Chapter 1: IT Strategy and Governance – Running IT Like a Business: A Step-by-Step Guide to Accenture's Internal IT

CHAPTER 1: IT STRATEGY AND GOVERNANCE

When you want to run IT like a business, where do you start? Is it as simple as charging out the IT staff’s time to internal customers? Some IT executives, hoping to demonstrate business value to executive leadership sponsors, do precisely that. But if running IT like a business amounts to nothing more than a chargeback system, you risk missing the quintessential ingredient of any successful business: understanding your customers’ needs and meeting those needs better than the available alternatives can.

If an IT function is going to transform its identity from cost center to value center, something more will be required. As I will argue throughout this book, running IT like a business demands a change in mindset as much as a change in specific business processes. This transformation of attitude has many distinct dimensions, which we will examine in subsequent chapters. Developing IT strategy and IT governance are the first and arguably the two most important steps on the journey toward a new way of organizing internal IT.

Start with strategy

IT strategy informs what you are trying to accomplish at a very basic level. Before you can decide what to do with your IT function, you need to understand the business environment in which you are operating. What is the overall strategy of your enterprise, and how is your business or organization trying to achieve it? Is your business strategy to be the low-cost provider of a commodity, the high-value provider of a highly specialized service, or something in between? Is your business strategy predicated on making a large number of acquisitions? In such a case, the rapid and smooth integration of those external acquisitions into your internal operations becomes a critical criterion for success. Suppose your business strategy aims to expand the enterprise beyond a few core markets: this would place a premium on technology platforms that could start small, but scale up easily as you grow.

There are few limits to the variety of business strategies out there in the real world. To know your company’s strategy in detail, is to know what underlying business mission your IT strategy must successfully support in order to be effective.

By way of illustration, Accenture’s business strategy is to collaborate with our clients to help them become high-performance businesses and governments by leveraging our global management consulting, technology services and outsourcing solutions on their behalf. Since our client base includes many of the world’s largest global enterprises, our strategy as a business is to deliver the same consistent high performance to our clients, no matter what part of the world we are in.

This business strategy has exerted a significant influence on our IT strategy over the past decade. Early in our still-young corporate history, we decided that we would need to operate information technology in a highly centralized and globally consistent way, in order to support the larger business strategy of the company. Accenture’s three major businesses – management consulting, technology and outsourcing – are different in many respects, but all three rely on shared, global business processes. So it made sense for us to strive for a single global technology footprint, governed by a single overarching and centralized IT governance structure.

We broadly refer to this IT strategy as Accenture’s “Theme of One.” Wherever feasible, we standardize, consolidate, and strive to come as close as possible to a single instance of every technology tool we use. Admittedly, the Theme of One is only our vision of an ideal technology environment, and the ideal is not always achieved in the real world of practical business. Nevertheless, we aim high and expect to approximate that vision wherever we can.

At the same time, Accenture’s business operations span many industries in every geographic market. This diversity dictates that our IT strategy must also have a high degree of built-in flexibility, enabling our IT operating model to align with Accenture’s go-to-market strategy, so that we can more effectively support the varying needs of internal customers. To complement the standardization implicit in the Theme of One approach, Accenture’s IT strategy has a second and equally strong managed services component, which literally puts the decision-making power about IT services in the hands of our customers. We accomplish this at Accenture through a variety of mechanisms, which will be explored in greater detail in Chapter 2. At this stage, it will be sufficient to note that, in our IT strategy, the global scope of Accenture’s Theme of One is counterbalanced by the ability our internal customers possess to select the IT service levels that are appropriate for their business needs.

A third component of Accenture’s IT strategy relates to Accenture’s global footprint and its ability to tap deep technology resources from a range of low-cost locations around the world. Accenture currently employs more than 50,000 technology professionals in India alone – a number that is growing all the time. We also employ large contingents of technology professionals working in markets from Argentina to the Philippines. Our access to superior technology professionals based in markets with highly cost-effective labor rates gives us an attractive opportunity to leverage lower-cost resources for the benefit of our internal customers. Even more importantly, using variable resources that support multiple clients allows us greater access to people with unique skills necessary to support our IT function. We may not need a full-time worker with specific skills on a permanent basis: “sharing” a variable resource provides an excellent solution.

So our IT strategy includes an explicit goal of centering our workforce on variable resources in low-cost locations. Hardly surprising for a company that ranks among the leading providers of outsourcing services in the world, Accenture itself includes a sizable outsourcing component in its IT strategy. We effectively outsource a significant portion of our own internal IT operations to market-facing Accenture outsourcing specialists around the world, who can provide the same high-quality services as our own IT professionals, but at a more attractive cost.

Accenture’s IT operations, at the time of this writing, employ some 4,000 IT professionals. Only about 500 of those individuals – that’s one in eight – are full-time employees of our IT function. The remainder of our team consists of Accenture IT professionals who work in Accenture’s network of low-cost delivery centers, IT specialists we share with our infrastructure outsourcing business, and Accenture consultants seconded to our function from other parts of the business. The result is that Accenture’s IT function has a much lower percentage of permanent resources than many other companies have.

To round out the key elements of Accenture’s IT strategy, we incorporate rigorous performance processes into everything we do. We communicate extensively about major initiatives to internal customers, as well as to client colleagues in IT who wonder, “Well, how does Accenture handle this issue?”

So Accenture’s IT strategy includes seven key elements:

  • Creating strong, central IT governance
  • Aligning the IT operating model with Accenture’s go-to-market strategy
  • Running IT like a business based on a managed-services approach
  • Consolidating, standardizing and centralizing operations
  • Focusing the workforce strategy on variable resources and low-cost locations
  • Strengthening IT performance measurement processes
  • Communicating successes and benefits realization at every opportunity.

Effective strategies are organic and integrated, rather than a series of isolated bullet points, but this list begins to define what we inside Accenture’s IT function mean when we discuss IT strategy.

Developing your IT strategy

How do you develop an IT strategy if your enterprise does not presently have one? How do you correct or re-launch an IT strategy that may have been detoured by economic conditions or external circumstances? How do you keep your IT strategy aligned with your business, as the business changes and evolves over time?

We have already discussed the critical importance of having a clear understanding of your business strategy. This will serve as a foundation for determining the appropriate IT strategy. IT does not function in a vacuum, but exists to serve the needs of the business. What are the priorities and goals being pursued by your business enterprise? Are these priorities changing in response to market opportunities or pressures? What objectives is the business pursuing that IT is uniquely qualified to help it achieve?

If these are some of the questions you might ask as you begin to think seriously about IT strategy, where do you find the answers? When the topic is strategy of any kind, some people instinctively reach for some blank sheets of paper, lock themselves in a room for a few days, and hope that – through a process of arduous soul-searching – they will emerge with a strategy.

Our experience at Accenture is precisely the opposite: effective strategy emerges from a dynamic dialogue and interaction with your business at many levels. Only by talking in depth to leaders and internal customers throughout your business is it possible to develop a clear sense of where your business is heading and how the IT function may be able to help it get there better, faster and cheaper.

So if IT strategy is new to you, start with wide-ranging discussions and data gathering, so you can inform yourself about the essential issues: What is the current business strategy? From where do we expect growth to come, what are the opportunities for expansion, and where are the challenges and threats to our revenues or profits?

At Accenture, we begin these discussions within the IT function, and then we expand the discussions to involve our senior leaders – including the chief operating officers of our major business units and the account leads on our largest accounts. We seek to hear from them firsthand about their most pressing priorities, and value their perspective on how they think technology may be able to help. Cross-disciplinary discussions with colleagues outside the IT function are indispensable for the development of mature, sophisticated IT strategy. Seek out the business leaders in your enterprise who have direct contact with clients and customers, who confront competitors every business day, and who have an intuitive feel for the way your company’s industry is evolving. Interrogate them about their specific strategy for their part of the business, and don’t be afraid to ask them what the key “pain points” are that they are living with today, and what technologies you can provide that will make their lives easier. When you engage these executives in the strategic planning process, you will begin to acquire a set of pragmatic business insights that you will need as inputs for your IT strategy. Coincidentally, these same discussions will send a powerful message to business colleagues: that your IT function is there to serve them. Your commitment to meeting their needs will pay dividends when you need their support for your IT initiatives.

Alongside the business issues, strategy development also needs to involve an examination of the technological opportunities. Strategic insights can come by taking your research beyond the borders of the enterprise and into the wider technology community. What are the prevailing trends in information technology? What exists today, what is on the near or far horizon, and can we take advantage of those innovations by matching them against business objectives?

At Accenture, we take a hard look at what is happening in the marketplace by making inquiries through as many channels as we can possibly find. Discussions with Accenture’s go-to-market technology experts and with professionals at our innovation centers are a valuable source of information. We also track important technology breakthroughs and assess the competitive landscape, paying particular attention to the innovations coming out of Cisco, Hewlett-Packard, Microsoft and other technology giants working alongside us.

Lastly, we have direct access to the Accenture Technology Labs. Their brief is to work on the leading edge of technological change, wherever it may take them – which keeps them especially well-informed about the “next new thing” across an extraordinarily wide spectrum of industries and disciplines. In addition to the preparation of an annual technology forecast, Accenture Technology Labs support teams of scientists and technologists who are dedicated to exploring and exploiting technology for practical applications. In the process of doing so, they leverage IT in imaginative new ways, all of which inform and enrich our understanding of the possibilities that lie ahead.

On both the business side and the technology side, we take the strategic investigation inside Accenture one step further, engaging our 215,000-strong workforce in the discussions on innovative collaboration technologies. In this way, we aim to tap the wisdom of crowds – in this case the crowds of technologically savvy Accenture professionals working in industries and markets around the world. Since our global enterprise seeks to hire the most proficient consultants and technologists it can find, it only makes sense to take advantage of the vast information-gathering power of this global team. Using collaborative tools, such as Accenture’s Innovation Grapevine, we seed ideas about emerging trends and technologies in shared electronic workspaces. We then invite everyone to comment on the merits of existing ideas, or to put forward new ideas, with the expectation that the brightest insights will invariably rise to the surface.

A smart IT strategy blends the best insights from these two independent and mutually supportive investigations, marrying insights into where the business is heading with a keen understanding of where technology could take us. The result is an IT strategy with two distinct components: IT business strategy and IT technology strategy. At Accenture, we visualize our IT strategy in the following way:

Figure 1: Accenture’s IT strategy

Although somewhat unusual, thinking about IT strategy in terms of these two broad clusters of platforms, solutions, capabilities and services can be productive. In too many enterprises, IT is viewed simplistically as the necessary evil: an expensive cost center instead of a lucrative value center, and a big headache rather than a big opportunity. The price for such a distorted view of IT comes in the opportunities that are missed: when you are not looking at the power technology can bring to bear, you are never going to see the full value of your IT investment. Of course, IT functions in certain industries have shed these mischaracterizations; banks and financial service firms simply would not be able to function today without IT. The same must be said for most major manufacturing enterprises.

Grounding your IT function in a firm foundation of IT strategy is a vital first step toward securing the full recognition of IT’s worth across the enterprise. It is important to have your strategy well-documented, and to make certain that people at all levels of your IT function understand its implications. The strategy can only be as good as the people who implement it. In complex IT functions, people at several levels are making daily business decisions that have a direct bearing on IT strategy. For this reason, it is essential to communicate the strategy and to ensure that it is understood at the leadership level as well as all other major levels, because you want daily decisions to be made in the context of the broader IT strategy.

Putting together a coherent and comprehensive IT strategy for the first time is no small endeavor. The good news is that, in most enterprises, it is not an annual exercise. At Accenture, we review and update our IT strategy every 18 to 24 months. At the beginning of each review, we do not throw the entire IT strategy out and start over, but rather focus on particular areas that need to be refreshed. Strategic continuity is important, particularly because most large IT initiatives can extend over multiple fiscal years (FY). For this reason, it is important to strike an appropriate balance between stability and change.

IT governance

If IT strategy provides the “what,” IT governance provides the “how.” IT governance sets out who the players are, who is going to make the decisions, and who is going to be held accountable for results.

IT governance creates the institutional structures required for making central investment recommendations to the company or enterprise. At the center is the IT steering committee, where decision makers determine what technology is going to be provided to support the business. Investment decisions, however, are only one aspect of the steering committee’s contribution. After the decision to invest in a particular technology is made, the IT steering committee plays a critical role in promoting the necessary buy-in required for programs that entail changes to the organization.

IT governance answers the question: how are we going to manage our IT operation? Effective IT governance is principally an issue of alignment – getting the IT strategy aligned with the business strategy, having the right people lined up to make the necessary decisions, and aligning IT spending with critical business priorities.

Mirroring your corporate structure

Your IT governance structure should mirror the way your enterprise works and align with how overall governance functions in your company.

It is unlikely, for example, that a highly centralized IT governance structure will work in a highly decentralized enterprise; in such a situation, you are more likely to find advantages in a federated model of management than in a single decision-making mechanism. On the other hand, totally centralized IT governance is no panacea. Even a powerful central CIO function needs a governing body with representatives from different parts of the business. This way, deliberation can result in nuanced decision-making, which can, in turn, drive common processes and improve cost-efficiencies at scale across the entire enterprise. Effective governance, in this setting, may enable the enterprise to take advantage of common infrastructure on the lower levels of the technology stack – where commoditization prevails. It may also support different applications at higher levels of the stack – where business divisions or subsidiaries require them.

One enterprise I had the opportunity to study operated 17 distinct data centers in one geographical region. This was because each department within the overall organization ran as a standalone function, and so each function required its own individual data center. Such a situation might call for a decentralized IT governance structure, but certainly presents opportunities for cost reduction through centralization. Devising the right IT governance structure for your enterprise will require trial-and-error experimentation, and the following key roles should be included:

  • The IT steering committee, which has the authority to review, endorse and commit funds for IT investment
  • Stakeholders, who own opportunities representing changes in business capabilities.
  • Sponsors, who are stewards of business capabilities and applications, whether global, regional or local
  • The CIO and his or her organization, which includes all the executives who will be held accountable for IT capabilities.

Figure 2: Key roles in IT governance

The IT governance structure at Accenture includes all of these positions, as well as a fifth group – the Accenture Global Management Committee – which includes senior corporate executives who can provide IT investment funding guidance. Our IT steering committee includes the chief operating officers of all our business units (see Figure 3).

Figure 3: Accenture IT Steering Committee representatives

Responsibilities for IT governance are distributed across these various roles, with specific parties being either directly responsible, participatory, consulted, informed, or accountable for results. These responsibilities include:

  • Strategy and structure – including the formulation of IT strategy, enterprise architecture and IT standards
  • Multi-year planning of initiatives, product and service plans, and the IT sourcing plan for the enterprise
  • Annual planning of priorities, initiatives, the operating plan/budget and capital plan/budget
  • Execution – which includes implementation, variations to the plan, performance targets and plans, and benefits realization.

Prioritizing IT investments

As the list suggests, the process of making decisions about IT investments is central to the IT governance process. In any given year, Accenture generates nearly 200 requests for IT investment. The process by which the CIO and the IT steering committee winnow down these requests to identify fundable initiatives illustrates IT governance in action.

Our process gets underway seven to eight months in advance of our fiscal year, when IT executives sit down with business sponsors and begin to identify potential investment areas. In this early stage of the process, the emphasis is on idea generation. Costs and benefits are roughly estimated, rather than precisely calculated.

The IT leadership team then goes through the outputs from these early thoughts to identify duplicative projects, common opportunities and major trends and themes, which are then presented in summary form to the IT steering committee. Before detailed planning begins, there needs to be a general consensus and level of support for the major initiatives.

Typically 180 to 220 proposed programs enter this process of consideration, but only half to two thirds will emerge from it. Once the short list of initiatives has been determined, detailed planning begins to estimate one-time costs, ongoing costs, hard and/or soft benefits, and timelines for development and implementation. Business cases are assembled for each initiative.

After the detailed planning is complete, the IT steering committee divides into sub-committees, one for each of five portfolio areas. Each sub-committee reviews requests in its respective portfolio, preparing laddered lists of investment requests with scores. The laddered rankings from the five areas are then merged into a consolidated ranking for review with the full IT steering committee – the chief operating officers of each of our business units. IT investment funding establishes a value line on the ranking of proposed programs; initiatives above the line are approved, and those below are deferred.

The beauty of the IT steering committee structure lies in its ability to get senior people involved. At Accenture, we hold the sponsor of an initiative responsible for the entire business case, all the way to the realization of the benefits promised. Since IT change usually involves process redesign and organizational changes as well as changes to the underlying technology, you must have a business sponsor responsible for the entire change process. This accountability even extends to outsourcing arrangements, in which the sponsor of the initiative still must be responsible and accountable for the technology.

Once investment allocations for the year have been made, some flexibility should be reserved for opportunities and for changes during the fiscal period covered by your budget. At Accenture, we set aside a hold-back amount precisely for things that might come up during the year. If something important arises, we can also go back to the IT steering committee to request that some project of lesser priority be halted in order to free up funds for the new project.

Investment portfolios

What are “investment portfolios” in the context of an IT operation, and why do we use them? When Accenture’s IT function first created the IT governance structure described above, we found that our IT investment decisions tended to become concentrated, year after year, in internal operations. For example, more than 75% of our investments in new IT programs in fiscal year 2005 were for the support of internal corporate function operations. However, the participation of chief operating officers at business units in our IT governance process brought to the fore the IT needs of client-facing sales and delivery teams. To ameliorate a natural bias toward funding internal operations, we developed the concept of investment portfolios, and defined five broad areas:

  • Investments designed to support individual business units
  • Company-wide investments affecting everyone and everything in Accenture
  • Corporate functions – such as human resources or finance
  • Investments in pure IT functions
  • Investments directly dictated by legal and regulatory requirements.

The effect of this modification in our governance model was striking: by fiscal year 2008 – only three years later – investments in internal operations had shrunk to 34%, while investments in client-facing sales and delivery initiatives had soared to over 40% of total annual investments (see Figure 4). Since then, the share of annual IT investments going to client-facing parts of Accenture’s business has continued to climb. The conclusions are obvious. When forced by defined structures of IT governance to consider the broader needs of the business, we suddenly discovered much better ways to invest the company’s funds and to improve IT operations simultaneously.

Figure 4: Changes in portfolio allocation

There is another important lesson to be learned here: do not expect to get IT governance correct straight out of the box. In my experience, a struggling IT function is often a sign that the IT governance model has not been well-defined, or that the people involved in the governance structures are not sufficiently experienced to make sound investment decisions. So take your best shot at a governance model, but then don’t hesitate to make adjustments until the model faithfully reflects the intrinsic dynamics of your business.

Clarity around accountability

Whenever we talk about running IT like a business at Accenture, the value of two core business concepts shines through: stay close to your customers, and hold yourself and everyone around you accountable for results. The IT governance model I have outlined strives to put internal customers right next to IT professionals on the IT steering committee, so that the needs and priorities of your market-facing colleagues become IT’s needs and priorities. Similarly, ensuring individuals’ accountability for results is crucial both for long-term IT strategy and for day-to-day IT governance. The project champions and executive sponsors who propose a business case for change need to be there and be accountable when the benefits of that investment are calculated. We will return to the subject of accountability repeatedly in the chapters to come. Nothing can be more central to a business-like IT function than strict, rigorous accountability for results.