Don’t tell me I did not warn you. The only thing I can promise is that you’ll learn a thing or two from this one, so please read on.
I came across a predictive validity framework called the “Libby boxes”, popularized by Cornell Accounting Professor Robert Libby. This framework is used to examine the distinction between underlying constructs of strategic objectives and their proxy measures to illustrate causal models related to some objectives in an organization. Another definition of “strategy” is as a hypothesis about the cause and effect of your objectives. Predictive validity allows you to measure and analyze how well the execution of your objective (cause) predicts your desired performance (effect).
Simple Business-IT Strategy
Now, to illustrate the importance of a Business Relationship Management (BRM) function in an Information Technology (IT) organization, let’s start by picking a Business-IT strategy to dissect. Let’s call it “Strategy A”.
Strategy A: “Create business value through better use of technology.”
Let’s start it simple and take an approach to illustrate cause and effect depict Strategy A using the model. We are going to be taking a very logical approach. The strategy here is— you believe that if you use technology better, you create business value. Let’s assume that technology is comprised of infrastructure and applications that enable the business or enterprise.
Observe that Strategy A is too simple—or maybe exceedingly simple. Can we really say that if IT provides better technology, we create business value, in the form of profits or savings? Yes, no, maybe. How about this – it is because of better use of technology, we improve business processes of the company and therefore we create business value. In this predictive validity framework, the middle action is called, mediating variable. It stands between two variables and it is an effect of one variable and the cause to another. This brings us to iteration to our business-IT strategy. Let’s refer to this improved business-IT strategy as “Strategy B”.
Strategy B: “Create value by improving business processes through better use of technology”.
So how do you interpret this strategy? As an IT organization, your goal is to provide the business with the technology, infrastructure and applications to enable efficient business processes. This will result to business value creation through optimized cost, profitability and strategic advantage. Whew! Follow all that so far?
I think this business-IT strategy works. If you run this, you have a good chance of successful outcomes. But your aim is not to be just good. Your aim is to be great. Your goal is to differentiate your IT department and to support your enterprise to be the best performing company in its industry or to be the best performing company (period!).
The Missing Component to be great
So there is a missing component to your strategy, a moderating component—a component that will have a multiplying effect from certain causes and effects coming out from the collective work that you do. In this predictive validity framework, it is called the moderating variable. The moderating variable is a variable that determines how big an effect you get from a certain cause.
To illustrate, let’s say you want to improve your performance at playing basketball. By practicing basketball, doing drills and shooting, for sure it will improve your performance. This is a very simple causal model. You practice more and that, in effect, will improve your basketball performance. But think about this, is there a certain amount of practice that will allow you to be like Mike (Michael Jordan)? Most likely, no. Talent and perhaps physical capacities are the moderating variables here. Sure, practice will improve your performance, but if you have a lot of talent, a little bit of practice goes a long way and will make you much better. If you don’t have that much talent, you’ll have to practice a lot to get just a little better. Talent in this case is a moderating variable.
Now that you understand what a moderating variable is, let’s go back to our Business-IT strategy. Think about an organizational capability equivalent to talent that can potentially transition your IT organization from good to great—it is business relationship management (BRM).
BRM in this case is a moderating variable. The BRM capabilities moderate the effect of improvement of business processes on performance, making it bigger (high Business-IT alignment) or smaller (in cases where it is lacking). Improved business processes doesn’t cause BRM capabilities, it just moderates the effect. How? BRMs (1) facilitate Business-Provider convergence, (2) ensure that use of IT services drives value and (3) facilitate productive and connections and mobilize business-IT projects and programs.
For many years, IT organizations responsible for deploying technology systems to enable enterprise processes have had one goal in mind – namely, to assure business-IT alignment. Today, however, as IT capabilities become more and more embedded in business capabilities, and given the pace of technological change and the pervasive nature of IT, alignment is no longer sufficient. The goal today, therefore, is “convergence”. This has given momentum to the growing emergence of the Business Relationship Management (BRM) role, which, according to the Business Relationship Management Institute (BRMI), is about “stimulating, surfacing and shaping business demand for a provider’s products and services, ensuring that the potential business value from those products and services is captured, optimized and communicated.”
It is that time of the year when you typically conduct planning session with your teams. I just came from one that I facilitated a week ago. I would like to share the planning methodology that we used. This planning process that I am going to share with you is nothing new and nothing that I came up with. You can find a lot of planning methodologies out there, if you Google it.
It is important to understand the current situation and needs that your organization has in a particular point in time, and then use it to tailor your planning process.
It is important that your team understands the entire planning process—what it is that you are trying to accomplish and what are the expected deliverables. I usually allot an adequate portion of the planning meeting to explain the “tailored” planning methodology. At this particular instance, I started out by showing the team the atlas of the universe; then the solar system; and then a picture of our planet earth; then I showed the a picture that represents our company or the business enterprise that we belong to; and finally, a box with an arrow going upward. I told the team, “that box represents us.” I explained why.
Mission and Vision
The box represents us—our mission and vision as an organization (see diagram below). Our mission defines our purpose— what is in and what is out. It represents, in the broadest sense, who we are. The vision is where we want to be as a group in a period of time in the future. The arrow from where we are now (point a) to where we want to be (point b) represent the shortest path to achieving our vision.
Our group had the opportunity to define our vision in our planning session last year, so that was something that we carried on and will carry on in the next couple more years. It is an input to this year’s planning process.
It is important to know where you are at the multi-year planning cycle to best tailor your team’s planning process for that particular year.
Last year, the first year of our planning cycle, we did the following:
- Invited key stakeholders of the company to speak to us about the business strategy, their expectations and needs.
- Gathered customer feedback from different forums and channels.
- Analyzed operative and project results from previous years.
- Conducted a team discussion around organizational concerns.
- Identified and discussed our Strengths, Weaknesses, Opportunities and Threats as a team.
- Established our vision for the next 4 years- articulated in a vision statement.
- Define our objectives and goals for the first year.
All the things that we accomplished in our planning session last year were used as inputs. We also analyzed the relevancy of some of our foundational objectives.
After reviewing the inputs from last year, the next thing that we did as a group was to do the “look back”. We talked about the operative and project successes from the past year. It was important to identify lessons learned and to convey key messages that align to the overall company direction and strategy. We had the team present those success stories by relating their experiences and journey.
Balance Scorecard and Strategy Mapping
To articulate our P&IT strategy we decided to use the time tested Balanced Scorecard approach and complemented it with Strategy Mapping. The Balance Scorecard, created by Robert Kaplan and David Norton, is one of the most popular and comprehensive tools for defining strategy and reporting performance in executing that strategy. This approach forces you to classify key measures and objectives used in your organization according to the four main perspectives— customer, financial, business process/ internal services, learning and growth. The key questions that we answered were:
- Financial – To succeed financially, how should we appear to our stakeholders?
- To achieve our vision, how should we appear to our customers?
- To satisfy our stakeholders and customers, at what services must we excel and what projects must we deliver?
- To achieve our vision how will we sustain our ability to change and improve?
The next complementary step is the mapping and analysis of the foundational objectives identified in the Balance Scorecard using Strategy Mapping techniques. By mapping how different objectives relate to one another, leaders can clearly see how to accomplish the stated objectives and how each one relates to the other. Many of those relationships go in a natural path from learning and growth to internal processes, to customer, finally to financial. To illustrate this concept, please refer to the diagram below. The blue boxes represent the identified foundational objectives classified in all four Balance Scorecard concepts. Then by relating those objectives based on causal linkage you form a story—your story, your strategy. In this strategy, the story goes:
You believe that by improving team culture, it is going to improve service delivery. And by improving service delivery, you believe that you will have more satisfied customers. And finally with improved service delivery and improved customer satisfaction you optimize IT cost. How those objectives flow and link represents your strategy.
After we defined and agreed on a strategy and with it the foundational objectives, the next step is the most tedious and difficult step of the entire planning process. It is the actual definition of departmental, team, and individual objectives. When you get to the point when you start identifying what you need to do to accomplish the strategy, real work begins. The team needs to have a clear understanding of the strategy, the role of their department/team and their individual role in making it happen.
- The first step is to break foundational objectives into departmental objectives. You can do this using a breakout session.
- Teams within their departments identified next level objectives and initiatives that they are responsible for.
- It is important to identify not only the initiatives/actions but also the measure and target by which the performance of the action will be measured.
In this process the common SMART method comes in handy. Your objectives have to be Specific, Measurable, Attainable, Relevant and Timely.
Finally, you have your mission and vision; you have your strategy and a detailed game plan (objectives) on how to bring your goals to fruition. The next challenge is to make it happen. I believe that the planning process does not stop after the initial planning process, which to me is the annual planning meeting. It is an ongoing process throughout the year. I like to borrow a term PMI uses- “progressive elaboration”. As you go through the year, you monitor and control the execution of the plan, as well as the changes to it. As you progress through the year, you will gain more information, priorities might change, and business requirements might change– you progressively elaborate your plan aligned to the business and IT strategy.
If you are running a business, having a big set of performance measures is a good thing. But a set of measures by itself isn’t enough. Having performance measures is one side of the coin. The other side (and what counts) is the application of those measures for its fundamental purpose — that is, to improve business performance.
Technological advancements in business analytics makes it much easier to collect and report data. This causes a tendency for business users to demand excessive numbers of performance indicators— in some cases, even more than needed to monitor, control and manage their business. Performance measures are worthless and counter productive unless used for a specific purpose such as to track work and achieve better results.
When are there enough performance measures?
This question can be answered only by you as users of information. Review what you have and analyze each performance measure. You’ll never know. You might have in excess of some types of measures and lacking others. Let’s understand the different types of performance measures.
Performance measurement is the regular collection and reporting of data to track work produced and results achieved. Performance measures can be applied in any organization, regardless of size, type and structure.
To illustrate the different types of performance measures and how they are used in different levels of the organization, please refer to the figure below.
Architecture of Performance Measures
I like to use the Deming circle based on the principles of W. Edwards Deming, an American statistician who argued that supplying products or services require activities, and the quality of a service depends upon the way activities are organized. The Deming circle demonstrates a system of continuous improvement, with the appropriate levels of quality delivered by adhering to the following steps:
- PLAN: Design or revise components to improve results.
- DO: Ensure the plan is implemented
- CHECK: Determine if the activities achieved the expected results
- ACT: Adjust the plan based on results gathered during the check phase.
When you talk about performance measurement, the most important element of the Deming circle is the “check” element. That’s where you apply performance measures, “check” or measure in order to “act” and change the “plan”. Consequently, you adjust what you “do” in execution.
The nested Deming circles represent the levels of the organization and the different types of measures used at every level. The first circle denotes the corporate or strategic cycle. The performance measures in the “check” component in the strategic cycle are composed of strategic performance indicators. They are usually a high level aggregate of data consolidated in summary, graphs and dashboards. Performance measures at this level are usually a small set of key performance indicators selected by top management.
The second circle represents the business unit or tactical cycle. The measures in the “check’ component of the tactical cycle are composed of tactical performance indicators. They are usually a drill-down of the strategic measures and used to manage and control the business operations. Performance measures at this level are usually a small set of key performance indicators selected by business unit management. Tactical measures are an important link to strategic and operative measures.
The last level is made of the process indicators or operative measures. They are measures that are embedded in each of the end-to-end processes, within or across departmental boundaries. These are the lowest level measure use to track work on a daily basis to improve process efficiency and performance.
Now that you know the different types of performance measures depending on different levels of the organization, examine your existing metrics. Do you think you have the right quantity and quality of performance measures at every level?
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