I’ve been thinking a lot lately about the “kernal” construct that Richard Rumelt proposes in his book “Good Strategy, Bad Strategy.” According to Rumelt, the irreducible core of a strategy–the “kernal”–consists of a diagnosis of the environment an enterprise operates in, one or more policies that are intended to address the diagnosis, and coherent execution in support of the policies. IT governance looms large in coherent execution; every change in an enterprise that’s more than trivial eventually comes to IT, because nothing that’s more than trivial can be implemented without supporting technology.
In other words, the IT project proposal process essentially generates a running list of proposed and actual change in the enterprise. In fact, the IT project portfolio is the only place in the enterprise where all that change is visible at once. Smart enterprise leaders can use that fact to their advantage by turning the IT investment decision making process into a forecasting system for the success of enterprise strategies. Here’s how:
1) Ensure that any proposal for change that comes to the IT investment decision making process (a/k/a IT governance) has two explicit characteristics:
- It spells out outcomes in material, quantified, baselined terms, and
- It links those outcomes to the goals associated with specific enterprise strategic imperatives, of which there are probably no more than half-a-dozen at any point in time, assuming that the enterprise is genuinely clear on its strategy; great strategies don’t have 15 segments.
Investment portfolios aligned to strategic imperatives are useful for the latter purpose. The CFO or COO, not the CIO, is the appropriate party to ensure this basic investment discipline, because it’s not the CIO’s job to enforce investment discipline, whether IT is involved or not.
2) By adding up the outcomes, costs, and timeframes associated with projects within an investment portfolio linked to a strategic imperative, the enterprise can determine how far (hypothetically) the full range of initiatives will move the enterprise towards the goals specified by the imperative, at what cost, and within what timeframes. That knowledge can be put to good use in deciding how much and where to invest. Summing of these factors is relatively trivial if the basic information is included in project proposals, and can be done by a project management office, by personnel within IT or a sponsoring business unit, or by the CFO’s office.
3) When proposed projects are reviewed, approved, resourced, and started, the same approach can be used to determine how far the approved project portfolio (as opposed to the proposed project portfolio) will move the enterprise towards its goals. Comparing proposed project portfolios to approved portfolios can help to show whether the enterprise is investing enough, too little, or too much in pursuit of its strategies; for example, whether attractive investment opportunities are being left on the table because of arbitrary constraints on “IT spending.” (Calling an initiative supported by IT an “IT project” is like calling your exercise program “the Nautilus project”; yes, machinery is involved, but that’s not the point of the exercise.)
4) When approved projects are completed (and after a suitable waiting period to account for the lag in benefits that always follows any change initiative), actual outcomes can be measured, which will help both to refine forecasting going forward and to improve current forecasts.
Suppose, for example, that we have a strategic imperative to improve product quality in order to increase initial and repeat sales and reduce capital allocated to allowances for returns. If we can quantify, even hypothetically, the extent to which a given increase in product quality will increase sales and reduce allowances for returns, and we frame our project proposals in those terms, we can then use our IT-supported project portfolio for that strategic imperative to estimate how fast, how much, and at what cost we will be able to achieve these strategic goals with our current project initiatives.
I said earlier that this approach offers a level of insight into the potential for success or failure of strategic imperatives that is available nowhere else. Even more importantly, this insight can be achieved with only minor adjustments (if any) to an investment decision-making process that is already present in the vast majority of enterprises. For many, the discipline of specifying initiative outcomes in material, quantified, baselined terms (as opposed to fuzzy measures of success like “improve collaboration”) will be the most difficult to master, but this can be expected to improve over time with management attention and team learning. In return, the enterprise gets a powerful early-warning mechanism for strategic success, not to mention a better way to think about its investments involving scarce IT and non-IT resources, and (ultimately) higher yields on those investments.
Most enterprises think about IT governance as a mechanism for allocating IT resources to “IT projects,” but that’s way too limited a view of what’s really going on. I hope I’ve made it clear here that not only is IT governance one of the most important enterprises for coherent execution of strategy, it’s also the one that offers the best and most comprehensive tools for estimated and validating the outcomes that execution will deliver.
I’ve been talking about these ideas with CFOs, CEOs, and CIOs lately, and the reception has generally been favorable. I wouldn’t be surprised if Wall Street investment analysts figure this out at some point, and CIOs start getting calls from said analysts about what’s in the project portfolio.
Think about it, and let me know what you think.