1. Angus Greig
busi n e ss t ech nol ogy of f ice
Reshaping IT management for
turbulent times
A new model for managing IT combines factory-style productivity to keep costs down
with a more nimble, innovation-focused approach to adapt to rapid change.
Roger Roberts, Despite decades of increasingly intensive use the forefront, with critical implications for
Hugo Sarrazin, and of information across industries, IT has remained business growth and customer engagement. In
Johnson Sikes
a black box for many executives. Too often, addition, established practices, such as
the link between spending and performance has lean-management techniques, have highlighted
been unclear, if not problematic. As a result, the value of IT in reducing waste and increas-
leaders felt that their only course of action was to ing productivity.
hire a competent CIO, throw increasing amounts
of money at IT, and hope for the best. The This deeper recognition of IT’s potential has given
economic disruptions of recent years, however, rise to a new management model consisting
have tightened budgets and placed a premium on of two categories: “Factory IT” and “Enabling IT.”
action, forcing companies to rethink IT’s funda- Factory IT encompasses the bulk of an orga-
mental role. nization’s IT activities, applying lessons from the
production floor—scale, standardization, and
In most organizations, IT began as a support func- simplification—to drive efficiency, optimize delivery,
tion, leading to a one-dimensional management and lower unit costs. Enabling IT is focused on
approach. However, technology-enabled products, helping organizations respond more effectively to
interactive communications, and an “always changing business needs and gain a competi-
on” information environment have thrust IT to tive advantage by spurring innovation and growth.
2. 2
Takeaways
Although IT serves multiple
roles within an organi-
zation, it has traditionally
been managed in
a one-dimensional way.
A new, dual-model
This approach goes beyond simply relabeling func- Factory IT:
approach to IT leadership, tions to include broader leadership, govern- More efficient IT services
governance, and man- ance, and organizational changes, and IT leaders
agement can help compa- will need very different skills to manage each The core elements of the typical IT function have
nies drive better back-
model. Business leaders will have to engage with changed radically over the past decade, and
office efficiency and front-
line innovation. IT in new ways. For instance, while IT stan- this evolution has enabled the Factory model. Ten
dardization and consolidation increase responsive- years ago, a company might have felt compelled
“Factory IT” couples lean-
management techniques ness, speed to market, and cost effectiveness, to create its own software to manage the supply
and process improvements managers may have fewer options to customize chain and other activities; today, many con-
with advances in cloud solutions. Likewise, more transparency and figurable products can meet those needs. Similarly,
computing and software
better metrics may come at the expense of unres- expensive, single-purpose servers and the dedi-
development to simplify
the operating environment tricted choice for configuration and architec- cated support staff they require can be replaced
and improve produc- ture. In return, business leaders would get a new by commodity servers, often managed from
tivity and cost performance. type of IT partner to support innovation, with half a world away.
“Enabling IT” embeds flex- skills to deliver IT-enabled capabilities quickly that
ible IT workgroups directly drive both top- and bottom-line growth. But Moreover, these standardized platforms can now
into the business to
they’ll need to treat such IT staff as full members
MoBT 2010 be coupled with mature processes for manag-
support experimentation,
collaboration, and data of their group, offering incentives and rewards
New IT model ing broad swaths of IT, including basic infrastruc-
mining in order to propel for exceptional 2
Exhibit 1 of performance. ture and many of the business applications.
innovation and compe-
titive advantage.
Exhibit 1
In the Factory IT model, companies use a number of techniques to drive down
In the Factory IT model, companies use a number of techniques
costs and improve quality.
to drive down costs and improve quality.
Factory IT practices, % of respondents1
Industrialized IT: Flexible IT factories: Holistic business
Applying traditional business- Building IT that’s more responsive to cases:
management techniques to IT changing business conditions Cutting complexity
through improved
planning
Lean IT Cloud computing Agile development
Deployed at
17 27 18 24
scale
Selected
28 33 34 35
deployment
Piloting 19 22 19 16
Not used 36 18 28 25
1 Respondents who answered “don’t know” or “not applicable” are not included.
Source: Oct 2010 McKinsey survey of 864 global executives on business and technology strategy
3. 3 December 2010
Under this configuration, IT activities can be res- (essentially à la carte menus that specify the cost
tructured and continually improved much as of each service). These improvements increase
any other business process, using a combination cost transparency and highlight clear opportunities
of lean techniques, automation, and outsourc- for further efficiency while also giving individual
ing or cloud computing to drive down costs and business units the freedom to customize certain
improve quality. Results from our latest tech- features and functions.
nology survey1 demonstrate how companies have
already begun to implement some of these Organizations should also recognize that not
practices (Exhibit 1). all processes have equal value and should
set service and support levels accordingly. For
There are three key components of the instance, one bank applied the same exacting
Factory model: levels of support and performance for its critical
1
core banking applications to an in-house
Industrialized IT—applying traditional employee service portal. By increasing the service
business-management techniques to IT portal’s allowable downtime to five days a
Standardization decreases the resources year, from just five hours, the bank saved hundreds
and specialized development needed to support of thousands of dollars in hardware, software,
IT, allowing organizations to apply proven and staff expense.
management methods from large industrial
settings to reduce IT costs. Lean-management In our experience, these measures often double
techniques have evolved well beyond manu- workforce productivity by redeploying or reducing
facturing and are applicable to the types of skilled staff. A standardized IT environment also allows
services found in IT. A company can typically companies to select from a wider array of vendors
create 20 to 30 percent or more in additional IT whose scale and skills can further reduce costs
capacity by streamlining processes, automat- and improve delivery. In addition, by avoiding cus-
ing routine functions, and eliminating redundancy. tomized hardware and operating systems,
Major sources of IT waste include unnecessary companies can more readily take advantage of a
functionality (for example, gold-plated systems technology cost curve that has been dropping
with extra, noncore functions), work flow by 4 to 5 percent annually.
bottlenecks caused by inadequate cross-training,
and frequent rework from bugs or constantly
changing requirements.
Companies can benefit significantly by replac-
1 The online survey was in the
ing customized systems with highly standardized
field in October 2010 and
includes responses from 864 offerings (for example, a Web server or e-mail
IT and non-IT executives,
platform that includes common hardware, applica-
from a range of industries,
regions, and company sizes. tions, and support levels) and service catalogs
4. Reshaping IT management for turbulent times 4
2
Flexible IT factories—building IT that’s more
responsive to changing business conditions
IT tends to operate on a very long-term investment
cycle consisting of large, multiyear projects,
extended outsourcing deals, and durable infrastruc-
agility can deliver new systems and capabilities in
a matter of weeks or months instead of years.
A frequent iteration cycle also keeps IT developers
and business users in sync on requirements and
priorities. Agile development may not be right for
ture assets. As the pace of business change every project. However, since this approach is
accelerates and organizations respond to shifting most effective when business needs are shifting, it
market conditions or more frequent M&A, IT is gaining favor among many IT departments.
leaders are often constrained by these investments.
IT departments are starting to adapt in two ways: Together, the cloud and agility can make the
IT factory more nimble, with lower costs and
The cloud. Cloud computing offers access to faster delivery.
information, processing, and storage through the
3
network or an external service provider. This Holistic business cases—cutting complexity
mode of delivery allows companies to purchase through improved planning
computer processing as a service, rather than For most companies, IT complexity increases
making up-front investments in IT capacity and gradually, as systems slowly evolve beyond their
in-house support staff. The New York Times, initial purpose, or through acquisitions, when
for example, digitized and catalogued more than new, sometimes duplicative systems are built for
100 years of archived articles for its Web site individual business units. Performance suffers
in a 24-hour period by using Amazon.com’s cloud over time, as ineffective IT slows product introduc-
offering, avoiding the need to configure tions, hampers customer interactions, and
and operate a set of servers for a onetime effort. often makes postmerger integration more difficult.
Agile software development. IT programmers IT leaders recognize the adverse effects of complex-
are flocking to approaches that emphasize the ity, but replacing these systems involves a
very fast, iterative development of systems through substantial commitment of resources: hardware,
close interactions with users, allowing contin- new applications, and staff and vendor time.
ual feedback and programming refinement. This The economics are difficult to justify given the
5. 5 December 2010
Implementing Factory IT might build on the investment. At one company,
for instance, the business case to deliver a unified
While a Factory IT model does not require radical restructuring, it
view of all customer data showed how better
does involve targeted changes in talent, organization, accountability,
information management could enable follow-on
and governance. IT leaders should use this opportunity to streamline
projects for marketing systems, enhancing
the IT function and create a new baseline that balances the
cross-selling opportunities.
measurable improvement of both cost effectiveness and delivery.
The benefits of these business cases are twofold.
To succeed, the model must achieve these goals:
First, they ensure that the simplification of
processes and systems is a starting point for new
project investments. Second, better visibility
Ensure that external customers don’t see a material degradation
can show how seemingly small IT projects can
of their experience and that business users begin to see tangible
deliver a high return on investment by improv-
results in return.
ing standardization and service levels across the
entire business (see sidebar “Implementing
Deliver through a transparent process, with clear, relatable metrics
Factory IT”).
for all involved.
Verify that planning for the IT information environment accounts for a
Enabling IT:
range of business needs and is aligned with larger market trends.
Supporting innovation and delivering
business value
Engage IT executives who have experience in applying lean
techniques and driving continuous improvement and the right
As the market-facing complement to the Factory
temperament and skills to form effective partnerships across the
model, Enabling IT focuses on creating new
business.
sources of value. This emphasis on innovation
requires three things: ready access to relevant
information, a willingness to test and learn, and
close collaboration. Enabling IT supports
these activities by developing the processes and
technologies to launch a new sales channel,
design a tech-enabled product feature, or increase
short time horizons of many tough-minded customer retention through online offerings.
CFOs, particularly since tangible benefits are often
realized only in the longer term. Where Factory IT is housed centrally, Enabling
IT’s employees function as an IT SWAT team
To manage complexity, companies are starting to for new initiatives or business imperatives and
employ a more holistic business case model are often closely integrated with—or even
that goes beyond the traditional, IT-centric versions. embedded in—business units. The performance
This model includes realistic, verifiable cost– of these employees is rated on metrics such
benefit analysis to assess the impact of new systems as responsiveness and flexibility rather than on
on the entire organization. Critically, such plans their ability to deliver low unit costs. And
also require a road map for how future projects where Factory IT focuses on long-term projects
6. Reshaping IT management for turbulent times 6
MoBT 2010
New IT model
Exhibit 2 of 2
Exhibit 2
Companies are using Enabling IT toIT to support growth and
Companies are using Enabling support growth and innovation in
three ways. in three ways.
innovation
Enabling IT practices, % of respondents1
IT teams tightly integrated Rapid New interaction
with business partners experimentation models using Web 2.0
Deployed at
11 12 24
scale
Selected
deployment 23 28 26
Piloting 15 21 23
Not used 50 39 27
1 Respondents who answered “don’t know” or “not applicable” are not included.
Source: Oct 2010 McKinsey survey of 864 global executives on business and technology strategy
and on-time delivery, Enabling IT is typified by capabilities to manage the massive amount of
rapid prototyping and iterative development. information, and IT leaders will need to
collaborate more closely with management teams
Our survey results show that companies to extract its full value.
2
deploy enabling IT to support innovation and
growth in three ways (Exhibit 2): Supporting rapid experimentation
1
Where lean manufacturing and Factory IT seek
Turning raw data into insight to avoid errors, Enabling IT’s mind-set tolerates
The increasing volume of data is taxing the ability (and even encourages) the mistakes that result
of companies to track, filter, and analyze from experimentation and iteration as long as they
information and turn it into useful, actionable happen quickly, the outcomes are measured,
insights. Organizations that build effective and the lessons are incorporated into the team’s
information systems can take advantage of emerg- thinking. More companies are embracing
ing opportunities and respond more quickly to rapid experimentation as a way to develop, refine,
unseen market changes. With the rise of electronic and upgrade their services or products.
health records and prescription data, for example, Capital One and Google, for example, have been
pharmaceutical companies need systems to at the forefront of this trend with their credit
structure and mine this information for trends on cards and online services, respectively. That wave
patient compliance or drug efficacy. is spreading to traditional players: P&G’s
Vocalpoint, a network of mothers, provides feed-
Resolving these issues requires a cross-functional back on new product ideas. Similarly, a lead-
group of IT experts, statistical analysts, and ing fast-food company is using IT systems and
business leaders. IT must develop new technical analytics at test sites to gauge the impact of
7. 7 December 2010
new menu choices on store-level revenue, opera- business offerings, IT provides essential sup-
tions, and customer experience. port to help build and modify business processes
3
and systems rapidly.
Such experimentation requires the right set
2 Michael Chui, Andy Miller,
of technical capabilities and a flexible IT environ- Web 2.0—fostering new interaction models
and Roger P. Roberts, “Six ment. Managers must employ tools to define, IT has historically focused on automating
ways to make Web 2.0 work,”
build, test, and improve new products quickly, high-velocity transactions for enterprise resource
mckinseyquarterly.com,
February 2009. integrating feedback from both internal planning (ERP), supply chains, and customer
3
Bradford C. Johnson, James
M. Manyika, and Lareina A.
stakeholders and a set of users or customers. relationship management (CRM). That focus is
Yee, “The next revolution in Responsive IT support is a vital component now shifting to lightweight Web 2.0 tools2
interactions,”
mckinseyquarterly.com, of this effort. By assembling a team to work hand to support the more diverse transactions and
November 2005. in hand with the managers on these new more complex interactions that shape, review,
and inform innovation.3 Tools range in complex-
ity from simple executive blogs to more robust
portals where users can collaboratively access and
analyze data sets.
Often, these newer forms of knowledge shar-
ing require little additional investment, since the
content is largely user generated and the
tools rely mostly on existing applications and
infrastructure. In fact, these tools usually
augment existing transactional systems rather
Enabling IT: Bringing it together than replace them, thus increasing the value
Enabling IT can help support an organization’s innovation culture. To of IT investments while holding down costs. Since
work well, the model requires three components: users often drive the development of these
collaborative tools, strategies that complement
users’ work practices and styles are most
Nimble, flexible, and focused work groups embedded in the busi- effective. Although such an endeavor is challeng-
ness and responsible and accountable to both the business unit ing, the payoff can be substantial.
leader and CIO (in contrast to a highly standardized and structured
organization). Innovation is seldom neat, and these collabora-
tive systems are no exception. Successful
A more qualitative approach to measuring performance—focused initiatives usually start as small side projects or
on the IT team’s contribution to the business unit and its overall tests that gain critical mass rapidly, often with
results—rather than enterprise-wide goals for costs or efficiency. little regard for corporate technology or security
standards. IT leaders can play a critical role
Credible, deeply knowledgeable IT leaders and team members by selecting and validating platforms, setting
who are seen as an integral part of the functions and businesses policies, and promoting capabilities to
they enable. potential participants. Because Enabling IT
