliver value in your business

3. Establish an Investment Management Board to prioritize IT investments

4. Plan projects using Guiding Principles for business cases and benefit realization.

5. Establish a project governance process, including legitimate and reward power, to equip the PMO for real impact.

6. Adopt “activist” practices in your PMO to drive successful project delivery.

7. Position the PMO close to those who must be influenced to effect key changes.

ReferencesIT Innovation and Benefits Realization: 1. Gartner, Three Changes You Can Make to the Way IT Innovation Is Framed - 28 June 20132. McKinsey, Spend wisely, not more, on IT - January 20163. Gartner, The STREET Process for Emerging Technology and Innovation Adoption - 30 March 2010 4. Gartner, Five Techniques to Defend the IT Budget and Demonstrate the Value of IT - 19 July 2013 5. Gartner, Overcoming Innovation's Measurement Problem - 23 August 2012 6. Gartner, 10 Absolute Truths for Optimizing the Value of Investments Requiring IT - 11 March 20157. Project Management.com, Project Justification: Tips for a Successful Business Case – 2007

PMO Design and Effectiveness:8. Gartner, PMOs: One Size Does Not Fit All - 19 December 20149. Gartner, How an Activist PMO Helps Share Strategic Vision to Optimize the Portfolio - 25 Nov 201410.Gartner, Making the Business Case for a Highly Focused and Effective PMO - 23 October 2015 11.Gartner, Establishing and Fine-Tuning Effective PMO Metrics - 09 November 2015 12.Gartner, The Project Portfolio Management Leader's First 100 Days - 17 March 2015

APPENDIX

Driving Business InnovationBuild IT’s Financial Management Credibility

• CIO’s need to attract increased investment for innovation, and also manage current IT costso Business leaders must trust that IT can deliver the financial benefits of innovation – but many

CFOs do not link IT investment with creating business value.o Demonstrating skilled management over current IT costs can attract more future investment.

• Five ways that IT leaders can build financial credibility, and position IT as a reliable area to invest in: 1. Chart out the financial journey of IT - the past, present, and proposed future state. 2. Use “benchmarks with context” to compare your IT costs against peer companies. 3. Demonstrate how each IT cost category is being managed, and how you are driving continuous

improvement in value in each category. 4. Create success stories showing how IT has delivered value from prior innovation investments. 5. With credibility based on strong financial management, demonstrate “what else is possible” -

how new IT investments can drive greater business value.

Realizing Value from IT Investments Types of Business Benefits

Value Area Typical Benefits - show how the project will:

Financial & Operational Value

Enable increased revenue (improve pricing power, raise unit sales, etc) Improve staff productivity, or directly reduce labor costs Decrease unit costs of core services (processing transactions, etc) Increase the performance or utilization of core assets, optimize inventory levels, etc Decrease cycle time of critical business processes Decrease operational risk (be specific in measuring risks and mitigation benefits) Decrease regulatory compliance risk (be specific in measuring risks and mitigation benefits)

Intangible Value

Improve Customer satisfaction, Customer productivity, Customer ease of use, etc Enable better Strategic alignment across the enterprise Expand the number of Customer relationships, or their breadth Support Learning and growth capabilities (the company’s ability to improve and adapt)

Real Options Value

Create flexibility for future business scenarios, when the solution can enable a new strategy Adaptability to support new customer needs, when market changes require quick response

Projects can create benefits in multiple ways – make sure the IMB and key stakeholders understand how the solution enables each of its expected benefits, and how those will be measured.

Creating a High Performing PMOClearly Define the Functions Performed by Your PMOPMO’s often support functions in Portfolio management or Program management as well - align expectations with key stakeholders on the specific functions to be performed by the PMO, and articulate the roles and responsibilities of the PMO and related organizations in a Charter.