Investing well in IT with emphasis on KPIs separates business leaders from laggards, survey results show
May 14, 2012
The latest BriefingsDirect enterprise IT trends discussion surfaces some fascinating new findings from a recent survey on chief information officer (CIO)-level priorities. We uncover what distinguishes leaders from laggards among businesses, and identify which IT approaches and solutions are driving the most powerful business results these days.
To help dig into the HP-sponsored, blind survey, explain what it means, and learn how these results can lead to establishing winning new IT strategies we’re joined by Joel Dobbs, President and CEO of Compass Talent Management Group. He’s also an Executive in Residence at the School of Business at the University of Alabama at Birmingham (UAB), and a lead blogger and member of the Enterprise CIO Forum. What’s more, Joel is a retired CIO himself, coming from such organizations as GlaxoWellcome, Schering-Plough, and Eisai.
We’re also joined by Daniel Dorr, a Worldwide Solutions Manager for HP Enterprise Marketing. The discussion is moderated by Dana Gardner, Principal Analyst at Interarbor Solutions. [Disclosure: HP is a sponsor of BriefingsDirect podcasts].
Here are some excerpts:
Gardner: What was the idea behind doing this survey at this time?
Dorr: Dana, a lot of companies talk about how important technology is, and we all represent our technology as the right answer to the problem. But if our job is to help our CIO clients better use technology to solve business results — and if our job is to help our CIOs work more effectively with their executive committees and CEOs — the best way for us to help them is to determine which technologies actually change or correlate with in-market results.
In other words, if we look at revenue leaders in-market, which technology seems to be most closely associated with those who lead in-market performance? It’s not technology for technology’s sake, or because it’s exciting or new — but technology that actually seems to represent business results.
So our goal here was to help our clients do a better job of assessing which technologies lead to in-market business results and which technologies might not.
We wanted to understand the difference between market leaders, from a revenue perspective, and market laggards or followers, and see what their IT environments looked like. We surveyed 688 organizations. We spoke to IT decision makers, so we would call that “CIO minus one.” We didn’t speak to the CIO directly. We spoke to the people that reported to him or her.
Everyone that we spoke to had to have significant knowledge about applications, information, data center operation, security, and cloud. The survey was conducted over nine different geographies: the US, Brazil, Mexico, UK, Germany, France, Japan, China, Australia, and covered a number of different industry groups.
This was not a public survey. In other words, the people responding didn’t know the survey was coming from HP. It was a blind survey. We asked over 55 different questions around areas of application, security, information, cloud, etc. to understand which attributes were most strongly correlated with in-market or revenue performance, and those that weren’t.
The questions we were trying to answer were what do market leaders do versus followers? How do industry leaders differ from followers? Is there a difference depending on the region or the market or the industry? And where do IT decision makers focus on a day-to-day level, versus the more CIO strategic forward two-year thinking level?
The results came into us in December 2011. So this is pretty accurate and up-to-date data.
Gardner: How about some of the top findings?
In search of priorities
Dorr: We asked more than 50 questions to understand from organizations where their priorities were and what they were doing today and then we compared that to their in-market performance. And I would say the answers fell into three buckets: They were around infrastructure issues, information and information management, and people and processes.
On the infrastructure side of the equation, we asked a number of questions, but the ones that rose to the top in terms of driving in-market or correlation between revenue performance were probably three or four. A lot of it had to do with application modernization and security, when it came to the infrastructure side of the equation.
For example, market leaders tended to have fewer custom applications and fewer legacy applications. They tended to use their server capacity more efficiently than their peers. Those were some of the big ones around the infrastructure side of equation.
With security, the market leaders tended to build security, not only into the boundary, but also into the applications themselves, versus the market followers who tended to focus on an us-versus-them mentality, or just boundary security.
… Companies that manage risk more effectively and more automated definitely outperformed their peers. As a technology company, we’re always looking at the infrastructure. We’re always talking about how infrastructure can lead to competitive advantage, and we saw that. But a lot of times we forget the people and process side of the equation.
One of the other areas that jumped out at me was the need for clarity and agreement of key performance indicators (KPIs). Market-leading companies who outperform in revenue over their peers had more clarity within IT about which KPIs were important and had agreement on those KPIs. Everyone is marching and working toward the same goals. That had a huge impact on me as well.
It’s not just about infrastructure. It’s not just about managing risk. It’s also the people/process side of the equation that is critical in market-leading companies.
Gardner: Joel, when you hear that those who are doing well seem to have fewer custom apps, fewer legacy apps, higher utilization rates on their servers, what does that tell you about these types of organizations?
Dobbs: It tells me a couple of things. We’ll start with the second one, server utilization. What I think you’re seeing there is the affected people who have really done a good job with virtualization. You’re not having is a lot of equipment sitting around idle or used at under-capacity. So I suspect virtualization probably plays into that difference significantly for a number of people.
Custom and legacy applications was something I hadn’t really thought about until I read this material. I suspect that what you’re seeing is probably a result of modernization of the applications that I call commodity applications, things like human resources, some of the financial applications, a lot of things that are generic across businesses. You’re probably seeing some of the leaders move to more software-as-a-service (SaaS)-type applications in order to free up their staff to work on things that are much more strategic to their business.
So the things that they’re working on are probably things that are adding unique value to their business, and they’re not spending a lot of cycles doing things with generic applications that they can buy and let somebody else manage.
If you’re just doing security on the boundaries, that’s a cheap way to do security, if you think about it. You put a firewall in place, you configure the thing, and you do the boundary security stuff. But when you’re building another layer of security into your applications, that tells me that there’s a lot more focus on the realization of the value of what’s in there, in terms of the data and the way that it’s used.
There’s very much an intentional focus on protecting not only the perimeter of the institution, but making sure that there’s added security and protection within the perimeter. I would expect that folks who are really serious about understanding the value of the information within those systems, and [understanding] the risk to their corporate reputation, should those be compromised, are being very intentional about mitigating those risks.
Gardner: So it’s a strategic, comprehensive approach to security across the assets — including the applications.
Daniel, before we move on, a question on the infrastructure. When I saw this, I said that sounds like services orientation (SOA) — modernized apps, fewer monolithic stacks, higher utilization vis-à-vis virtualization. Was there anything else that would back up my hunch that services orientation or SOA was also prominent in the way they are doing infrastructure?
Dorr: You’re absolutely right, but the key component here is actually using it for the right purposes. Virtualization was one of the questions, but you’ll notice virtualization, in and of itself, did not rise to the surface of market leaders versus followers.
It wasn’t just that you’re moving to a service-oriented view, but you’re actually implementing it in a way that means something to the business. You’re actually seeing a change in capacity usage. You’re actually seeing a change in custom and legacy applications.
Again, not following that shiny object, but it’s implementing it in a way that’s strategic to the business, is what we are seeing here that leads to success. It’s not just virtualization, but it’s using virtualization to its full capacity.
Dobbs: I agree completely.
Gardner: So we have talked a little bit about infrastructure. What were some of the other major areas, Daniel?
Dorr: The second big area was around information. There was a huge difference around the area of audit and compliance. For example, we saw that more than half of the market leaders had automated their audit and compliance, about 52 percent. Market followers tended to be much less. Around 39 percent had automated their audit and compliance.
There was an information strategy in place in both market leaders and market followers. However, market leaders tended to have automated their information-management strategy, versus followers, who just had it documented.
Also, we see a big difference in the use of business intelligence (BI) to automate decision making. About 18 percent of market leaders are automating their decision making using BI tools, while only 7 percent, so less than half of them, less than half of them as leaders, are doing that.
Now, there is still a huge amount of room for growth on both leaders and followers there, but to see only 18 percent rise to the surface already tells you the importance of automating BI decision making as a clear difference for market leadership.
Gardner: Let’s go back to Joel on those two items. This gets to a point that I’m really interested in, a movement in business nowadays to much more of a data-driven and analysis-driven decision process. Perhaps the older way might be summed up by the highest paid person’s opinion (HPPO) being the way that ultimately decisions were made.
But Joel, how do you react to some of these findings around information management and BI?
Dobbs: There are a couple of things here. One is that there’s been an interesting evolution over the last 20 years in this field. We started out in IT automating various business processes. The focus was on making those processes faster or more efficient or something of that sort. As a result of that, we were generating information that had valuable use, but really wasn’t being used that much.
It was during the reengineering revolution in the early ’90s that people began to look at that. Along with the uptake of Six Sigma and Lean Sigma, people began looking at harvesting that data that was collected almost as a byproduct of automation and using it for continuous improvement and various other things.
This whole field has matured. Take the example of just the retail industry and all the information that’s collected as a result of point-of-sale processing and things like that. What we’ve learned is that that’s a rich trove of information that can be mined and used for all kind of things.
What you’re seeing with the leaders is that they not only understand it, but they’re doing it. That’s a big differentiator between those who understand it and have the insight and the capabilities to take this information and look at it in different ways. I suspect some of the automating of business, the BI automation, as we were talking about, is really a way of going back and using technology to create options for decision making, based on automated looks at data.
Let’s talk about the automation of, I think the term you used, Daniel, was the automation of their information strategy, versus documentation. What that tells me is one group is doing it and the other group is just writing it down, and that’s a big difference. It’s like the difference between what most people do with strategy. Most people develop a strategy and there comes nice a book that sits on a shelf somewhere, and very little gets done about it.
The ones who are really leaders are the people who develop a strategy and then part of that strategy is a strategy to implement the strategy. That’s what this automation that you saw among the leaders really reflects — not just talking about it, but actually doing it.
Dorr: I agree completely with Joel’s points. If you think about it, there were seven key attributes that rose to the surface for market leaders, revenue leaders, and revenue followers.
Three of those were around information. Automating your audit and compliance, having an automated information strategy. In other words, as Joel said, doing it, versus just writing it down, and really using BI for decision making. Three out of seven are around information. So clearly this is a key theme for in-market performance.
One of the things we do at HP is workshops for CIOs to help align business and IT and identify the impact that IT can have on the business. This comes up every single workshop we do.
We did it with a retailer recently. It took them days to process in-store information, in order to know what SKUs were selling and how well marketing programs were doing. By the time they had that information, it was too late for them to do anything.
They couldn’t change the SKUs on shelf. They couldn’t update, migrate, manage, or move the marketing program into new regions or what have you. As a result, their performance in-market clearly showed the difference. They were at a 20 percent disadvantage to the revenue leader in their category.
So I don’t think we can understate the importance of helping the business see what’s happening and understand what’s happening through automating audit and compliance, through actually implementing the information management strategy and trying to automate as much as possible decision making using BI.
Dobbs: I would add one thing. Daniel pointed out that there is increasingly a competitive advantage. The competitive advantage becomes not just doing it, but doing it faster than your competitors and being able to understand the meaning and the application of the data ahead of your competitor.
The retail example is a great one, where you’re lagging days behind in your ability to harvest and use the information. Increasingly, the competitive advantage becomes being able to make adjustments and move much more quickly, whether it’s deciding where to place inventory or how much inventory you need to keep on hand, and all those kind of things. Time is money, and being able to move quickly can be a huge advantage.
What about cloud?
Gardner: We haven’t talked too much about cloud computing, and this did come up as one item that distinguishes leaders over laggards. Perhaps we could address that. Daniel, what is it about cloud that popped out in this survey?
Dorr: The focus of the survey was what capabilities clients have today and how that correlates to their revenue
performance. We didn’t see a lot of cloud attributes rising to the service in people’s current capabilities. We did, however, see it rising to the surface in the focus area, where we asked IT decision makers, the CIO minus one, what was important to them. We did see a pretty significant difference between what market leaders, revenue leaders, thought was important about cloud versus market followers.
In fact, almost half of revenue leaders see cloud as incredibly important to them versus their peers, almost half of that number in the market followers. So, we’re seeing a lot more priority focus on cloud computing going forward.
We didn’t see it driving current revenue performance, which makes sense. Cloud is somewhat of a new technology. We haven’t seen it fully deployed in many cases in driving today’s revenue.
Gardner: For the benefit of our listeners and readers, Daniel, maybe we could just go through the list at a prioritized basis, with descending priority, on what distinguished the leaders over the laggards. I think the top one is security as we mentioned, but let’s just go through it on a list basis, so they can get a sense of the importance.
Dorr: Sure. Of the 50 attributes that we asked our CIO minus one IT decision makers and directors, what was happening within their IT environment, seven of those attributes rose to the surface, and they fell into three buckets, as we talked about briefly before. One was around the infrastructure side of the equation or the core computing environment, one was around information, and then the final one was around people and processes.
… With the survey, once we identified which specific attributes differentiated market leaders and market laggards or market followers from a revenue perspective, we then put it on a maturity score and we would score them based on those key attributes. You can see a clear difference between those with obviously a higher score, a higher maturity in their IT environment, around those key specific areas and their in-market performance.
So from the infrastructure side, it was custom applications and legacy applications. Leaders had fewer custom applications — 38 percent versus the followers at 45 percent.
Leaders had fewer legacy applications — 25 percent versus followers at 32 percent.
Leaders used their server capacity more efficiently. They used about 80 percent of their server capacity at peak usage, versus followers using only 71 percent.
Leaders had security built into the applications as well as at the boundary, versus only a boundary-level security, inside/outside view of the world.
In the information area, leaders automated audit and compliance at an average of about 52 percent versus followers at 39 percent.
Leaders had automated their information strategy, versus followers only documenting their information strategy.
Leaders tended to use more BI and automated decision making versus followers. So 18 percent of leaders had automated business decision making using BI, versus followers at only 7 percent.
Then there is the people and processes side — and this is an area where CIOs can actually start working on right now without spending a cent — which was clarity and agreement of KPIs. We saw a big difference in market leaders. There was a high degree of clarity within their organizations about what the KPIs were and agreement on those KPIs, versus only a moderate level of agreement within market followers.
That’s an area where CIOs can take action today. They don’t even have to talk to a vendor or an analyst at all. They can walk right into the CEO’s office and start working on that problem today.
Gardner: Let’s move to a separate lens to view this through. One of the things you asked was a series of questions that led to some conclusions about what distinguishes those who do best, and what leaders were focused more on. You broke it out into five different areas and you got some indicators of why it’s important, leaders versus laggards. Perhaps you could run through those as well.
Dorr: At the end of the survey, we asked them areas of importance, and we gave them security, information and insight, infrastructure convergence, application transformation, and cloud computing. We asked them to rank which were the most important to them. And we asked them to rank their current capabilities.
This was different from the attributes. For example, most of our IT decision makers ranked security, defined as keeping the lights on, as the number one priority. When they ranked their current capability, again, they ranked their current capabilities quite high, doing that well today. Although leaders tended to feel they were doing a better job of keeping the lights on, versus revenue followers.
Number two on the list was information and insight, in terms of driving what is important today from an IT organization. Again, the average of how important it is was not significantly different between leaders and followers. What was significantly different was how well they rated themselves.
We saw this in the individual attributes, but also when they ranked it at the end as well. Leaders tended to outperform, or believe they were doing a better job managing information and insight, than their followers by almost twice as much.
No huge difference
There were no huge differences on converged infrastructure or applications between leaders and followers, but the area where we saw a big difference was in cloud computing. Leaders ranked it much higher in importance and believed their current capabilities are much higher than their industry peers.
Gardner: So we’ve got some interesting takeaways here about the role of modernizing, gaining visibility, measuring along the way, being comprehensive in how IT approaches these problems, being responsive to the business on the business terms rather than the technology terms, with an emphasis on culture as well and the people and the process.
Daniel, for those folks who are intrigued and would like to get some of these statistics and findings themselves, do you have a place they can go to learn more to either perhaps see a slide deck, a white paper? What’s available for them?
Dorr: A couple of places. First of all, you can join us at the HP Discover 2012 event in Las Vegas in June. We’ll be presenting these results there and sharing it with attendees there. In addition, they will be posted on hp.com.
Gardner: Great. Joel, what takeaways do you have from this in terms of whether people should readjust their thinking or perhaps take a pause and ask what they can be doing different when they sort of tease out some of the findings here?
Impact of investments
Dobbs: There was an interesting study published by MIT just a month or so ago that looked at a number of companies. What they found is that some of these companies that were investing heavily in IT, the IT investments actually had a greater impact on profitability than the same amount of money invested in research and development or in advertising. That’s a shocking finding.
I think what happens, when you delve underneath these companies who get such great returns on IT, you find two or three different things that are embodied in what we saw in some of the leaders here.
One of them is really good governance around decision making. The second thing is probably ownership of IT by the entire executive team. And I think the third thing is that they’re probably measuring their return using business metrics on the investments that they make.
That’s what differentiates the leaders from the laggards — they’re approaching IT holistically as a core part of their business strategy, instead of seeing it as a support function or a back-office function.
And things like this study that we’ve just been talking about today, as well as the MIT study, help add credence to the idea that money is well invested in IT, and I emphasize well-invested. It can have a tremendous payback, but only if you use it wisely.
Gardner: And that sort of runs counter to the perception of IT as a cost center, rather than as an enabler for growth and opportunity.
Gardner: Okay. Daniel, last word to you, are there takeaways or areas that we may not have covered that you think we should also uncover here?
Dorr: Joel said it very eloquently. There is a large body of research. Now, we have HP’s own research. We have the MIT study, showing that there is a clear correlation between technology and in-market revenue results. As CIOs, we should feel confident to walk into the CEO’s office and talk to them about the strategic benefits that we can offer the organization.
The two biggest areas that we should be having conversations with our business counterparts today are clearly around information and KPIs. If we have agreement on those, we’ve covered more than half of the key attributes that we see between market leaders and market followers.
So there’s a lot of opportunity for us in IT to start playing an even bigger leadership role in helping our companies innovate and drive in-market results. I look forward to seeing what the results look like two years from now, once we see cloud and other things deployed and driving even bigger benefits
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