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1. Develop an Effective IT Governance Model
Businesses can approach IT governance from multiple angles—centralized, decentralized, or something in between. Today, the most common angle is a federalist model, which gives business units, departments, and divisions a good deal of latitude in making technology choices and holds them responsible for allocating resources, according to John Sifonis, chief knowledge officer in the Internet Business Solutions Group (IBSG) at Cisco Systems. Individual business units and departments receive a technology budget and can add the systems they need or desire. As long as the units show a solid return on investment (ROI), the organization takes a sort of laissez-faire approach.

Although this method offers a high level of flexibility—a key consideration in today's fast-moving business environment—it also presents challenges.

One problem some organizations typically face is an inability to integrate systems. "It's the classic case of people seeing the trees but not the forest," says Thomas Park, a principal at consulting firm Booz Allen Hamilton. What's more, in this model individual business units are inclined to spend money on systems that don't necessarily provide the biggest returns and benefits for the enterprise.

Business leaders must understand how different scenarios affect business and IT alignment. "Governance requires more than a steering committee that gets together to look at spending and decides which projects are funded in a particular year," says Park. "It means, at every level of the organization, understanding initiatives and viewing IT and business goals in the aggregate."

At Cisco, for example, IT governance is central to success. The company uses a federalist model, setting rules that establish control, accountability, responsibility, and authority within the enterprise, while allowing business units and various departments to make key decisions.

Early on, Cisco leadership adopted this model to address the following principles:
Change is inevitable.
Change will occur faster than ever before.
Technological change impacts organizations in unpredictable ways.
Different cultures throughout the world are extremely interdependent.
The Internet has changed the ground rules of business.

Other governance strategies are centralist or conglomerate models. A centralist model relies on a command-and-control approach, in which leaders define the company's mission, values, and purpose. Within this model, headquarters provides mandatory services, owns resource allocation, and imposes integration on business units and departments.

A conglomerate model incorporates at least four unrelated businesses, none accounting for more than 50% of sales. Each of these autonomous business units has its own culture, values, and purpose. Each is responsible for resource allocation. The company doesn't expect cooperation among the various units.

Establishing clearly articulated procedures and policies is the key to making IT governance work. "When people and departments have clearly defined rules and responsibilities, they can eliminate politics, finger pointing, and problems," says Anne Barrett, a consultant in Cisco IBSG. "Organizations can implement technology far more effectively."

Forrester Research identifies three adaptive strategies for transforming IT governance. First, successful organizations use budget timing, which lets IT iteratively revise its budget to reflect the planned investments of business units. Second, these organizations rely on planned resource deployment, which creates a proactive planning method rather than a reactive one. And third, they establish accountability for impact, which balances between business units and IT accountability for funding, cost, benefit estimates, and technology implementation.

2. Standardize on Technology
Although a decentralized IT model works well for deploying applications, it can wreak havoc when it's used to manage infrastructure. When a company deploys multiple technology platforms in a decentralized approach, it not only increases IT costs but also impairs an organization's ability to use systems and data to maximum advantage. From a practical perspective, putting all the pieces together can tax even the most IT-savvy organization.

"Companies can burn an incredible amount of resources integrating all the systems," says Shepherd.

The good news: It has never before been easier for an organization to establish technology standards, particularly those related to using the network to support Internet business. The widespread adoption of Ethernet, Internet Protocol (IP) technologies, and extensible markup language (XML) has made standardization a reality.

IP, in particular, is a huge factor in driving enterprise technology standards. By building a universal network protocol, IP allows quick and easy data exchange across disparate systems. Factor in Cisco AVVID (Architecture for Voice, Video and Integrated Data), which provides an enterprisewide, standards-based network architecture for various technologies and applications, and organizations can gain synergies that weren't possible only a few years ago.

In addition, many organizations now use a standards-review and adoption process to drive standardization. This process helps generate a short list of approved vendors and systems and effectively limits the variety of systems business units and divisions can use.

"By creating a set of standards, a company can not only control information technology more effectively but also business processes," Sifonis says. The end result is usually lower costs, greater productivity, improved ROI, and reduced total cost of ownership.

This approach can also help an enterprise reduce administrative and IT overhead and build a flexible infrastructure. With the right IP infrastructure, companies can quickly and seamlessly deploy companywide videoconferencing, Web collaboration tools, IP telephony, multicasting, and enterprise portals. These applications sit on top of the basic network infrastructure like building blocks.

With the basic network foundation in place, it's easier and faster to execute. "When a business need arises, the technology can quickly follow," says Shepherd.

Of course, standards also create challenges for global companies that have employees in different countries, which may have distinct preferences, cultural differences, or legal requirements. For example, a business unit in Singapore might desire one application that another in France rejects outright. The issue could be as simple as the way the program displays fields or as complex as how it calculates taxes based on country regulations.

Ultimately, standards adoption at the infrastructure level must mesh with freedom of choice for specific applications to create an agile and flexible enterprise.

3. Ensure CEO and CIO Alignment
Some companies find themselves in a state of perpetual disconnect. The CEO doesn't fully grasp the technology issues that enable or block business-process improvement, and the CIO doesn't focus on issues that provide strategic advantage or gain.

Arvind Bhambri, a business management associate professor at the University of Southern California's Marshall School of Business, says that a good starting point is for the CEO to view the CIO as a strategic resource and truly understand how major technology initiatives affect the company.

"In many instances, this requires a change in CEO perception and CIO capability," he says. "Unless each can view the other as a partner and focus on mutual goals, the potential for success dwindles."

Shepherd agrees. "A CEO must understand that the CIO is no longer a technical function. It's essential to ensure that there is total cooperation and understanding between the two."

In most cases, CEOs and CIOs who succeed in aligning business and IT goals have some common traits. First, the CEO takes a genuine interest in and makes an effort to understand IT. Second, the two leaders spend time discussing high-level business-IT strategy. This approach facilitates better understanding of underlying issues and problems and ensures the top executives are on the same page.

According to Park, successful CIOs usually play four roles to ensure better business alignment:
strategist who helps define the structure of the business
business advisor or peer who interfaces with business unit leads (translating the languages of business and technology)
IT leader who is held accountable for skills, training, and assets within the IT department
chief architect for a business-IT environment that optimizes investments and fuels growth

Indeed, alignment is a tricky proposition even when an organization has a well-defined business-IT plan and top executives who are aligned.

"If a company cannot drive the thinking and actions down through an organization, then the odds are high that projects will not achieve the desired results," says Sifonis. "Unfortunately, it is possible to have alignment at the top levels of a company and still fail."

4. Create Ownership and Provide Leadership
One of the problems many companies face is that CIOs only partially participate in strategic decision making or they're completely excluded from the process, according to Shepherd. That translates directly into a lack of ownership and leadership.

It's best when the CIO is in the decision-making flow and uses his or her position to connect the technology agenda to corporate strategic initiatives. Within such an environment, the CIO is not only more likely to understand the business case and rationale for various projects but he or she can communicate key IT concepts to others. According to Park, this can lead to an organizational chart that places the CIO on equal footing with other senior-level positions. "The CIO becomes a business strategist rather than just a technology strategist," says Park.

Of course, change always starts at the top. Senior management must put systems and processes in place to create ownership. Performance-based management is often a good place to start, and holding managers and others accountable for actions can increase the odds of success.

"Usually, internal dysfunction results from the lack of clear accountability," Barrett says. She advocates an assessment process that focuses on project-, program-, and portfolio-level views for IT and business staffs. Barrett advocates assigning clear roles and responsibilities for particular tasks.

Likewise, top executives must provide leadership. If a company is attempting to scrap a centralized IT model in favor of adopting a decentralized approach, managers must show their unwavering commitment. They must empower employees to make decisions and, when mistakes occur, treat them as learning experiences. Leaders also must let business units and departments make financial decisions about technology—as long as they fit into the organization's overall approach and conform to existing standards, which is typically the case at Cisco, GE, Wal-Mart and other business-technology leaders.

5. Examine Business Processes and Organizational Culture
It's critical to remember that technology alone doesn't cut costs, boost productivity, or improve business intelligence. Making changes to underlying business processes is also part of the equation.

The reason some IT systems can produce stellar ROI is that they allow, and in some cases force, an enterprise to revamp the way work gets done, according to Park. For example, eliminating paper expense-reimbursement forms ensures employees use the Web, and purging paper directories requires employees to get information from a portal. For other projects, this is much more difficult, as fundamental business practices, processes, and even business models must change to realize value.

Companies must overcome any initial resistance to change from employees. "If you give people the option of doing things the old and familiar way, many of them will stick with it," Sifonis warns. "If you don't force the shift, your company might find itself with efficient IT systems that produce marginal results."

In addition to pulling the plug on antiquated ways of working, organizations must provide education and training. Employees must understand not only how to use new systems but why Internet technologies are desirable. In some instances, incentives, ranging from bonuses for meeting department objectives to immediate rewards and recognition, can spur faster adoption.

It's also essential to understand how a system itself will drive change and affect how people perform work.

"If there's any gap between business and IT alignment, then a lot of unanticipated and undesirable results are likely," says Park. "It's important to ask, 'What does this system imply about everything else that has to change within the business, from jobs, processes, and more?' People in the business units are going to have to live with it, not the IT department."

6. Foster Communication Throughout Management
It's no secret that IT has its own vocabulary, and cracking the code can overwhelm even the most astute corporate leaders. Because the language and the thinking that goes along with it can be challenging, many executives shy away from dealing directly with IT.

Part of the blame resides with business leaders who have very little interaction with IT and don't appreciate the practical possibilities that the technology offers, nor its limitations. Without understanding how a particular technology affects business processes and workflow, leaders can't anticipate whether it will produce the desired results. Consequently, business executives often make uninformed decisions, Sifonis says.

However, executives and managers in business units aren't the only culprits. Communication is a two-way street and many IT professionals find it difficult to bridge the communication gap with business.

"They understand how an ERP [enterprise-resource planning] system works and how to make it handle electronic invoices or connect to wireless devices, but they don't understand the underlying business case," Sifonis says.

Building a bridge—or in this case a common language and goals—requires ongoing effort from both business and IT leaders. To do so, an organization might create a steering committee or task force. It might also elevate the CIO to a board-level position or develop a formal IT strategy at the board level.

Consider Boise Office Solutions, a $3.9 billion company in which IT leadership starts at the top. CEO Christopher Milliken heads the IT priority steering committee that includes senior managers from all the business units and divisions. Not only does this committee help Milliken to understand the issues, it also buys him respect. Add to that a close relationship with his CIO, Gary Massel, and Milliken is able to harness the power of technology in ways that few others can. In the past three years, the company has doubled its online sales and has continually improved profit margins.

Regardless of which approach an organization takes, knowledge, information, and ideas must flow back and forth at the highest levels. Business leaders have a better feel for IT issues, and the CIO receives a healthy dose of business reality.

Full alignment requires that the same cross-pollination occur throughout the organization. Business unit leaders, middle managers, and employees must understand why the enterprise has chosen certain applications, what benefits and value they offer, and how to use systems effectively. Webcasts,
e-learning, and traditional training can all facilitate spreading the message, as can updates via an enterprise portal or occasional e-mail messages directed to groups of employees. And, in some cases, town hall meetings and other gatherings can provide information and a sense of immediacy.

In some ways, creating business and IT alignment is a bit like playing a 3-D chess game. It's not always easy to see how all the possible moves affect the outcome. Yet in the battle for business supremacy, organizations that strive for alignment and put in motion a plan to make the vision a reality are far more likely to cut costs, boost productivity, and achieve superior ROI. While alignment is inherently complex and always challenging, it's what separates world-class organizations from the pack. Says Shepherd: "Today, it's an issue that every organization must examine closely." 

Re-printed with permission from Cisco System's iQ Magazine, March/April 2003