From business strategy to IT action right decisions for a better bottom line

From Business Strategy

to IT Action

Right Decisions for a
Better Bottom Line



Praise for

From Business Strategy to IT Action
The authors provide us a most insightful approach to industry’s
toughest problem: on what IT investments should we invest our scarce
resources? More importantly, their framework can be applied to
any and every discretionary corporate investment. Linking corporate
investments to strategic objectives is critical to remaining or
becoming a viable and vital business — and this book gives us the
roadmap for the journey. Particularly helpful are the provocative
sets of questions and helpful tools to address this complex issue.
—Francisco A. Figueroa, CFO and Vice President,
Sandia National Laboratories

This is a dynamite book of practical advice for companies that
do not fully understand IT, and should become required reading for
both business and IT management. It is a “gem” of disciplines
and practices and of business-based ways to manage IT and to get
the biggest and most important value from IT investments.
—Cecil O. Smith, Senior Vice President and CIO, Duke Energy

I’ve worked with Bob for several years. This book, which outlines
his practical yet elegant approach for aligning IT action plans
with the overarching business strategy, is a must read for anyone
who wants to get more impact from their IT dollar!
—Brian Gill, Vice President and CIO, Sunlife Canada

I like this book very much. It offers an extraordinary set of insights
on how to take IT planning, innovation, and performance
measurement to the bottom line. For more than two decades
I struggled, as a CIO, to tie IT management decisions to business
outcomes. Finally, I found in this book a consistent framework
for guiding IT and business leaders alike, in maximizing the
business value of their IS capabilities and technology investments.
—Doron J. Cohen, Ph.D. CIO, The BrassTacks


To bridge the chasm between business and IT, concise and clearly
defined business and financial decision processes and metrics
need to be created and articulated. This book provides a precise
and simple to follow methodology that IT executives can use
to better align themselves with CFOs and their business partners.
—Mark Popolano, CIO, Vice President, AIG, Inc.

This book tells you all you need to know about strategy and execution
related to developing IT strategies, making the right investment
decisions, and implementing the strategies that will lead to creating greater
impact to business performance. A great insight shared by the authors
for those who are concerned with IT investment and return.
—Swee-Cheang Lim, Director, Institute of Systems Science, Singapore

In 1988, Information Economics proposed a way of thinking and
a method about the value of IT. In this new book, based on their broad
business-based experience, the authors further develop the
framework and process. It is the combination that lays the foundation
for increasing the bottom-line results of IT investments.
—Prof. dr. Pieter Ribbers, Faculty of Economics,
Tilburg University, The Netherlands

Within ING there is continuous pressure to ascertain that all
discretionary IT-related business investments generate a stable earnings
stream that is significantly higher than the weighted average
cost of capital. Following on the valuable insights of Information
Economics, this book may contribute to the firm’s ability to
enhance IT’s contribution to its value creation process by
ameliorating project risk.
—Dr. John FA Spangenberg, Head of IT Performance &
Investment Management, ING Group


From Business Strategy

to IT Action

Right Decisions for a
Better Bottom Line

ROBERT J. BENSON
THOMAS L. BUGNITZ
WILLIAM B. WALTON

John Wiley & Sons, Inc.


This book is printed on acid-free paper. ⅜
ϱ
Copyright © 2004 by John Wiley & Sons. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
No part of this publication may be reproduced, stored in a retrieval system, or transmitted
in any form or by any means, electronic, mechanical, photocopying, recording, scanning,
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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their
best efforts in preparing this book, they make no representations or warranties with respect
to the accuracy or completeness of the contents of this book and specifically disclaim any
implied warranties of merchantability or fitness for a particular purpose. No warranty may
be created or extended by sales representatives or written sales materials. The advice and
strategies contained herein may not be suitable for your situation. You should consult with
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onsequential, or other damages.
For general information on our other products and services, or technical support, please
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Library of Congress Cataloging-in-Publication Data
Benson, Robert J.
From business strategy to IT action : right decisions for a better
bottom line / by Robert J. Benson, Tom Bugnitz, William Walton
p. cm.
Includes index.
ISBN 0-471-49191-8
1. Business planning. 2. Business enterprises — Computer networks.
3. Information technology— Management. 4. Information resources
management — Economic aspects. I. Bugnitz, Thomas L. II. Walton,
William, 1951– III. Title.
HD30.28.B4533 2004
658.4'03 — dc22
2003020204
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1


Bob Benson thanks his wife, Noreen Carrocci,
for her continuous and constant support
and dedicates this effort to her and our families.

Tom Bugnitz dedicates his work on this book to
Diane Dimeff, who has supported, helped,
encouraged, and most of all put up with him
and his many idiosyncrasies for the last ten years.

Bill Walton dedicates his work to his wife Eliza

and children, Mac, Jas, and Grace.
Together, you are both my why and my how.

Miraculously, we have all three ended up with women
who are much better than we deserve.



about the authors

Bob Benson is a Principal with The Beta Group. He has served as CIO, financial executive, dean, professor, author, and consultant for over 40 years. His
consulting and research deals with the business value of IT, business and IT
strategic planning, methodology and process development, IT governance, and
facilitation. He has conducted executive seminars and performed and managed
consulting engagements on these subjects throughout the world (in 20 countries
and 40 states) and has taught graduate courses in schools of business and engineering in Europe and the United States. For over 10 years, he has consulted full
time in his areas of interest.
He has keynoted numerous international conferences, created and managed
academic programs and organizations, developed large-scale computer systems,
and consulted with a wide range of companies and government agencies. Mr.
Benson is coauthor of several books and numerous book chapters, articles, and
monographs, including Information Economics: Linking Information Technology and Business Performance (Prentice-Hall, 1988) and Information Strategy
and Economics: Linking Information Systems Strategy to Business Performance
(Prentice-Hall, 1989).
Mr. Benson is an affiliate professor of computer science at Washington University in St. Louis, where he also served as senior executive for computing and
communications, institutional financial planning, and professor, dean, and center director. He is currently a professor of information management (part-time),
Faculty of Economics, Tilburg University, The Netherlands. He served as founding managing director of the E-Business Forum.
Tom Bugnitz has been the President of The Beta Group, a consulting firm he
cofounded with Bob Benson, for the past 15 years. Mr. Bugnitz has consulted
and lectured widely in the United States on the subject of the business-IT connection, and has codeveloped a number of consulting methodologies for

improving IT management. In addition, he is closely associated with Washington University in St. Louis as an adjunct professor of computer science and participates actively in the development and execution of research in the field of
information management. He is coauthor of several books on systems and computer programming. Mr. Bugnitz brings practical experience to bear on his consulting and teaching assignments, having worked at all levels of information
systems organizations, including 10 years managing large data centers and telecommunications operations.

ix


x

ABOUT THE AUTHORS

Bill Walton is a Principal with The Beta Group. His areas of special interest and
expertise include Performance Measurement, Alignment, Integrated Strategic
Planning, IT/Business Value, Organizational Change Management, and Technology-Driven Change.
Before joining The Beta Group Mr. Walton was with Gartner and Real Decisions for 17 years. He spent his final 5 years at Gartner as the Vice-President of
R&D for Gartner Measurement where he was directly responsible for the development of numerous innovative benchmarking and IT performance measurement services and their associated analytical methods. These included the use
of organizational and technical complexity as IT cost drivers, the application of
the Balanced Scorecard to IT, and the development of IT management process
models. Most recently, with The Beta Group Mr. Walton has been responsible
for the development of a set of management frameworks and tools that support
IT strategic alignment and planning processes.
Mr. Walton has been active in the information and technology management
field since 1977. He has worked with a large number of clients in the USA,
Canada and Europe on critical IT measurement and management issues. Mr.
Walton applies a combination of active research and practical experience to each
of his consulting engagements.


about the beta group

T

he Beta Group consults to Fortune 500 companies and government agencies
in North America and Europe, focusing on improving IT’s bottom-line
impact and controlling IT spending. Beta Group consulting practices cover the
IT planning-to-execution cycle, starting with strategic planning and budgeting
through investment prioritization, alignment, performance measurement, and
portfolio management. For more information on the company or its methods,
visit www.the-beta-group.com or www.beta-books.com.

xi



about the website

s a purchaser of From Business Strategy to IT Action: Right Decisions for a
Better Bottom Line, you have access to the companion website. The Notes
that are provided on the Website provide additional information and background on IT value strategies including the Strategy-to-Bottom-Line Value Chain,
New Information Economics, the five practices, and Portfolio Management and
Assessment. To access the website, go to www.wiley.com/go/ITAction.

A

NOTES
1
2
3
4
5

6
7
8
9
10
11
12
13
14
15
16
17
18

IT and Economic Cycles
IT’s Value —A Definition
IT, Bottom-Line Impact, and Government
Tests for Connected Business and IT
Modern Portfolio Management
One Company’s View of Portfolio Management
Constructing Portfolios
Gap Analysis: Closing Disconnects between Business and IT
Building an IT Profit Model
Stage Theory and Management Culture
Right and Wrong in Management Culture
Value and Values
Our Use of Shareholder Value
Scoring for Portfolio Assessment
The CFO’s Role
What about IT’s Performance

Other Portfolio Classifications
ROI and the IT Value Life Cycle

xiii



contents

Preface

xxi

Acknowledgments

CHAPTER 1

xxiii

Define the Goals

1

Today’s Reality
The Entire IT Spend: Reducing Cost and Improving
Bottom-Line Impact
The Strategy-to-Bottom-Line Value Chain
Disconnects
Critical Success Factors
Completing the Picture: The New Information Economics Practices

Summary of the Book
Define the Goals: Management Agenda

CHAPTER 2

Ask the Right Questions

The Right Questions Focus on Affordability and Impact
Affordability Questions: The Starting Point for the Right Actions
Impact Questions: The Roadmap for the Right Actions
Examples: Answering the Questions
The Contexts for Management Questions Are Planning and
Budgeting Processes
Why Ask Affordability and Impact Questions?
Taking Action
Chapter Summary
Ask the Right Questions: Management Agenda

CHAPTER 3

Connect to the Bottom Line

Bottom-Line Impact Based on Cause and Effect

xv

2
4
5
6

7
8
13
14

17
18
20
22
24
26
26
28
29
30

33
35


xvi

CONTENTS

Cause and Effect Is Based on Management’s Intentions
Management’s Strategic Intentions
Principles of IT’s Bottom-Line Impact
Summary and Additional Implications
Connect to the Bottom Line: Management Agenda

CHAPTER 4

Understand Costs and Resources

Introduction
Origins of Portfolio Management
IT Portfolio Management in Prioritization
Portfolios in NIE Practices
Four IT Portfolio Concepts
Practical Problems in Applying Portfolio Management
Summing Up Portfolios and Portfolio Management
in Information Technology
Chapter Summary
Understand Costs and Resources: Management Agenda

CHAPTER 5

Focus on the Right Things

The Goals and Principles for Right Decisions/Right Results
Goal 1: Actionable, Commonly Understood Strategic Intentions
Goal 2: The Right Bottom-Line Results from IT
Goal 3: The Right Management Culture and Management Roles
Goal 4: Portfolios and Portfolio Management
Goal 5: Actions and Results
Summary of Right Decisions/Right Results — Goals and Principles
Goals and Principles Applied to the Strategy-to-Bottom-Line
Value Chain and NIE Practices
Focus on the Right Things: Management Agenda

CHAPTER 6

Adopt Effective Process to Produce Action

The Strategy-to-Bottom-Line Value Chain
Establishing the Process Connections
Management Roles
New Information Economics Practices
Summing Up New Information Economics Practices

36
37
39
43
45

47
47
49
51
52
56
62
67
68
70

73
74
74

79
81
83
84
85
86
88

91
92
98
98
99
106


xvii

Contents

Summing Up: Adopt Effective Process to Produce Action
Adopt Effective Process to Produce Action: Management Agenda

CHAPTER 7

107
109

Tackle the Practical Problems

111

A Practical Perspective
The Practical Problems Revolve around People
Addressing Practical Problems: IT Impact Management
Practical Problems Getting from Strategy to
Bottom-Line Impact
The Role of IT Impact Management
Tackle the Practical Problems: Management Agenda

111
112
113

CHAPTER 8

Make the Right Decisions

The Management Context for “Make the Right Decisions”
Elements of Right Decisions
Make the Right Decisions: Two NIE Practices
The Prioritization Practice
The Alignment Practice
Make the Right Decisions with Prioritization
and Alignment
Chapter Summary
Make the Right Decisions: Management Agenda

CHAPTER 9

Plan for the Right Results

Two Planning Processes
The Strategic Demand/Supply Planning Practice
The Innovation Planning Practice
Chapter Summary: Plan for the Right Results
Plan for the Right Results: Management Agenda

CHAPTER 10

Keep Score

Management Issues
Frameworks and Process Overview
Result
Critical Success Factors: Right Decisions/Right Results
Principles in Performance Measurement

113
126
127

129
130
132
141
141
150
160
162

164

167
168
172
187
194
196

199
201
202
207
208


xviii

CONTENTS

Summary: Performance Measurement Practice
Keep Score: Management Agenda

CHAPTER 11

Deal with Culture

Part 1: The Impact of Management Culture
Part 2: The Need for Culture Change
Part 3: Classification of Business/IT Culture

Part 4: Applying Culture Management Concepts
Deal with Culture: Management Agenda

CHAPTER 12

Chart the Path to Implementation

Introduction to the Business Value Maturity Modelீ
Maturity Model Goals
Requirement for Management Action
Embedding NIE Practices into Management Processes
Using the Business Value Maturity Modelீ
Summary: The Business Value Maturity Modelீ
Chapter 12 Appendix A: Details of the Business Value
Maturity Modelீ
Chapter 12 Appendix B: The Development of
Maturity Models

CHAPTER 13

Define What’s Next

Three Methods to Establish Right Decisions/
Right Results Goals
Setting Goals from a Corporate Governance and
Process Perspective
The IT Impact Management Program to Implement
Right Decisions/Right Results and NIE Practices
Conclusion to Chapter 13

CHAPTER 14

Answer the “So What?” Question

Why This Trip Is Necessary
First, Hit the IT Improvement Zone
The “So What?” for the Company
The “So What?” for the CEO
The “So What?” for the CFO

210
211

213
214
217
218
225
230

233
235
237
238
240
242
245
246
250

253
254
261
263
267

271
271
272
273
273
274


xix

Contents

The “So What?” for Line of Business Management
The “So What?” for IT Management
The “So What?” for the Business
Continuing Development

274
275
276
276

APPENDICES
Appendix A The Role of Enterprise Architecture in

Right Decisions/Right Results
Appendix B Management Team Roles in Right Decisions/
Right Results
Appendix C The Development of Strategic Intentions,
with Examples
Appendix D Applying Strategic Intentions in Prioritization
Appendix E The CFO Role in Right Decisions/Right Results
Appendix F The Details of the Business Value Maturity Model

277
277
283

TM

289
297
299
301

Bibliography

313

Index

323

Notes are available on this book’s website: www.wiley.com/go/ITAction.

preface

A

lmost 20 years ago, Bob Benson of Washington University and Marilyn Parker
of IBM, with the help of Ed Trainor, broke new ground in understanding
the value relationship between IT and business. As co-principal investigators in
a research project sponsored by the IBM Los Angeles Scientific Center and
Washington University in St. Louis, Bob and Marilyn described a process and
framework for assessing the business value of IT investments in any company.
Their first book, Information Economics: Linking Business Performance and
Information Technology,1 established the view that, to be effective and valuable
to the enterprise, IT has to fundamentally improve how a business2 performs; to
do this, business management must be directly involved in IT decision-making.
This insight defined performance improvement in strategic and operational
terms, in the areas strategically relevant to the company and not merely as measured in traditional bottom line or ROI terms. Their book established a practical methodology for prioritizing IT investments, and it demonstrated that
focusing new investment on achieving explicit business strategies and operational excellence helped maximize the bottom line impact of new investments
for the business.
Over the past two decades, Information Economics has served as the foundation for consulting by The Beta Group3 and research and teaching by Bob
Benson, Tom Bugnitz, and Bill Walton (Beta Group Principals). Through these
experiences, the authors have extended the original Information Economics
concepts and gained a number of key insights that form the foundation for this
new book.
This new book, From Business Strategy to IT Action, applies the original
Information Economics philosophy to all of the activities in which business and
IT management are engaged together — planning, innovation, prioritization,
alignment, performance measurement, and portfolio and culture management.
The concepts around IT action are a crucial enhancement to the original ideas.

1

Marilyn M. Parker and Robert J. Benson, with E.H. Trainor, Information Economics: Linking Business Performance to Information Technology (Prentice-Hall, 1988).
2 While the terminology here and throughout the book is presented in “business” terms, the concepts and practices apply with equal force to government and nonprofit organizations. While business is concerned with competitive strategy and financial outcomes, government is just as concerned
with strategy and performance to organizational mission.

xxi


xxii

PREFACE

This addition takes the philosophy of IT/business connection from a passive
prioritization to an active let’s-get-the-job-done viewpoint. Without action that
produces bottom-line impact, nothing else matters. But even that isn’t sufficient;
the action must produce business results in line with business strategies. That’s
the message of “Right Decisions for a Better Bottom Line.”
However, “action” also requires that we address issues of culture, process
maturity, and disconnects between business and IT. Toward this end, we introduce the Strategy-to-Bottom-Line Value Chain, a framework that integrates the
five NIE practices and three support areas. In this framework, Culture Management provides tools for understanding and changing a company’s current
culture with respect to business and IT cooperation. Portfolio Management
establishes information and analysis tools for prioritizing, aligning, and assessing the company’s entire IT investment. IT Impact Management establishes the
IT culture and performance models for the IT/Business connection.
We use the expression “Right Decisions/ Right Results” throughout the
book as a shorthand expression to convey all of this. The five NIE practices lead
to the best decisions about the company’s IT investments; the Strategy-to-BottomLine Value Chain leads to the necessary actions. Taken together, the company
achieves the right results: a powerful impact on its bottom-line.
The original Information Economics concepts applied in the first book

represented only one of the five NIE practices described in this book. By surrounding those concepts with a complete planning and management framework,
we are again establishing a new way for business and IT managers to understand
and use IT to produce better bottom-line results.

CONTINUING DEVELOPMENT
This book is a work in progress. Further research and experience in companies
in the United States and Europe will continue to develop these ideas. We expect
to update chapter information on a regular basis.
Our websites, www.NewInformationEconomics.com and www.beta-books.
com, contain directions on how to obtain future updates. We can be reached
individually by e-mail at:
Bob Benson
Tom Bugnitz
Bill Walton




B OB B ENSON
TOM B UGNITZ
B ILL WALTON
March 2004


acknowledgments

W

e have benefited from the advice and suggestions of a number of people.
We are grateful that Jon Shapiro, Rodney Alsup, Cecil Smith, Francois

Wouters, Larissa Moss, Dennis Smith, Camille Appledorn, Ed Curvey, David
Reo, Tony Salvati, and Nicholas Nash gave us the benefit of their thoughts and
reviews of early drafts. We are especially grateful for the work we have done
with Joe Barkley and Bruce Schneider of AIG and the many insights they gave
us in the course of writing this book.
We recognize the many people who have influenced our professional lives
and our thinking over the last twenty years and more. These include: Bill Smith
and the late Hardy Fuchs at Washington University, the best “IT guys” we’ve
ever known; Marilyn Parker, Bob’s coauthor of Information Economics and a
prime influence; Ed Trainor, who contributed the practical foundation for Information Economics; Piet Ribbers of Tilburg University, with whom we always
have great ideas; Ken Orr, who always inspires; John Zachman and Dick Nolan,
who set the standard for what we try to do; Mike Nicholson, our first client
and a faithful supporter, and Bob Rouse, associates in the Beta Group; Linda
Bastoni of Gartner and Regina Paolillo of Creditek, always encouraging better
from us; Chuck Lybrook, who has supported us all these years; Greg Sullivan,
whose constant friendship and good humor means so much; Mary Ann Gibson,
whose business sense, intelligence, and support have pointed the way in building our business; Mike Luby, who possesses a first-rate executive mind connected
to an exquisite sense of humor; Phil Andrews, Swami Viswanathan, Jason Grant,
and the rest of our other clients and good friends (many of whom are both).
Students in our Washington University and Tilburg University courses also have
had a considerable impact on our thinking, as they have often heard our ideas
first and served as a valuable crucible in improving how we express them.

xxiii