When "IT Alignment with the Business" Isn't a Buzzword
Written on 10:10 AM by Right Click IT - Technology Services
December 01, 2008 – Matt Heusser, CIO
IT leaders were told to "do more with less" even before economic woes exacerbated the issue. Savvy managers have always kept their eye on the goal: demonstrating what IT can do for the business, so that it's not always viewed as a cost center. Last week, one IT manager explained her strategy.
At a meeting of the Grand Rapids Association of IT Professionals (AITP), Krischa Winright, associate VP of Priority Health, a health insurance products provider, demonstrated her IT team's accomplishments over the past year. Among the lessons learned: talented development organizations can gain advantages from frugality (including developing applications using internal resources and open-source technologies); you can ferociously negotiate costs with vendors; and virtualization can save the company money and team effort. End result: an estimated 12 percent reduction in expense spending (actual dollars spent) in 2008.
I asked Krischa about what her team had done at Priority Health, and how other organizations might benefit from her approach.
CIO: First, could you describe your IT organization: its size and role?
Winright: Priority Health is a nationally recognized health insurance company based in Michigan. Our IT department has approximately 90 full time staff, whose sole objective is to support Priority Health's mission: to provide all people access to excellent and affordable health care. The implications of this mission for IT are to support cutting edge informatics strategies in the most efficient way possible. We staff all IT services and infrastructure functions, in addition to software development capability.
CIO: In your AITP talk, you mentioned basic prerequisites to transparency and alignment. Can you talk about those for a moment?
Winright: Prior to 2008, we put in place a Project Management Office with governance at the executive level. Our executive steering committee prioritized all resources in IT dedicated to large projects, which meant that we already were tightly, strategically aligned with the business. ROI for all new initiatives is calculated, and expenditures (IT and non-IT) are tracked.
CIO: So you put a good PMO in place to improve the organization's ability to trace costs. Then what?
Winright: Well, let's be careful. First, project costs associated with large business initiatives are only one portion of IT spending. Additionally, cutting costs is easy; you just decrease the services you offer the business.
Instead, we wanted to cut costs in ways that would enhance our business alignment, and increase (rather than decrease) the services we offer. To do that, we had to expose all of the costs in IT (PMO and non-PMO) in terms that the business could understand. In other words: business applications.
We enumerated all IT budgetary costs by application, and then bucketed them based upon whether they were (1) existing services (i.e. keeping the "true" IT lights on) or (2) new services being installed in 2008.
We then launched a theme of "convergence" in IT, which would allow us to converge to fewer technologies/applications that offer the business the same functionality, while increasing the level of service for each offering.
CIO: So you defined the cost of keeping the "true" IT lights on. What about new projects and development?
Winright: We adopted Forrester's MOOSE model. We established the goals of reducing the overall cost of MOOSE ("true" IT lights on) and increasing the amount of funding of items of strategic business importance.
Using the MOOSE framework, we finally understood the true, total cost of our business applications and our complete IT portfolio. This allowed us to quickly see opportunities for convergence and execute those plans. By establishing five work queues which spanned all of IT—Operations, Support, IT Improvement, PMO, Small Projects—we learned how all 90 of our staff were spending their time. That let us make adjustments to the project list to "converge" their time to items of most imminent strategic return.
CIO: In your talk, you said an economic downturn can be a time of significant opportunity for your internal development staff.
Winright: Businesses in Michigan are acutely aware of the economic downturn. Our health plan directly supports those businesses, so we are optimizing our spending just like everyone else.
Maximum benefit must be gained for every dollar spent. Every area of the company is competing for expenditures in ways they weren't before.
Yet when budgets are cut, business' core values dictate keeping talented people. In IT, a talented development organization can seize the opportunity of frugality and provide help across a plethora of business opportunities in an extremely cost-effective way. Developing applications using internal resources and open-source technologies have a more favorable cost portfolio than do third party vendor applications with their extensive implementation costs and recurring, escalating maintenance expense. Additionally, the decline of major third-party software implementations allows IT more bandwidth to partner side by side with the business.
CIO: What other steps have you taken to win trust?
Winright: We converted costly contracted labor associated with MOOSE to internal staff. Given exposure to the true cost of our business applications, we ferociously negotiated costs with our vendors. We took advantage of virtualization and other convergence technologies to maximize benefit from spending, and eliminated over 10 items from our environment (such as consolidated environments, consolidated hosts through virtualization, converged to one scheduler) in this first year by embracing the theme of convergence.
The fruit of our labor is an estimated 12 percent reduction in expense spending (actual dollars spent) in 2008. More importantly, we have proven a 6 percent shift of spending from existing service costs to new services. This is a powerful message to share with business partners. They will ultimately benefit when 6 percent more IT spending is directed to new initiatives rather than to existing services costs.
CIO: What's been the most painful part of this process for you?
Winright: Two things. First, it was difficult and time consuming to gather all actual budgetary expenses and tie them to a specific service. For most organizations our size, this information is held across several cost centers and managers, and the technical infrastructure itself is complex.
Second, it is always difficult to take 90 technologists and get them aligned around common themes. We continue to strive for internal alignment and eventual embodiment of these themes.
CIO: Pretend for a moment you are speaking to peer at an organization the size of Priority Health or a little larger. What advice would you have on quick wins, and things to do tomorrow?
Winright: Although painful and time consuming, it is imperative that you and your business peers understand the complete picture of IT spending in terms of business strategy. Then, and only then, will transparency into IT spending be an effective tool to increase business alignment.
Get your internal resources aligned around common themes, because an aligned group of highly intelligent people on a singular mission can yield incredible results.
