IT Governance is Killing Innovation

Recent CEB research shows that work has become much more interdependent — employees increasingly need to tap a broader array of internal and external colleagues and partners to be successful in their jobs. The emergence of this new work environment has significant implications for how IT should enable business growth and, more specifically, for the kinds of investments IT should be making to support employees.

Unfortunately, when it comes to IT's ability to allocate investments in response to the new work environment, traditional governance processes prove grossly outdated. Some of the key challenges:

• Companies don't identify the very best ideas for investment because most capital allocation processes start with business partners' existing ideas about projects to fund. As we've noted in our previous blog, senior business partners might not be that knowledgeable about what actually drives productivity on the front lines.


• Companies allocate capital to the wrong investments because our traditional emphasis on ROI-based business cases undermines IT's ability to invest in high-return-but-hard-to-measure areas like improving knowledge worker productivity.


• Companies tend to spread their capital allocation bets too thinly across business groups or functions, often for political reasons. This practice helps 'keep the peace' but means that often the most transformational opportunities get short-changed.

Across our year of research into this problem, we have identified a select group of companies that are rethinking their governance and investment processes to circumvent the problems outlined above. 

 

Expand First, Filter Second
Most CIOs will tell you that they have no shortage of ideas to invest in — the hard part is whittling down to the right ones. Push that a bit further and what most CIOs say is that those ideas are in the form of project requests from business partners. The problem is that these "bottom-up" project requests often miss the big picture as too many are incremental or uninspiring. Yes, while most of these requests are vetted for alignment with corporate strategy, what's often missing is how these requests fit within a broader context of how the business overall generates value. Furthermore, this lack of context prevents organizations from identifying other investment ideas that have high potential but haven't bubbled up organically through project requests.

To address this challenge, a global transportation company we spoke with is using a strategic lens to expand the list of project ideas to find the ones with the highest potential corporate value, before filtering them. They start with a map of the company's critical business capabilities — those concrete business activities that are vital to meeting a strategic goal (e.g. rapid new product roll-out). Then, they look at the health of the information available to business leaders who manage those capabilities. They find this leads them into all sorts of overlooked opportunities and provides them with a good proxy for where IT investment can have significant business impact, which can better inform prioritization decisions. 

Prioritize Capabilities, not Projects
The currency of most IT project prioritization meetings is the ROI-based business case. As mentioned above, this measure works very well for comparing projects that deliver hard benefits, but undermine the ability to invest in critical capabilities that have a long-term payoff horizon or highly innovative capabilities where the payoff is uncertain.

A global high-tech equipment provider is taking a different approach. Similar to the transportation company mentioned earlier, they start with a top down view of critical business capabilities and pillars required to support long-term business strategy. Then, using customer preference measurement methodologies like conjoint analysis, they survey senior business leaders to determine the relative criticality of each of these pillars. Based on this — and before any projects are even discussed — they are able to map out the relative level of IT investment each capability should receive. So, if the business leadership agrees that capability A is twice as important to realizing their goals as capability B, capability A is targeted for twice as much investment. Projects can then be assessed on contribution to the needs of that pillar, rather than purely on financial metrics like ROI.

CIOs are being asked to arm employees with the capabilities required for success in a new, much more integrated and interdependent work environment. But to do that requires more than capital: it requires a different approach to making decisions and, specifically, rethinking traditional IT project-centric approaches to identifying and funding capital investment opportunities. 

Andrew Horne and Brian Foster

Andrew Horne, a Managing Director at CEB, works with the CEB’s membership network of Chief Information Officers, and leads global research teams in producing best practice case studies, benchmarks, implementation tools, and executive education. Brian Foster, a Managing Director in CEB’s IT Practice, oversees a global team that provides advice and consultation to a network of more than 2,500 IT leaders, including CIOs, enterprise architects, applications, infrastructure, security, and PMO executives.