By |
Kurt Conrad |
Value is often perceived differently by the proponents of new information technologies and those who allocate resources and define priorities. Such differences often become a roadblock to meeting true business needs. Project justifications regularly rely on calculated cost savings, which rarely measure the full benefit of new technologies. In fact, if cost savings provide a complete picture, then the organization is probably just automating routine clerical operations and has abandoned efforts that would provide significant strategic value. Strategic value is not limited to financial calculations, but includes quality, time and risk criteria.
This paper describes approaches for measuring strategic value that can provide organizations with proven techniques to improve performance, reengineer processes, benchmark performance against other suppliers, identify outsourcing opportunities, or defend themselves from pressures to outsource. Many organizations respond to tightening budgets by cutting overhead. These measurement approaches can demonstrate how overhead is critical to organizational effectiveness and how cost savings can be found, instead, by measurably improving performance throughout the organization.
What is strategic value? Why focus on strategic value? How? The objective of this paper is to provide managers and information management professionals with a modern framework of conceptual tools and practices for managing information more effectively.
The first section focuses on the core problems facing most governmental and many commercial organizations—ineffective organizations and ineffective information management practices—and shows that the two are deeply intertwined.
The second section is based on the analysis of Paul Strassman, who argues that an over-reliance on finance-based concepts of value is the root cause of these problems.
The third section describes a variety of solutions that are based on applying performance-based concepts of value, or what is popularly known as "strategic value."
The last section describes the legislated drivers for this shift in focus and describes efforts underway within the Department of Energy and at the Hanford Site to implement the approaches described in this paper.
Reengineering the Corporation, by Michael Hammer and James Champy, is referenced periodically, but not summarized in detail. Its popularity has already introduced a large audience to its key concepts. While the approach is consistent to the ones covered, the authors do not explicitly talk about the concept of strategic value as it relates to information technologies. Instead, they completely integrate thinking about technology improvements with changes to business processes.
During the late 1980s, Paul Strassman managed the Corporate Information Management group within the DoD. By consolidating payroll systems, he saved DoD $2B the first year and approximately $4B the second. His writings have influenced "reintegration" efforts within The Boeing Company.
In 1975, when he was the Chief Information Executive at Xerox, Strassman pitched a 28% budget increase for information technologies. Although the expenditures were for customer-initiated projects, the Executive Committee threw him out on his ear, telling him to control costs, not expand scope. That started his research into the relationship between expenditures on computer technology and business profitability, which he documented in his 1990 book The Business Value of Computers
The General Accounting Office's Executive Guide Improving Mission Performance Through Strategic Information Management and Technology - Learning From Leading Organizations is the single most important work in this area that I have yet found. Get it. Read it. Make copies. Give them to your coworkers. Distribute them up and down the organization. Even if I retyped all the passages that I really like, it would be a poor replacement for the real thing.
If you work for a Federal agency or contractor and feel you haven't seen enough direction from the top, this could help. By the end of 1994, the GAO expects to publish a toolkit that can be used to assess performance against the eleven fundamental practices that are identified in the Executive Guide. It's a safe bet that at least one Federal agency will be audited against these criteria.
The Executive Guide is the result of case studies of the information management practices of the senior management teams of 19 organizations. Five private sector and five state government organizations were chosen based on independent evaluations of their success in aligning IT with mission performance. Nine Federal agencies were selected as controls. It takes a very comprehensive approach and effectively summarizes and integrates many of the other approaches described in this paper.
One of the approaches described in the GAO Executive Guide is called Activity-Based Management, or ABM. ABM is also being driven by the Government Performance and Results Act of 1993 (GPRA). Jim Brimson is one of the leading experts on ABM. He contributed to the GPRA and more recently, has joined the CAS (Cost Accounting Standards) Board, which defines the standards for DoD and DOE financial systems. Much of the information on ABM was based on the course, Activity Analysis: Managing Towards Excellence, that Brimson taught at the Hanford site in February of 1994.
Boeing Computer Services, Richland has subscribed to a series of Dean Meyer Teleforums for several years. A couple of them have dealt with the management issues associated with establishing and maintaining executive support for IT projects and activities. N. Dean Meyer and Associates have also published a number of books on the subject. In 1987, N. Dean Meyer and Mary E. Boone published The Information Edge. Boone also authored Leadership and the Computer - Top Executives Reveal how they Personally Use Computers to Communicate, Coach, Convince and Compete in 1991.
These books describe a variety of structured interview methods which can be used to measure and document the strategic value of systems both before and after deployment. This paper summarizes the executive interview process that they have developed to identify the opportunities for what they call "strategic systems."
For many organizations the business management and information management processes are locked in a death spiral of interrelated ineffectiveness. Increasing competition in both industry and government means that unless these organizations synchronize radical technological and process changes, they are unlikely to survive.
Compounding this problem, trust is almost completely lacking between IT suppliers and their customers. They view the world from very different perspectives and they agree on very little, especially the deployment of new enabling technologies.
Hammer and Champy, Strassman, the GAO, and others provide numerous examples to support the contention that many, if not most, modern organizations are unable to meet the demands of their customers. Past norms of organizational performance are no longer considered adequate:
The same pressures exist for organizations that receive Federal funding:
"...The Congress finds that —
(1) waste and inefficiency in Federal programs undermine the confidence of the American people in the Government and reduces the Federal Government's ability to address adequately vital public needs;
(2) Federal managers are seriously disadvantaged in their efforts to improve program efficiency and effectiveness, because of insufficient articulation of program goals and inadequate information on program performance; and
(3) congressional policymaking, spending decisions and program oversight are seriously handicapped by insufficient attention to program performance and results" [GPRA, 1993]
The GAO has concluded that the effectiveness of an organization and its information management practices cannot be easily separated.
Accordingly, in reviewing Federal information management processes, the GAO has found them to be sadly lacking.
And the results of these processes fail by most accepted measures of performance.
Because process management and information management are interdependent, neither can be "fixed" by itself.
The following diagram illustrates this relationship. If an organization's core management processes are ineffective, this will be reflected in their products: the information and decisions which direct the organization's behavior. The IM process is not immune from "misdirection." Unlike other business processes, however, the impacts of ineffective IM are not isolated, or contained, or simply directed at external customers. The IM process provides direct input back to the organization's management apparatus. The quality and appropriateness of this information and data directly determine the quality of decisions.
The Management / Information Management
Cycle
Recognizing the interdependence of management and information management, and using that understanding to affect change are two different things. Although collaboration and teaming are required to synchronize technology and process changes, a "Gulf War" exists in most organizations today. A gulf of perceptions and understanding separates those in the IM/IT process (suppliers) from those involved in the management of the business processes (IT customers). As a result, trust is generally lacking and both sides feel frustrated, disappointed, and dissatisfied with the other party's performance.
IT providers are often seen as magazine-reading technology junkies who are out of touch with true business needs and preoccupied with their own goals for personal growth, career advancement, and "cool" toys. On the other side, many technologists perceive their customers and especially the senior managers who control IT investments as confused; unable to cope with the changes around them; utterly insensitive to the long-term issues surrounding IT; and able to make decisions only on the basis of expedience or political considerations, not an understanding of the core technical or information management issues.
These bipolar misperceptions are both unfortunate and a recipe for disaster. The two camps (IT customers and their suppliers) speak different languages and hold dramatically different attitudes about the potential role of technology. Combined, these differences seem to create an inherent barrier to significant change. Organizations in both government and private industry that cannot successfully employ and synchronize radical technological and process change are increasingly falling behind in their ability to meet the changing expectations of their customers.
The office automation arena is one of the more significant battlefields. Most office automation technologies are not well suited to traditional justifications, as they are not targeted at reducing the costs of specific production processes. In addition, many of them are enabling technologies. Enabling technologies derive most of their benefits from dramatic changes to business processes, not simple automation or reductions in cost. Email, for example, is an enabling technology. Its true value comes from the changes that result to the organization as a whole, not just the displacement of paper mail.
Paradoxically, it is enabling technologies that could do the most to improve organizational performance and help reduce the impasse between management and information management personnel. But successful deployment of enabling technologies requires the teaming of IT suppliers and customers. Such a level of collaboration is difficult in many organizations where the gulf of understanding results in open warfare over control: how decision-making responsibilities are allocated; how budget levels are set; what mechanisms are used to allocate funds; how projects are approved and managed; how technologies and technology standards are selected and implemented.
Correcting these problems requires both sides of our "Gulf War" (IT suppliers and customers) to stop blaming the other for not doing things correctly and develop a shared vocabulary and value system so that both can contribute to integrating the necessary changes. Before a solution can be found, however, the cause of this interdependent ineffectiveness must be identified. The following section describes how a fixation on finance-based concepts of value are the root cause of the impasse that threatens many organization's survival.
This section describes how Paul Strassman concluded that management, not capital, is the critical input to modern organizations. Because of this, a continued reliance on finance-based indices of value prevents organizations from making intelligent choices when dealing with overhead (the costs of management) and IT (the tools of management).
In The Business Value of Computers, Strassman describes his quest for a valid method of demonstrating how computers add value to organizations. Initially, when he tried comparing computer expenditures to profitability, he got scatter charts, not curves. Strassman tried a number of financial analysis approaches, based on per-employee revenue, unit costs per invoice, and similar indices. Again, no correlation. At one point, he abandoned revenue ratios and focused instead on the value added by the institution (i.e., revenues minus purchases). While this gave him a better index for comparing dissimilar organizations, it still didn't provide the direct correlations that he was looking for.
The conceptual turning point occurred in 1978, when he adopted an epidemiological model, proposing that "computers are analogous to prescription drugs. Their application, doses, and therapeutic powers can be clinically substantiated before use." Believing that "the effects of computers are systemic," he started to look at overall performance as the measure of organizational health. [Strassman, p. 69]
The next challenge was to define a useful metric for evaluating productivity. Traditionally, productivity is measured by dividing output by some input. But what input? The Taylor model defined productivity in terms of physical inputs and outputs, but this started to lose appropriateness in the 1930's as quality—not quantity—became a significant measure of value. Throughout this period, the information content of goods and services increased. In the 1970's with an even more noticeable shift from a manufacturing-based economy to a service-based economy, the Taylor model of productivity lost almost all validity.
Without a replacement metric, however, American productivity appeared to fall as white collar workers became an increasing portion of the labor force and the gains from "information work" evaded calculation. Using the standard productivity models, reduction of clerical and secretarial staff is counted as a cost savings, even if their work is just shifted to higher paid managerial and professional personnel. The fastest growing segments of "information handling units"—managers, administrators, professionals, and computers—were virtually invisible from the productivity calculations.
The classic methods of measuring financial value, such as ROA (return on assets) and ROI (return on investment), trace their origin to a time when capital was the scarcest, and thus most valuable, input. Today, capital is a commodity item, crossing international borders at the speed of light. Even within government, where capital may not be quite as fluid, it is not the most critical input. Strassman concluded that—
It is important to remember that when Strassman talks about management, he is talking about management in the broadest sense. Management is not limited to "managers," but includes all functions that are not classified as operations, regardless of who performs the work. This definition is used throughout this paper, including previous sections. Strassman differentiates Operations and Management by a variety of criteria. Operations is concerned with "how to do; doing the things right; today's business; structured tasks; today's decisions for today; workflow [that is shaped by] decisions." Management on the other hand has a broader focus, including: "how to organize; doing the right things; tomorrow's business; unstructured tasks; today's decisions for future; decisions [that] shape workflow." [Strassman, p. 81]
As budgets are reduced, many organizations respond by cutting overhead. What is overhead? By most definitions, it is the costs associated with management. If capital—not management—is the critical scarce resource, cutting overhead management expenses improves value by increasing the return on capital. But Strassman argues that this fixation on capital prevents organizations from understanding the fundamental economics of overhead and the true impact of these decisions.
Overhead has value. Specifically, the value of overhead is preparing for the future—
Using different terminology, the GAO Executive Guide points out that the core problem is that government has failed to obtain sufficient return on its overhead: its business management and information management processes. In the Federal government today, the biggest challenge is not how to "cut overhead" but how to reengineer management processes and infuse them with needed information technologies to make them more efficient and responsive.
"Today's information systems offer the government unprecedented opportunities to provide higher quality services tailored to the public's changing needs, delivered more effectively, faster, and at lower cost. Moveover, they can enhance the quality and accessibility of important knowledge and information, both for the public and for Federal managers.
"Unfortunately, Federal agencies have not kept pace with evolving management practices and skills necessary to (1) precisely define critical information needs, and (2) select, apply, and control changing information technologies. The result, in many cases, has been wasted resources, a frustrated public unable to get quality service, and a government ill-prepared to measure and manage its affairs in an acceptable, businesslike manner." [GAO, Preface]
It is the need to improve the effectiveness of management that drives the various definitions of strategic value, but the same misperceptions of relative value that produce erroneous decisions about overhead often prevent needed information technologies from being developed and deployed.
Paul Strassman details how this fixation on dollars as the ultimate measure of value drove the processes that were used to select and manage all significant organizational change.
When applied to IT investments, these processes become counterproductive, preventing needed changes. By focusing on the budget sheet, it is easy to miss the big picture. In fact, if an organization "succeeds" in that measuring cost savings does provide a complete picture, the company is probably limiting itself to the automation of routine, clerical operations and has abandoned efforts to provide strategic value.
Even more fundamentally, this approach actually backfires, and what appears to be cost control results in chaos and uncontrolled cost.
"Investment-oriented executives failed to recognize that computerization is an incremental, continuous and evolutionary organizational learning process that requires better controls over operating results for the entire business. Cumbersome project review procedures produced elongated development schedules, and created a tendency to combine long overdue incremental improvements into a single costly project. Emphasis on controlling new investments led to the establishment of the information system as a discrete and separate function, instead of integrating it into every manager's job.
"Executives who rely primarily on project authorizations to control computer spending are focusing on a diminishing fraction of total costs." [Strassman, p. 79]
Again, the same patterns exist within government.
Despite the problems, however, dollars are one of the few concepts that all parties seem to understand. Project justifications regularly rely on calculated cost savings, which can be tangible, intangible, realizable, or even imagined. As there are few or no accepted methods of calculating cost impacts, some very creative calculations are applied. Development, implementation, and maintenance costs are underestimated. Training and support costs are shifted to end-user organizations. Downstream uses of information are ignored, discounting the organizational cost of sub-optimized "stovepipe" solutions.
Cost-benefit analyses, cost savings estimates, and net present value calculations attempt to objectively measure value. But as was pointed out in the previous section, these management approaches have not resulted in sustained levels of performance that are considered acceptable, not for IT functions, and not for the organizations as a whole. This happens because at their core, these concepts of cost-based value rest on misperceptions of scarcity and, by attempting to maximize the return on the wrong input, organizations, tend to misallocate resources. The same lack of high-quality metrics that allows fictional improvements to be claimed causes real benefits to be discounted.
If cost does not provide an adequate conceptual framework for integrating changes to business practices and IT, what can take its place? The following section attempts to outline some of the key drivers, concepts, and approaches that can be used to accomplish this integration. They can be used both in individual projects and in the development of institutional infrastructures for change.
The approaches described in this paper use slightly different terminology and each has a slightly different focus. For example—
While the individual approaches differ slightly, they all agree on one thing: The only useful measure of IT value is the performance of the organization. Technology alone can not make an organization more effective, and that is precisely the point. If IT is not fully integrated with other business changes, it is not likely to provide full, or even sufficient, return on the investment.
Strategic value shifts the focus from information technologies to information management and ties IM to mission performance. Strategic value provides IM providers and consumers with a common vocabulary for reaching consensus and a conceptual framework for expanding cost-benefit calculations to include a broad range of performance measures such as cost, time, quality, and risk.
As the language of the GPRA illustrates, the challenge is to "promote a new focus on results." Results become the big measurement, not just dollars. The shift in focus from costs and savings to results raises the stakes for all parties. IM customers must be able to articulate their missions and goals, suppliers must be able to find better arguments than "everybody's doing it," and together, both groups must collaborate to match technology to business needs.
Based on the premise that management, not capital is the critical scarce resource in modern organizations, Strassman stopped looking at ROI and ROA and coined the term "Return-on-Management™" or R-O-M, to measure management productivity.
In calculating R-O-M, Strassman classifies all of the "profits" of a company as the Management Value-Added. This idea strikes some individuals as wrong, but he backs it up with some strong and detailed analysis. In most cases, the criticism is directed at the idea of attributing all profit to the activities of managers, not "management" in the broad sense that Strassman applies to it. Specifically, Management Value-Added is what remains after purchases and taxes, shareholder payments, operations costs, and management costs are subtracted from total revenue. These calculations can also be adapted to public sector organizations, but without prices, profits, taxes, and shareholders, management productivity is measured by the ratio of Operations Costs to Management Costs, after purchases and transfers are subtracted from the total agency budget.
Armed with the R-O-M metric, the various statistics began to make sense. The scatter charts were even replaced with curves and meaningful correlations were becoming visible across industry groups. To simplify the analysis, Strassman divided companies into five groups: Under-achievers, Below Average achievers, Average businesses, Above Average achievers, and Over-achievers. The R-O-M metric compared well to the Management Value-Added for each of the achievement groups and a clear relationships could be seen between reductions in management costs with the net profits of the organization.
Based on his work Strassman reached a conclusion similar to the other approaches discussed in this paper: To obtain strategic value from computing systems, define the mission first and only apply IT afterwards. From this point, the book begins to read much like Reengineering the Corporation. Strategic systems are defined in terms of providing competitive advantage, not the computing technologies that are employed.
Process simplification should be a precursor to the use of IT, as the design of both process and automation are interdependent. As a general rule, the automation of existing processes doesn't create sufficient value. Most of Strassman's examples of strategic systems follow a common pattern of relying on the use of computers to provide access to information at low incremental cost in order to reduce flow times and economically customize products to meet unique customer requirements.
Meyer and Boone's approach includes an explicit model to allocate tasks within the IS organization to allow employees to focus clearly on well-defined missions, and not try to split their time between inherently conflicting activities. One of the job classifications that they define is that of generalized consultant. These are individuals who provide guidance to customers in applying IT to meet business needs. They are chosen for their analytical skills and must be generally familiar with the broad range of IT options.
The goal of making consulting its own discipline is to avoid bias. Meyer and Boone's research has indicated that when consulting is provided in addition to other technical activities, the individuals are likely to limit their recommendations to existing technologies, technologies that the individual has experience in, or even technologies that the individual wishes to gain more experience with.
Boone charges the generalized consultants with ensuring that strategic value is provided, and she uses the term "strategic systems." In Boone's vocabulary, strategic systems are characterized not so much by what they do, but by for whom they do it. The target: executives. Unless the executives think that you are doing a good job, you're dead. The numbers won't matter. Your reams of analysis won't matter. Your past successes won't matter. The executives who control the company purse strings will still be likely to cut IT at some point, especially after someone in Finance shows them the growth trends.
As a solution, Boone offers a detailed executive interview process. For the most part, it looks like most requirements definition models: what's your organization's mission, objectives, goals, etc. But it adds an important twist. After identifying the organization's highest priority activity, the executive is asked, "What are you going to do, personally, to ensure success?" This identifies the executive's "leadership strategy."
Boone maps these leadership strategies to three or four "information success factors." At this point, the emphasis shifts from tools for the organization to tools for the executive. We are starting to get an understanding of their management style, at the way they communicate and direct their subordinates, and the way they use and interact with information. The following table lists some of the information success factors.
Information Success Factors [Boone, p. 288]
Personal Thinking
|
Managing Organizations
|
The executive's information success factors can then be matched to specific tools. Boone provides an Appendix that maps specific management behaviors with families of technologies. It is not intended to link directly to products, but to narrow the analysis to the types of technologies that will meet the executives' individual needs. The specific information technologies include computer conferencing, email, graphics, commitment-tracking systems, Gantt charts, electronic calendars, external databases, teleconferencing, outline processors, personal phone book, voice messaging, facsimile, and corporate models.
Meyer and Boone expect that by providing tools to improve executive performance in this one activity, those same tools can be applied to other activities, and thus improve organizational performance in general. Equally important, because these tools demonstrate "strategic value" to the executives, the executives are more likely to become personally engaged in developing an understanding of information management, recognize its potential impact on business processes, and expand their perceptions of value beyond strictly financial measures.
Activity-based costing (ABC), activity-based management (ABM) and activity-based reengineering are important to the question of strategic value because (1) they help shift the focus from strictly monetary determinations of value to broader sets of metrics; (2) they will provide improved baselines for assessing organizational performance and measuring changes to it; and (3) they will codify demand for information management systems that can be considered, because of the information they manage, strategic systems.
From the viewpoint of ABM, the fundamental problem with most organizations is that the people and financial systems only think in terms of "big buckets of money." Allocating and tracking budgets by department and type of expenditure (e.g., labor, procurements, travel and training, office supplies) doesn't provide an adequate picture of what is being accomplished with the funds. Instead, ABM focuses on describing the work that is done in terms of discrete activities. For each activity, the resources that are used to do the work are identified, as are the specific customers and deliverables (objects of work).
Cost drivers describe the demand for the work and the factors that cause the work to be more expensive than it might otherwise be. Customer demand is viewed as a cost driver, because if the demand for the activity can be eliminated, then the associated costs can be eliminated as well.
Performance measures are identified or applied for each activity to describe how well the work is done. These measures are defined in terms of cost, time, and quality. Inputs to a process, for example, may suffer from being unavailable, unused, or ineffective. Tolerances, flow times and inventory levels characterize the internal workings of the process. Total output of a process normally includes waste, deliverables that are out of spec, and deliverables that are either early or late. In many cases, an organization doesn't collect metrics in all three categories. One of the important applications of ABM is to identify gaps in an organization's performance and process metrics. In addition, balancing process and outcome metrics may disclose hidden but important quality issues.
Given the emphasis on budget cuts, ABM can be used to identify potential costs savings through the improved management of both activities and business processes. "Overhead" does not exist in the ABM vocabulary. Instead, activities are classified by their characteristics, with primary, secondary, value-added, and non-value added as the key attributes for influencing the cost savings approach. Primary activities are those which produce delivered products, usually to customers outside the process, and as such, contribute directly to the organization's mission. Secondary activities support the primary activities and may not have explicit deliverables identified. The split between primary and secondary activities mirrors Strassman's distinction of operations and management.
Whether an activity should exist or not is a function of its value-added component. Non-value added activities can be eliminated without reducing the value of the final product or service and should be engineered out of the process. This may take time, effort, and customer buy-in. Value-added activities contribute to product and service value, quality, and the price that customers are willing to pay. Whether they are primary (e.g. operations) or secondary (e.g. management), have value and should be improved, not cut.
Activity Classification - Making
Improvements
Many non-value-added activities result from a failure to do the job right.
Other non-value-added activities result from unsynchronized business processes.
The GAO Executive Guide Improving Mission Performance Through Strategic Information Management and Technologies - Learning From Leading Organizations is invaluable because it captures the dissatisfaction that exists on both the customer and supplier sides of IT and it provides each with a framework for developing a shared vision and vocabulary. Even if you are not obligated to comply with the Federal laws that the GAO references, this is still an excellent roadmap for improving organizational effectiveness, as it synthesizes a wide range of leading concepts and best practices.
What is strategic information management?
The GAO Executive Guide identified three key functions that are "critical to building a modern information management infrastructure" and eleven fundamental practices are grouped by the key functions. The eleven practices do not appear to be in any sequential order, as the establishment of a CIO should probably be one of the first actions taken, but appears as practice 10.
GAO's Three Key Functions and Eleven Fundamental Practices [GAO, p. 21]
| Decide to Change
1. Recognize and communicate the urgency to change information management practices. 2. Get line management involved and create ownership. 3. Take action and maintain momentum. |
Direct Change
4. Anchor strategic planning in customer needs and mission goals. 5. Measure the performance of key mission delivery processes. 6. Focus on process improvement in the context of an architecture. 7. Manage information systems projects as investments. 8. Integrate the planning, budgeting, and evaluation process. |
Support Change
9. Establish customer/supplier relationships between line and information management professionals. 10. Position a Chief Information Officer as a senior management partner. 11. Upgrade skills and knowledge of line and information management professionals. |
Initiate, mandate, and facilitate major changes in information management to improve performance.
Senior management has to get involved.
Or, more accurately, "Get the entire line of management involved and create ownership."
This starts with the CEO, who must assume a strong leadership role. Line managers must also be put in charge of the change process, but within the context of clear expectations. Special attention needs to be paid to IT that cuts across programs and functions to ensure that accountability is not distributed so widely that it results in stovepipe solutions.
To avoid another "change de jour," a balance of short-term actions and long-term thinking is needed to target ignorance, lack of focus, and lack of interest. Education is critical to avoid marginalizing the change. Managers need to educate themselves about current IT projects and their likely ability to improve performance. Champions are needed to remove bottlenecks. Reward structures (e.g., performance evaluations) need to be revised to include information management issues.
Establish an outcome-oriented, integrated strategic information management process.
In matching efforts to customer needs, it is important to recognize that not all customers are alike. Here, the GAO echoes Hammer and Champy in recognizing the need to develop multiple processes, products, or services for different sets of customers.
The GAO may be overstating the case, however, by contending that "following a customer-driven approach, in turn, provides accurate, detailed descriptions of requirements and specifications." Customer-driven requirements are critically important, but when the proposed changes will disrupt existing process and technology models, customer-defined requirements tend to become unreliable. Customers tend to extrapolate current conditions, not postulate completely new ways of doing things. This should not be taken as an argument to avoid a customer-driven approach, only that the customers may need some navigational assistance. See Practices 7 and 9 for additional information in this area.
High-quality metrics are necessary to determine whether mission performance is actually being affected. Together, the GPRA and Chief Financial Officers Act provide a legislative mandate for improved performance metrics based on the principles of ABM.
Key to ABM is that an activity needs both process and outcome metrics in the areas of cost, quality, and time. Many organizations are unable or unwilling to collect metrics in all six areas. Most of us have encountered organizations that focus primarily on process metrics. These organizations work diligently to follow procedures, and tend to ignore the customer. On the other side, organizations that measure only outcomes have a tendency to do whatever it takes to get the job done, but often at tremendous internal cost, squeezing their staff and working almost as hard to hide their dirty laundry.
As applied by GAO, architecture refers to a consistent set of practices used to standardize the interfaces between interacting systems. Architecture provides the formal framework for ensuring that each component of the organizational system is designed to support the needs of the whole system, and is not sub-optimized along a more narrowly defined set of requirements. Some of the specific architectures that encompass the "organizational architecture" include rules for—
It is important that these individual architectures not be designed in a vacuum, but that the business and technology components be balanced, with each contributing to the design of the other.
A special emphasis is placed on emerging technologies that have organizationwide impact, to ensure that they are systematically incorporated into the business design and not pursued in a chaotic fashion. The challenge is to balance the needs of reliability and flexibility in the context of
One of the specific recommendations involves the appointment of both a business architect and information architect to facilitate the design and maintenance of an organizational architecture.
Again, the shift from an expenditure model to investment model reflects the GAO's goal of basing decisions on the expected mission improvement. This is also where the idea of risk is introduced, as risk management is an important element of any investment strategy. The GAO also recommends making senior management teams personally involved in project selection, control, and evaluation and to "make information systems as narrow in scope and brief in duration as possible to reduce risk and increase probability of success"
A complimentary and richer model of risk management has come out of the Patent and Trademark Office. Called Managed Evolutionary Development, MED is designed for projects that meet the following risk assessment criteria:
Instead of limiting project size, MED is based on an explicit process to identify and manage risks and still preserve flexibility. A series of development documents are used to clarify goals and risks
A Master Plan and Schedule are also produced to provide an overview all of the activities needed to complete the project, especially the timing of all known risk mitigation activities. The approval of senior management is contingent on their acceptance of the risks. While MED is not suitable for all projects, it provides a formalized method for managing a wide variety of risks, including volatility of requirements, project scope (organization and operations), project management ability, project staffing levels and skills, technology experience and degree of innovation, and availability of funding.
Of all the practices, this is the one the sounds the most like the core concept in Reengineering the Corporation: that of creating a common pool of reusable data for the purpose of integrating distinct but related processes. Unlike the examples in Hammer and Champy's book, however, GAO isn't recommending that the processes be radically simplified. Instead, the emphasis seems to be on establishing or enhancing key management processes:
This integration is important to develop organizations that efficiently learn over time and can reliably manage their futures. Without it, organizations are more likely to react wildly to the pressures of the moment or to change direction suddenly, driving reactionary responses from their support organizations. This is another area where the GPRA enters the picture, to ensure that metrics are in place to help differentiate successes from failures. Finally, the reality of the budgetary process needs to be incorporated, or even the best designed plans are likely to wither from lack of funding, especially as the original proponents and champions have their attention diverted to other areas.
Build organizationwide information management capabilities to address mission needs.
Clearly delineated roles and responsibilities are needed to ensure that decision-making is appropriately distributed throughout the organization. Formalized customer/supplier relationships are an important element of this distribution. Establishing a formalized consulting service, dubbed "investment counselors" by the GAO, is another mechanism to distribute decision-making.
In a similar vein, the Executive Guide talks about the need to "rigorously understand the economics of information management functions." This appears to point towards both ensuring the health of the organizations charged with providing IM services and developing sufficient understanding of deployment costs so that often hidden costs (e.g., training and support) are taken into consideration.
GAO also talks about establishing "constructive tension" within the system. The formalized customer/supplier relationship is one example of institutionalizing this tension. Another is the need to balance a bias towards local control and ownership of the organizational architecture with a "strong central counterbalance to maximize cross-cutting systems integration needs." The investment counselors appear to fulfill some of this role as they are expected to "emphasize investment advisory services and strategic architectural design and management."
This practice reintroduces the concepts of business and technology architects, this time in the context of a case study. The case study continues with a description of how the organization shifts leadership responsibility at various stages of a project to discourage premature decisions that are made just to keep projects on-schedule.
GAO recommends the appointment of a CIO, who is responsible for the organizationwide information management capability. Exactly how decision-making is balanced between the corporate and mission levels will vary with individual organizations. In the organizations that were studied, the presumption is that autonomy is retained by the missions, unless "significant shared corporate benefit" would result from consolidating efforts.
The GAO is somewhat unspecific about the exact duties associated with the role of CIO, observing that the role may change through time, finally becoming one of strategic advisor and architect for the management team. They also are clear in stating that the mere existence of a CIO is not a complete solution for all organizational disfunctionalities—
The success of GAO's approach is heavily dependent on the ability of those are given new decision-making roles to understand the implications of their decisions. Many of these individuals do not have experience with IM issues and are not currently qualified to be informed consumers of IM services. If they were, many of these changes would have already occurred. Throughout the Executive Guide, emphasis is placed on educating and engaging senior managers and executives.
Navigation is one thing, fuel is another. For IT professionals learning curves may take years and these skills can become stale in a matter of months. The GAO is also asking IT professionals to broaden their views beyond their current technology focus. One approach may be to apply the concepts of technology transfer. Outsourcing should be used, not just for reducing or eliminating the workscope of the existing organizations, but as a tool for increasing the skill levels of agency and contractor employees. The bundling of onsite training with software, hardware, and integration services contracts can be an important mechanism for injecting needed skills.
The GAO references four Federal initiatives in their Executive Guide
Of the four initiatives, the GPRA, also known as "the Bang for the Buck Act," is the most important driver for the shift towards a focus on organizational performance. The following excerpt helps to illustrate the nature of this change.
Excerpt the from Government Performance and Results Act of 1993
|
The GPRA mandates the use of activity-based management (ABM) and is driving changes to Federal financial system standards. The CAS (Cost Accounting Standards) Board is revising Federal guidelines to incorporate the principles of ABM. This is critical, as the current financial systems re-enforce obsolete models of organizational performance and value and have been found to disrupt ABM-based improvement efforts. If the financial systems aren't aligned with the concepts and data models of ABM, organizations will find it virtually impossible to comply with the GPRA.
The GPRA also mandates the use of performance targets. This is the main difference between ABM and ABC (activity-based costing). At this time, most of the corporations that are working with these concepts are satisfied to break down costs by activity, without a specific plan on how this additional information is to be used. It is left up to the individual organizations to determine how to make use of the results of ABC analysis. The GPRA, however, requires that this detailed performance data be used as a baseline from which specific performance targets will be derived. In most cases it will be the customer who sets the performance targets.
ABM can also be applied in the context of reinventing government. By identifying the incremental activity burden, the costs associated with a given cost driver can be measured. This provides the "owner" of the regulation or requirement with the information needed to determine if the regulation provides sufficient value relative to its cost. In reality, the process is unlikely to be so conciliatory as process owners use the information to develop justifications for exemptions, waivers, or outright rescindance.
At its core, ABM and the GPRA are based on the simple idea of the customer defining the criteria against which performance will be measured, and thus paid for. The customer is only obligated for buying the outputs of a given process that meet the established performance criteria. While this is the way that most of us buy goods and services, it is a significant departure from many of the contracting models which are used today within the DOE.
It is common, for example, to have software development, publications services, and other service organizations charge customers on an hourly basis. This is, in effect, charging for the inputs to the process, not the product. This funding subtly shifts financial responsibility for the quality of the product to the customer. If the product doesn't meet specifications, the customer is usually faced with the option of accepting the delivered quality or paying for more work. Again, the GPRA is part of an effort to shift away from this model and to place the responsibility for defining output specifications with the customer, not the supplier.
This change in philosophy is definitely being reflected within the DOE. Budget reductions, the movement towards fixed-fee performance-based contracts, and outsourcing are all evidence of the DOE's desire to get more "bang for the buck." These contract reform efforts are also consistent with the movement to break up the "big buckets of money" into smaller units of work with explicit performance expectations and profit (if not revenue) levels based on the ability to objectively meet the established performance criteria.
DOE Secretary O'Leary has adopted GPRA ahead of the legislated timetables, and some organizations are facing compliance requirements in FY95. Specifically, the Environmental Management (EM) Program is one of the GPRA pilots and is in the process of preparing the FY95 Performance Plan for submission to the Office of Management and Budget. EM made an initial attempt to develop performance measures and targets in FY94, and describes the results as "mixed."
In addition to directly supporting the EM pilot, the DOE in Richland has established the Hanford Performance Measurement Program (HPMP) to develop ABM-based methods for use at Hanford. In FY94 the HPMP staff adapted storyboarding techniques to facilitate ABM analysis sessions at the workgroup level.
Boeing Computer Services, Richland's Multimedia Services (BCSR/MMS) organization is another group that has been chosen for piloting by HPMP. MMS provides graphics, document production, video production, animation, photography, and a variety of other production services to the Hanford Site. The department has been actively analyzing and documenting its processes for a number of years, using flowcharts, customer surveys, and product and services assessments. By using ABM, MMS expects to formalize the information that they have collected and identify gaps in its analysis. This should help to balance the metrics for inputs, processes, and outcomes.
MMS also expects that this detailed analysis will lead to better pricing for its goods and services. Many MMS organizations charge the customer for labor. By charging the customers for the input consumed, not the value provided, it is almost impossible to recover the costs associated with process improvements, as total revenue capacity of the organization doesn't change, even with the improvements. With detailed activity costs, MMS will be better able to define specific products and services and charge customers on the basis of units of output, not by hours of labor.
ABM should also provide MMS with a baseline for outsourcing contracts and protecting its core products and services from inappropriate outsourcing. Armed with detailed cost data, MMS will be able to demonstrate cost effectiveness relative to outside suppliers and/or customer organizations, to identify realistic performance targets for becoming competitive, and to identify specific process improvements that will improve its cost effectiveness.
As DOE contract reform efforts increase, ABM will help to position MMS for potential fixed-fee performance-based contracts. With the existing award-fee contracts and headcount restrictions, for example, MMS has been unable to hire additional staff for its Mail Services operation, despite a doubling of mail volume. Few organizations currently possess the detailed cost data necessary to negotiate reasonable fixed-fee or performance-based contracts.
Another potential application of the ABM analysis process is the identification of reengineering opportunities. As a general rule, if a large percentage of the cost drivers are problem areas and the performance metrics are low, then incremental improvements are not likely to be enough. MMS is expecting ABM to help identify activities that are in need of major process and technology changes, prioritize improvement efforts, and help ensure that the claimed cost savings can be substantiated.
For most organizations, especially in the government, information management has been reduced to a cost-savings program. This is no longer sufficient to meet rising customer expectations. Management practices that made sense at the turn of the century no longer fit an economy dominated by the production of goods and services that are increasingly differentiated by their growing information content.
Consider, for example, an ear of corn. Two hundred years ago, relatively little information was used to grow corn. In the 1800s, the extension service was formed to disseminate information to farmers to improve productivity. Today, the information content of corn—in the form of tractors, agri-chemicals, market and weather forecasts, and other information inputs—is immense.
Information management is a relatively new requirement for organizations, one which has not been fully integrated into general management practices. The approaches described in this paper attempt to provide conceptual and procedural foundations for integrating management and information management by using total organizational performance as the measure of IT and IM effectiveness.
Some questions remain, however. For example, which one (management or information management) should drive the other. Strassman contends that the organization's mission comes first, and IT should be adapted to that mission. The GAO focuses more on customer needs, expecting that the opportunities provided by IT should drive some of the process design. Hammer and Champy view technology's ability to disrupt business rules as a valuable resource and even seem to suggest using IT to drive changes to an organization's mission and goals.
All three approaches highlight the need for healthy technology exploration, incubation, and infusion processes as important components of any business improvement initiative. In the face of budget cuts, however, establishing and maintaining support for new technologies, especially the enabling technologies that dominate the office automation arena, can be a huge challenge.
Again, the shift from finance-based to performance-based concepts of value is critical to developing a common framework for measuring the impact of IT on organizational effectiveness. This is especially important when trying to understand the value of and improve the effectiveness of management, otherwise known as overhead. These approaches should also be more common, as the GPRA advances towards full implementation and performance management becomes a standard part of our organizational infrastructure.
Boone, Mary E., Leadership and the Computer - Top Executives Reveal how they Personally Use Computers to Communicate, Coach, Convince and Compete, Prima Publishing, Rocklin, CA, 1991.
Brimson, Jim, Course Handout: Activity Analysis: Managing Towards Excellence, Richland, WA, February, 1994.
CFOA, Chief Financial Officers Act of 1990, Public Law 101-576, November 15, 1990.
DeMarco and Lister (Tom and Timothy), Peopleware - Productive Projects and Teams, Dorset House Publishing Co., New York, NY, 1987.
DOE-RL, U.S. Department of Energy - Richland Operations Office, Activity-Based Management at Hanford, RL-D94-038, June, 1994.
EM, U.S. Department of Energy - Environmental Management Program, Draft: Annual Performance Plan Guidance, July 11, 1994.
GAO, Executive Guide: Improving Mission Performance Through Strategic Information Management and Technology - Learning From Leading Organizations, GAO/AIMD-94-115, May, 1994.
GPRA, Government Performance and Results Act of 1993, Public Law 103-62.
Hammer and Champy (Michael and James), Reengineering the Corporation, HarperCollins Publishers, Inc., 1993.
Meyer and Boone (N. Dean and Mary E.), Teleforum: Computers in the Executive Suite, NDMA Inc., October 21, 1991.
Meyer and Boone (N. Dean and Mary E.), Teleforum: Needs Assessment, NDMA Inc., March 23, 1992.
Meyer and Boone (N. Dean and Mary E.), The Information Edge, Gage Educational Publishing Company, Toronto, Ontario, Canada, 1987, 1989.
Mintzberg, Henry, The Fall and Rise of Strategic Planning, Harvard Business Review, January-February, 1994.
PTO, Patent and Trademark Office, MED: Managed Evolutionary Development Guidebook, Arlington, VA, 1993.
Spewak, Steven H., Enterprise Architecture Planning - Developing a Blueprint for Data, Applications, and Technology, QED Publishing Group, Boston, 1993.
Strassman, Paul, The Business Value of Computers, The Information Economics Press, New Canaan, CT, 1990
Zachman, John, "A Framework for Information Systems Architecture," IBM Systems Journal, Vol. 26. No.3, 1987.
Copyright, The Sagebrush Group, 1995
This article is a revision of work previously prepared by the author while employed at Boeing Computer Services, Richland. It was presented at the 11th Office Information Technology Conference, Chicago, Illonois, August 23-25, 1994, and was published in the proceedings.
It was prepared for the U.S. Department of Energy Office of Environmental Restoration Management and Westinghouse Hanford Company, the Hanford Operations and Engineering Contractor for the U.S. Department of Energy under Contract DE-AC06-87RL10930. It was assigned document number WHC-SA-2594-FP and approved for public release.
