Optimize the IT Operating Model Enhance how IT

Optimize the IT Operating Model Enhance how IT adds value for consumers of technology services. Info-Tech Research Group, Inc. is a global leader in providing IT research and advice. Info-Tech’s products and services combine actionable insight and relevant advice with ready-to-use tools and templates that cover the full spectrum of IT concerns. © 1997 -2017 Info-Tech Research Group Inc. Info-Tech Research Group 1

ANALYST PERSPECTIVE Optimize how IT adds value for consumers of technology services. The IT operating model is not a static entity and it should evolve according to changing business needs. However, business needs are very diverse and groups consume technology in different patterns. The IT operating model needs to support and enable multiple groups of technology service consumers, while continuously adapting to changing business conditions and needs. Gopi Bheemavarapu, Senior Manager, CIO Advisory Info-Tech Research Group 2

Our understanding of the problem This Research is Is Designed For: This Research Will Help You: üCIOs üHead of Enterprise Architecture üCTOs üAssess the current IT operating model’s ability to provide technology services to consumers. üOptimize the IT operating model by changing its elements of governance, sourcing, process, and structure. üEnable the IT operating model to be responsive to changing business conditions. This Research Will Also Assist: This Research Will Help You: Them: üIT Directors üC-suite üUnderstand how IT creates value for the organization. üRealize how the IT operating model must change to respond to changing needs of the internal and external technology service consumers. Info-Tech Research Group 3

Executive summary Situation • Traditional IT operating models tend to be static and are not equipped to • • deal with evolving business needs (Mercer et al. ). The IT organization has a difficult time identifying and acting on changing market and technology trends. IT is becoming more integrated in the creation and delivery of value. Complication • Organizations have to adapt to numerous trends, increasing pressure on • • IT to move at the same speed as the business (Mercer et al. ). The business, seeing slow IT reaction, looks to external solutions to address its challenges (Frost & Sullivan). Organizational leaders don’t have a unified definition of an operating model. Info-Tech Insight The IT operating model is not a static entity and should evolve according to changing business needs. However, business needs are diverse, and the IT organization must recognize that the business includes groups that consume technology in different patterns. The IT operating model needs to support and enable multiple groups, while continuously adapting to changing business conditions. Resolution • Determine how each technology consumer group interacts with IT. Use consumer experience maps to determine • • what kind of services consumer groups use and if there are opportunities to improve the delivery of those services. Identify how changing business conditions will affect the consumption of technology services. Classify your consumers based on the business uncertainty and their reliance on IT to plan for the future delivery of services. Optimize the IT operating model. Create a target IT operating model based on the gathered information about technology service consumers. Select different implementations of common operating model elements: governance, sourcing, process, and structure. Info-Tech Research Group 4

Business strategy first, IT strategy second, and operating model third The CIO and the IT organization establish the appropriate IT operating model after strategic planning is complete. The IT operating model seeks to answer the “how” to the IT strategy’s “what. ” Business Strategy “Why does our enterprise exist in the market? ” IT Strategy IT Operating Model “What does IT need to be and do to support the enterprise’s ability to meet its goals? ” “How does IT need to operate on a daily basis to meet the goals of the strategy? ” The operating model in its simplest form dictates where and how critical work gets done across a company. It serves as a vital link between a company’s strategy and the detailed organization design that it puts in place to deliver on the strategy. - Bain & Company Info-Tech Research Group 5

The IT counterpart to the business operating model sets an IT organization apart and determines how IT adds value IT Operating Model Business Operating Model “How do we make technology decisions? ” “How do we compete? ” “How do we provide services? ” “How do we add value? ” “How do we organize our teams? ” “How do we interact? ” “How do we leverage vendors? ” “How do we foster a strong culture? ” Pick any two companies in the same industry, and it is likely that about 70% of their respective operating models look remarkably similar. But the 30% of the operating model that is different – and reflects the company’s particular strategy, portfolio, and culture – can make or break the company. The best operating models suit a company’s unique profile. - Bain & Company Source: Bain & Company Info-Tech Research Group 6

Traditional IT operating models are not getting the job done IT organization is very effective in driving technology enablement or innovation in business processes and operations. IT organization is very effective in introducing new technologies faster and/or more effectively than competitors. 2012 22% of IT executives agree 18% of IT executives agree 2013 17% of IT executives agree 10% of IT executives agree Adapted from: Mc. Kinsey & Company, “IT under pressure: Mc. Kinsey Global Survey results. ” CIOs are fast realizing that their carefully crafted enterprise-wide technology infrastructure and talent base built over the years are falling short in light of disruptive forces. The growing need to cultivate an agile organization that can quickly respond to market disruptions makes it imperative for organizations to intertwine their IT and business objectives. - Cognizant Info-Tech Research Group 7

Attempts at dividing the IT organization into two separate camps has yielded sub-par results A bimodal IT operating model might sound great in theory, but in application, this model often fails to account for the complexities of its implementation. Instead of dividing an IT organization and its people between activities that are seen as either boring or static versus exciting and fast-paced, IT should organize and mobilize in a dynamic manner to meet the technology service needs of consumers who move at different speeds and in various business directions. Consumers Innovate Support Integrated Technology Services at Your Speed IT IT The problem organizations run into creating bimodal systems is the stigma that the mode 1 group operating back-office systems is slower than the mode 2 unit building digital technologies. Employees may not want to work on mode 1 because of the perception that it is not innovative. That creates a dangerous culture that could lead to competing architectures. - Bill Ruh, CDO at GE Source: CIO. com. “Why bimodal IT kills your culture and adds complexity. ” Info-Tech Research Group 8

Definition of an IT operating model Business and IT leaders alike talk about operating models, yet they are rarely on the same page. Info. Tech provides a simple definition for the IT operating model. The IT operating model defines how the IT organization is mobilized and organized to enable the enterprise to achieve its goals. The model communicates the interplay of governance, sourcing, processes, and organizational structure that facilitate the delivery of technology services to internal and external technology service consumers. Info-Tech Research Group 9

Elements of an IT operating model The IT operating model consists of four elements, which when optimally combined, enable IT to deliver technology services to consumers in a manner that matches their business realities and patterns of technology consumption. Governance ensures that stakeholder needs, conditions, and options are evaluated to determine enterprise objectives to be achieved, setting direction through prioritization and decision making, and monitoring performance against agreed-on direction and objectives. Describe an organized set of practices and activities to achieve certain objectives and produce a set of outputs in support of achieving overall goals. Processes can have various levels of formalization and stakeholder involvement. Elements of an IT Operating Model Governance Sourcing Process Organizational Structure Outlines the optimal mix of sourcing models that is utilized to create, deliver, and support technology services and products. Sourcing is usually broken down into three broad categories: insourcing, cosourcing, and outsourcing. The arrangement of lines of authority, rights, communications, and duties of an organization. The structure determines how the roles, power, and responsibilities are assigned, controlled, and coordinated across the IT organization. Source: COBIT 5: A Business Framework for the Governance and Management of Enterprise IT. Info-Tech Research Group 10

Measure the impact of operating model changes using one simple indicator: overall business satisfaction with IT services Changes to the IT operating model are aimed at improving the delivery of technology services. As such, any modifications to how IT operates and delivers those services should improve the perception of value from the consumers and their satisfaction with technology services. Decisions will be made at the right speed with the desired level of business involvement. Processes will be structured, standardized, and formalized to fit the needs of the consumers and to optimize the delivery of specific services. Improved Business Satisfaction with IT Services IT will optimize the use of internal resources and the reliance on third-party knowledge and capabilities to deliver services. Teams will be structured and staffed to deliver services to consumers in the most appropriate way. Use Info-Tech’s CIO Business Vision diagnostic program to collect baseline data. After a set time period (612 months), conduct the diagnostic again to measure the changes in overall satisfaction with IT services. Info-Tech Research Group 11

Additional business metrics will help you connect the changes to the operating model to business outcomes The goal of the IT operating model is ultimately to support and enable the business. Ensure that your IT operating model changes are making positive contributions to business value by tracking the following metrics. Financial - Improved support - Percent of enterprise strategic goals and requirements supported by IT operating model. - The number of business capabilities that are directly supported by IT over time. - Percent of users satisfied with the quality of IT service delivery. Reduced risk - The percent of technology investments made without any IT involvement. - Instances of technology-related non-compliance with regulations. - Number of security breaches and instances of compromised organizational assets. Customer - Customer satisfaction with technology-enabled business services or products. - Improvements in technology-enabled client acquisition or retention processes. Percent of IT investments that realize their expected benefits. NPV of technology investments. Percentage of cost reduction from technology investments. Percentage of revenue increased due to technology investments. Adapted from COBIT 5: A Business Framework for the Governance and Management of Enterprise IT. Info-Tech Research Group 12

Additional IT-centric metrics will help you track the changes to individual operating model elements Governance - Number of applications supporting IT services that require significant rework because of not meeting governance standards. - Number of incidents related to non-compliance to policy. - Percentage of IT investment decisions made outside of formal governance bodies. Sourcing - Cost reduction resulting from changing sourcing models. - Improvement in consumer satisfaction resulting from changing sourcing models. - Percentage of staff re-allocated to the delivery of critical services. Process - Business management satisfaction with IT services. - Percentage of formalized processes deemed to meet their goals. Organizational Structure - IT employee engagement. - Percent of staff whose IT-related skills are sufficient for the competencies required for their role. Adapted from COBIT 5: A Business Framework for the Governance and Management of Enterprise IT. Info-Tech Research Group 13

An oil and gas company optimizes its IT operating model by adjusting the four key elements CASE STUDY Industry Source Oil & Gas Anonymous Situation As the pressure on earnings increases due to low oil prices, ABC, an oil & gas major, is looking at investing in innovative technologies, but ABC’s IT organization is struggling to keep pace with the business’ tactics. Satisfaction with IT is at an all-time low, and an IT maturity assessment has placed the IT organization at a low maturity level. Complication Business units have actively started acquiring innovative technology by circumventing the IT procurement process, which led to a prevalence of shadow IT, a drastic increase in integration costs, and increased security vulnerabilities in the technology landscape. The inefficiencies in the IT operating model have also resulted in increased IT staff attrition rates. Resolution By making changes to the four elements of the operating model, the CIO was able to turn the situation around and realize the following benefits: 1. Increased operational efficiency and business satisfaction through a reduction in disruption to IT services. 2. Co-identification of innovative opportunities with the business by increasing the maturity of the BRM function. 3. Transparency into IT through joint ownership of IT staff in business units that have very specialized needs. Adapted from sources: Econsultancy. com, Mc. Kinsey & Co. , IT 4 IT, and UKessays. com The CIO’s journey to optimize the IT operating model Identify and document existing interactions with consumers Classify and group the consumers based on their business needs Centralize and optimize IT governance Consolidate vendors and standardize strategic sourcing Create a strategy for the attraction and retention of talent Info-Tech Research Group 14

Use these icons to help direct you as you navigate this research Use these icons to help guide you through each step of the blueprint and direct you to content related to the recommended activities. This icon denotes a slide where a supporting Info-Tech tool or template will help you perform the activity or step associated with the slide. Refer to the supporting tool or template to get the best results and proceed to the next step of the project. This icon denotes a slide with an associated activity. The activity can be performed either as part of your project or with the support of Info-Tech team members, who will come onsite to facilitate a workshop for your organization. Info-Tech Research Group 15

Info-Tech offers various levels of support to best suit your needs DIY Toolkit “Our team has already made this critical project a priority, and we have the time and capability, but some guidance along the way would be helpful. ” Guided Implementation Workshop Consulting “Our team knows that we need to fix a process, but we need assistance to determine where to focus. Some check-ins along the way would help keep us on track. ” “We need to hit the ground running and get this project kicked off immediately. Our team has the ability to take this over once we get a framework and strategy in place. ” “Our team does not have the time or the knowledge to take this project on. We need assistance through the entirety of this project. ” Diagnostics and consistent frameworks used throughout all four options Info-Tech Research Group 16

Optimize the IT Operating Model – blueprint overview Construct the IT services consumer experience maps Classify IT service consumers based on business needs 1. 1 -1. 2 Identify the internal and external groups of IT service consumers. 2. 1 Categorize consumer groups into business profiles. 1. 3 -1. 5 Complete a consumer experience map for each group. 2. 2 -2. 3 Document each profile’s technology service patterns and their implications on the target IT operating model. Best-Practice Toolkit Define consumer groups in the organization. Classify the consumer groups into four profiles. Create a consumer experience map for each consumer group. Identify implications for the target IT operating model from classification. Determine the target IT operating model 3. 1 -3. 4 Select the implementation models for the four IT operating model elements: • Governance • Sourcing • Process • Organizational structure Create a roadmap to develop the target IT operating model 4. 1 -4. 2 Create and assess initiatives to reach the target IT operating model. 4. 3 -4. 4 Prioritize initiatives, then create a roadmap for target IT operating model execution. Select the implementation models for governance and sourcing. Create initiatives to reach the target IT operating model. Select the implementation models for process and organizational structure. Prioritize initiatives and create a roadmap for their execution. Guided Implementations Module 1: Construct the IT services consumer experience map Module 2: Classify IT service consumers based on business needs Module 3: Determine the target IT operating model Module 4: Create a roadmap to develop the target IT operating model Phase 1 Results: • Technology consumers’ experience maps Phase 2 Results: • Technology consumers’ business profiles Phase 3 Results: • Target IT operating model Phase 4 Results: • IT operating model roadmap Onsite Workshop Info-Tech Research Group 17

Workshop overview Deliverables Activities Contact your account representative or email Workshops@Info. Tech. com for more information. Workshop Day 1 Workshop Day 2 Workshop Day 3 Workshop Day 4 Workshop Day 5 Identify organizational strategy and technology consumer groups Map the consumer experience and identify consumption patterns (Consumer Group 1) Map the consumer experience and identify consumption patterns (Consumer Group 2) Create the target IT operating model Build a roadmap and create initiatives to reach the target 1. 1 Review business and IT strategy. 1. 2 Identify implications for the IT operating model. 1. 3 Identify internal technology consumer groups. 1. 4 Identify external technology consumer groups. 2. 1 Identify interview candidates for the consumer groups. 2. 2 Complete consumer group questionnaire. 2. 3 Complete consumer experience map. 2. 4 Classify the consumer group into a business profile. 3. 1 Continue interviews for consumer groups. 3. 2 Complete consumer experience map. 3. 3 Classify the consumer group into a business profile. 3. 4 Aggregate the consumption patterns for each business profile and document implications. 4. 1 Determine the approach to IT governance. 4. 2 Select the optimal mix of sourcing models. 4. 3 Customize the approach to process implementation. 4. 4 Identify the target organizational structure. 5. 1 Identify initiatives to reach the target IT operating model. 5. 2 Create initiative profiles to assess initiative quality. 5. 3 Prioritize initiatives based on business conditions. 5. 4 Create a roadmap to communicate initiative execution. 1. Implications for the IT operating model 2. List of internal and external technology service consumer groups 1. Consumer experience map for group one 2. Business profile classification 1. Consumer experience for group two 2. Business profile classification 3. Aggregated consumption patterns 4. Implications for consumption patterns 1. Target IT Operating Model 1. Initiative profiles 2. Sunshine diagram Info-Tech Research Group 18