Successful IT-enabled transformations: The CXO cheat sheet

Large-scale IT transformations are notoriously prone to failure, often because companies do not consider the problem holistically. A truly comprehensive view of a major IT-enabled transformation must be built on a solid foundation of four key elements.

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Perspective

David Hovenden Nick Kotwal Bertrand Friot Nicolas Mialaret

Successful IT-Enabled Transformations The CXO Cheat Sheet

Contact Information Beijing Sarah Butler Partner +86-21-2327-9800 sarah.butler@booz.com Dubai David Tusa Partner +971-4-390-0583 david.tusa@booz.com Düsseldorf/Stockholm Roman Friedrich Partner +49-211-3890-165 roman.friedrich@booz.com Frankfurt Dr. Germar Schröder Principal +49-69-97167-426 germar.schroeder@booz.com Frankfurt/Dubai Olaf Acker Partner +49-69-97167-453 olaf.acker@booz.com Houston Henning Hagen Principal
 +1-713-650-4165 henning.hagen@booz.com Kuala Lumpur David Hovenden Partner +60-16-715-7302 david.hovenden@booz.com London Richard Bhanap Partner +44-20-7393-3519 richard.bhanap@booz.com Los Angeles Dan Priest Senior Executive Advisor +1-424-294-3800 dan.priest@booz.com Mumbai Suvojoy Sengupta Partner +91-124-499-8700 suvojoy.sengupta@booz.com New York Christopher Vollmer Partner +1-212-551-6794 christopher.vollmer@booz.com Dr. Florian Gröne Principal +1-212-551-6458 florian.groene@booz.com Paris Pierre Péladeau Partner +33-1-44-34-3074 pierre.peladeau@booz.com San Francisco Kenny Kurtzman Partner +1-713-650-4175 kenny.kurtzman@booz.com São Paulo Ivan de Souza Senior Partner +55-11-5501-6368 ivan.desouza@booz.com Sydney Steven Hall Principal +61-2-9321-2835 steven.hall@booz.com Nick Kotwal Principal +61-2-9321-1985 nick.kotwal@booz.com Tokyo Toshiya Imai Partner +81-3-6757-8600 toshiya.imai@booz.com

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EXECUTIVE SUMMARY

Large-scale IT transformations are notoriously prone to failure. In our view, this is because most companies do not consider the problem holistically. As a result, program management is not clearly focused, planning suffers, and execution is weak. A truly overarching view of a major IT-enabled transformation must be built on a solid foundation of four key elements. First, companies must align the transformation with overall corporate strategic and business goals, and all stakeholders must buy into the future vision. Then, they must settle on the necessary transformation capabilities, and fill any gaps in current capabilities. Third, the transformation team must work to create an agile interim architecture that can see the company successfully through the transformation, maintaining business continuity while enabling the planned changes. Finally, successful execution will require the creation of a transformation operation model and appropriate progress monitoring and governance procedures for guiding the program to completion.

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THE PROBLEM AND THE SOLUTION

Business and IT professionals at every large company know all too well just how difficult it can be to carry out large-scale, IT-enabled business trans-

formations. These projects are massively complex and highly disruptive to long-standing business processes and their end-users, and can span years and cost hundreds of millions of dollars. Why such projects fail is presumably well understood: lack of user involvement, weak support from top management, unclear business objectives—the list is long. So if both the degree of difficulty and the causes of failure are so well known, why do these efforts keep failing?

In our experience advising on and supporting such transformations at a variety of large companies, we have observed that the problems aren’t simply a matter of poor planning, weak execution, or unfocused management. Instead, they typically lie in a company’s unwillingness or inability to take a realistic, overarching view of the transformation, and of the four key elements needed to carry the project through to completion (see Exhibit 1).

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Exhibit 1 Four Mutually Reinforcing Elements of IT-Enabled Transformations

1 2 Transformation Capability 3

Strategic Alignment 4 Agile Architecture Key Questions Execution Excellence

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Strategic Alignment

- Alignment of the outcomes pursued by the transformation with the strategic objectives and goals of the company - Ensuring that the company has the necessary capabilities in place to embark on the transformation - Developing a flexible and agile architecture that adapts to the needs of a dynamic multiyear transformation - Excellence in applying the capabilities while executing the transformation

- Is the proposed transformation the most effective way to achieve the company’s strategic objectives? - Do we have the right capabilities to deliver the desired business outcomes? - Is the architecture capable of aligning to a moving target state while maintaining momentum on the program? - Can we execute the transformation in a way that delivers outcomes on budget and on time while minimizing risk?

2 Transformation Capability 3 4 Agile Architecture Execution Excellence

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• Strategic alignment: Companies embarking on a major transformation must explicitly link a transformation’s desired business outcomes with the strategic objectives and goals of the company. • Transformation capability: For large-scale transformations to succeed, the necessary capabilities must be in place, including effective governance mechanisms, program delivery expertise, vendor management and sourcing, and enterprise architecture and design. • Agile architecture: An IT architecture must be resilient enough to allow the organization to react and respond to ongoing changes in the market while executing the transformation program.

• Execution excellence: Critical execution components—including a transformation operating model and the underlying operational and risk mechanisms—must be in place and working together if the program is to be delivered on time, within budget, and at the expected level of quality. These four elements must not be seen as steps in a process; instead, they must interact with and inform one another, leading to a smoother transformation process and repeatable transformation capabilities for the future. A large Australian financial-services company adopted this strategy when it acquired a competitor and merged the two entities into a single operating

model. To ensure that the transformation program succeeded, the company identified 12 business outcomes involving customers, advisers, shareholders, and staff that defined the target operating model. Business outcomes were broken down into their constituent requirements, which were prioritized and bundled into a road map of initiatives. In addition, the company assessed its transformational maturity and competency in enterprise portfolio management, value management, and governance, all of which would be needed to deliver the program while maintaining strategic alignment. The result was a thoroughly integrated program with an empowered team driving to a common outcome.

Four key elements must interact with and inform one another, leading to a smooth transformation process and repeatable capabilities.

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STRATEGIC ALIGNMENT

Accomplishing this requires several foundational steps: • Focus on the prize. IT must focus on the essential capabilities that enable the company’s way to play in the market, and make sure the business and enterprise architecture is tightly linked to those capabilities. Building business cases supporting why and how IT will strengthen those capabilities will establish the credibility needed to proceed. • Establish stakeholder buy-in during the planning stage. A clearly defined end-state vision encourages top management and key stakeholders to support the transformation and its goals. Showcasing tangible improvements in business processes and customer experience early on builds internal support. Identifying influential “enthusiasts” to support the

Digitizing the Business What does tight alignment between overall strategy and transformation goals look like? A large vehicle-leasing company recently decided to pursue a mass-customization strategy that would require revamping the entire leasing value chain by streamlining and automating its processes for lease management, pricing, contract changes, and lease termination. The company embarked on a large transformation project involving the replacement of its fragmented IT legacy systems—there were more than 100—with an industryspecific ERP solution. The expected cost: US$100 million. During the business operations reengineering phase, the company realized that a specific product category required highly distinctive business processes. Migrating the category over to the new platform would require costly customization and extension of the data needed to support it. Following a detailed costbenefit analysis that included executive-level stakeholders, the company decided that it would be better to simply retire the product category, given the company’s new strategy. By eliminating excess technical complexity, the program delivered a standardized solution that was easier to support and manage. The result: a more profitable and agile system of business processes that adhered more closely to the company’s strategic vision.

Every company is looking for a strategic advantage in an increasingly competitive business environment. Gaining that advantage involves determining a deliberate value proposition, or “way to play,” given the opportunities available in the company’s market, and then developing the system of capabilities and the product and service portfolio best suited to that way to play. IT’s task is to enable the transformation required for companies to achieve their strategic vision. To do that, IT must understand the vision, and then develop a clear and agreedon proposition and road map for achieving it (see “Digitizing the Business”).

IT must understand the company’s strategic vision, and then develop a clear proposition and road map for achieving it.

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vision or take on leadership roles in the transformation can clear a path to approval. • Stay aligned to the vision. Make sure that the transformation road map is set up to produce clear benefits aligned to strategic priorities and to leverage the organization’s essential capabilities. Project spending should be weighted toward those priorities and benefits, while less critical areas are tightly managed. This will demonstrate the project’s

value to key stakeholders and build confidence throughout the company. The importance of alignment was made clear in the case of a large Southeast Asian bank that had developed a strategy for becom ing a leader throughout the region by 2015. The bank embarked on a large-scale transformation program to develop multichannel sales and service capabilities, build integrated customer analytics to improve performance and drive revenue, and

increase flexibility through agile product manufacturing. It began by developing a tailored program strategy and an operating model aligned to its primary capabilities systems (see Exhibit 2). This was achieved by designing a modular enterprise architecture that enhanced its core capabilities, deprioritized low-value initiatives, and sourced new capabilities in selected areas. The result was a coherent multiyear transformation road map that enabled the bank to make a quantum leap com pared to its regional competitors.

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Exhibit 2 Alignment of Bank’s Strategic Intent and Program Outcomes

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BANK Vision & Mission

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Financial-services strategic considerations Strategic intents Strategic imperatives Capabilities

Wholesale banking strategic considerations Strategic intents Strategic imperatives Capabilities

Insurance strategic considerations Strategic intents Strategic imperatives Capabilities

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Enterprise Architecture

Target business architecture Design and architecture principles Target application architecture Target information architecture Target infrastructure architecture Design architecture practice

IT transformation operating model, programs of work, and road map

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TRANSFORMATION CAPABILITY

capabilities in place to carry out the transformation. The drivers, which can vary from company to company, demand careful consideration, as they will determine the ultimate success of the transformation. To clarify its readiness to embark on the transformation journey, the company must assess the current level of maturity for each driver,

Once a company settles on a way to play and the essential capabilities needed to support it, it must ensure that it has the right set of drivers and

and identify gaps between its current state and what is required to carry out the transformation (see Exhibit 3). Any capabilities that are perceived as “lacking” or “ad hoc” must be raised to the “competitive” level, either by strengthening them internally or by sourcing them externally. Worth noting—in our experience, an organization does not need to excel at every driver.

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Exhibit 3 Sample Transformation Drivers and Capability/Maturity Assessment Tool
Transformation Drivers & Capabilities Program Management & Governance Performance Management Transition Management Vision & Strategy Design & Development Technical Readiness Stakeholder Management Change Management Business Readiness
Strategic Supply and Demand Program Management and Program Office Project Management and Project Office Economics and Value Management Integrated Business Case Enablement Project Business Case Capacity Optimization Transition to Support Transition to Operations Clear Strategy (“True North”) Capability Sequencing Project Scope Business Design and Building Integrated Capability Design and Building Solution Design and Building Operational Testing of Capabilities Technical Testing Aligned Leadership Team (“One Voice”) Aligned Work Stream Leads Aligned Project Stakeholders Changed Organization and Stakeholder Community Changed and Up-Skilled Users—Staff and Customers Changed Organization and Stakeholder Community Organizational Readiness Communities of Practice and Excellence

Lacking
- Little to no capability internally, across four dimensions · People · Processes · Tools · KPIs

Ad Hoc
- Capability exists with known gaps; for example: · Skill gaps in delivery teams · Processes not documented end-to-end · Tools exist but not embedded in practice · KPIs not defined

Competitive
- Capability exists and can be relied on: · No internal skill gaps · Processes are in place and documented · Necessary tools are in place and embedded · Performance drivers are defined and tracked

Best-in-Class
- Capability is strategic to the firm’s success - Ability to attract top talent - The capability framework is linked to the enterprise architecture - The tool kit is integrated end-to-end - Performance drivers are tracked and continuous plans are in place

Differentiated
- Firm recognized by market, clients, and rivals for its capability - The firm leverages its teams, processes, and tools to operate in a differentiated way, giving it a competitive advantage

Stewardship

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Ownership Building

Capability Building

Portfolio Focus 3–5 years Source: Booz & Company

Program Focus 1–3 years

Project Focus 0–2 years

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AGILE ARCHITECTURE

An agile architecture has three defining characteristics: • It provides flexibility and agility. An agile architecture gives the business the ability to make changes in the transformation program and to meet interim business needs even as the new enterprise architecture is being developed. • It maintains momentum. An agile architecture guides companies in making sure the program maintains momentum, preserves alignment with overall strategic imperatives as it progresses, and enables the program to deliver necessary new functions.

• It is aligned to the target end state: An agile architecture lets program managers adjust for changes in the program’s deliverables throughout the life of the program, while keeping a firm eye on its goals. Creating an agile architecture can be the purview of the company’s design authority, which is responsible for the high-level design of the IT transformation and the ensuing robust enterprise architecture to support it. The design authority also oversees the systems integrator’s overall plans, as well as the functional and technical details. It makes sure that the functional and technical aspects of the program remain in alignment with one another over the course of the program (see Exhibit 4).

Large-scale transformations are invariably disruptive and are likely to affect how the business carries out its day-to-day operations. The transformation program must be designed with the flexibility to accommodate current business activities as well as inevitable changes. To keep everything running smoothly, the company needs to put in place an agile architecture, with backstops and checkpoints to ensure that it can overcome problems and deal with tactical issues effectively.

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Exhibit 4 The Core Functions of the Design Authority

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1 DESIGN AUTHORITY FUNCTIONS Change and configuration management 1 Enterprise architecture stewardship 5 Technology strategy and advocacy 6 3

Enterprise architecture stewardship - Oversee enterprise architecture, including development of conceptual and logical architectures - Refine and update all architectures, including linkages, design principles, and standards

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Technical assurance - Provide assurance of physical architecture developed by systems integrator - Facilitate interaction among the systems integrator and internal stakeholders to mitigate design risk and ensure all key areas are covered in architecture Functional and business assurance - Provide assurance of proposed changes to the designed processes - Ensure that the proposed solution design will meet the day-to-day business requirements under “real operating environment” and against functional performance specifications

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2 Technical assurance

ARTIFACTS/ BASELINE

4 Testing and delivery assurance 4

Testing and delivery assurance - Review and approve testing approach, scenarios, and results by testing components, end-to-end integration, and user acceptance - Provide advice to accept delivery and introduction into service

3 Functional and business assurance 5

Technology strategy and advocacy - Research emerging technologies and trends in support of best practices in industry and business domain - Perform advocacy, including communication, awareness, and engagement

6

Change and configuration management - Manage all proposed changes to system scope, budget, or time line, undertaking impact assessments of all proposed changes

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EXECUTION EXCELLENCE

The key to a successful IT-enabled transformation lies in its execution. No matter how thoroughly the strategy and the design have been thought through, if the plan isn’t put into practice carefully and thoroughly, the effort will fail. As such, much depends on the transformation operating model, which guides the program; sets its structure, information flows, decision rights, and accountability at every level; and ensures that the proper levels of control and risk management can be monitored throughout the program’s life. To ensure success, the operating model should also consider the following components: Smart PMO: A key part of the operating plan, and central to the transformation’s success, is the “smart” program management office (PMO),

which combines the activities of the traditional PMO with the analytical insight needed to keep key stakeholders apprised of progress. The typical PMO oversees and reviews the many projects going on simultaneously, responds to problems, and advises top management on progress. Serving as the locus of communication, the smart PMO can also provide senior management with insight into budgets, costs, and progress; assess and prioritize future initiatives; and propose options to manage delivery interdependencies at a program level. Stage-gate approval process: Stage gates provide deliberate checkpoints for assessing critical aspects of the transformation, along with an assessment of leading and lagging indicators. They help in ascertaining the progress of the program’s various initiatives and phases and provide senior management with accurate information on whether desired business outcomes are being achieved. The results of stage-gate reviews need not come as a surprise if the process includes ongoing monitoring and closer investigation of problems as they arise.

Change control board: Every largescale transformation project will require changes at some point, for any number of reasons, including scope, scale, budget, and resources. Change control boards manage this process, reviewing and approving change requests using consistent criteria; ensuring alignment of proposed changes with objectives; assessing impact on costs, schedules, and resources; and communicating the results to all stakeholders. Visual management hub: Central to the operating rhythm of a major transformation is the visual management hub, a room that is dedicated to the transformation’s information flows. The PMO is responsible for ensuring that the hub is kept up-to-date by project teams, in order to effectively share information among all stakeholders and facilitate decision making at the level of the overall transformation and its various initiatives. The hub should include information related to day-to-day deliverables as well as program-level snapshots of overall progress. Because of the sheer quantity of information that the hub tracks as

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CONCLUSION

About the Authors David Hovenden is a partner with Booz & Company based in Kuala Lumpur. He leads the firm’s Southeast Asian business and the global markets digital business and technology practice. Nick Kotwal is a principal with Booz & Company based in Sydney. A co-leader of the firm’s digital business and technology practice, he has expertise in driving efficiency and productivity across large-scale business transformations in Australia, New Zealand, and Southeast Asia (ANZSEA). Bertrand Friot is a senior associate in Booz & Company’s digital business and technology practice based in Melbourne. He has deep expertise in IT strategy and architecture across large, complex enterprise transformations in the ANZSEA region. Nicolas Mialaret is an associate in Booz & Company’s digital business and technology practice based in Sydney. He focuses on large-scale enterprise transformations within the media and telecommunications industries in the ANZSEA region.

the transformation moves forward, information must be presented graphically, and in such a way that stakeholders can home in on problems quickly. Twelve-month look ahead: Many of the assessment activities involved in the management of large transformation programs tend to look backward at what has already been accomplished. Just as important, however, is to set up a process for looking forward. The 12-month look ahead provides stakeholders with a mechanism to view the program through the windshield—with a strategic view of future milestones and the critical path to reach them—rather than through the rearview mirror. Reviewed regularly by the steering committee and featured prominently in the visual management hub, the look ahead should provide a detailed rolling view of the upcoming four weeks and a high-level rolling view of key milestones over the coming 12 months.

Large-scale transformation programs that realign companies to new strategic imperatives are enormously complicated, risky, and highly prone to failure. Four interlocking and mutually reinforcing elements will set up the transformation for success: aligning the transformation’s expected outcomes to the corporate strategy; putting transformation capabilities in place early, before moving into execution; designing an agile IT architecture that flexes in response to unforeseen business or program circumstances; and establishing a transformation operating model that is hard-nosed and approaches execution systematically. Companies that get these critical elements right can help ensure that their major transformations deliver the business benefits their stakeholders are looking for.

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