Do IT Smart
Seven rules for superior information technology performance
by Rolf Dieter Kemps
and Jurgen Ringbeck
(McKinsey & Company, Inc.)
The Free Press 1998
1994 Scientific American Article
IBM Study of 24 leading companies
55% had cost overruns
68% had schedule overruns
88% had to be redesigned to be used
1/3rd of all large-scale software programs are canceled
The average software program overruns its schedule by 50% — larger programs usually by more
3/4ths of all large-scale developments are operational failures — they do not function as intended or are not used at all
Software is still hand-crafted by artisans using techniques they can neither measure nor consistently repeat
“Project Performance”
Benchmark Database of 1300 Firms
Hackett Group, CIO Magazine, Dec. 1998
Large IT Projects
only 37% on-time
only 42% on-budget
Small IT Projects (< 30 days)
only 80% on-time/on-budget
What is Good IT Performance?
IT efficiency
IT cost as a percentage of revenues
Project management performance against schedule and budget
CAN BE MEASURED DIRECTLY
IT effectiveness
Availability, functionality and utilization rates of IT applications for each core business function
CAN ONLY BE MEASURED INDIRECTLY THROUGH PROCESS PERFORMANCE
Core Business Processes
Product Development
Developing a product concept, designing and detailing a prototype, testing, market introduction
Operation Core Processes
Marketing and sales, order processing (materials and logistics management), manufacturing and after-sales service
Administration
Corporate finance, accounting, controlling, and human resource management
Four IT Cultures
Effectiveness of IT
Efficiency of IT
Big IT Spenders
IT Stars
IT Laggards
Cautious IT Spenders
How the Four IT Cultures Perform
IT stars perform substantially better than IT laggards or cautious IT spenders
Increases in IT efficiency
Increase return on sales
Lower IT costs
Increases in IT effectiveness
Increase revenue growth
Increase market share
Excellent IT Management is a Prerequisite for Success
IT stars have superior process management
Companies with superior process management rely on smart IT applications and high utilization
Professional IT management is essential
Scope of IT Management
Business Strategy
IT Planning & Control
Applications portfolio, technology portfolio, IT architecture, procurement, outsourcing, IT controlling
Consulting
Technology, software projects, business process reengineering, training, requirements planning, technology assessment
IT Systems Development Projects
Maintenance, customization of integrated standard software, development of special software, requirements definition, support for migration, internal training
IT Operations
EDP center, client/server support, network management, help desks
Seven Rules for Superior IT Performance
Effective use of IT in Core Business Processes
Make IT a Priority in Product Development
Integrate IT into Marketing, Sales and Service
Use IT Selectively to Integrate Order Processing across the company
Shift the Focus of IT in Administration to Business Planning and Management Development
Successful IT Management
Make IT a Top Management Affair
Create a Customer-Oriented IT Service Network
Introduce Integrated Standard Software on a Fast-Follower Basis – but Redesign the Business First
Rule 1: Make IT a Priority in Product Development
Use IT in order to
Reduce development cycle time
Merge technologies embedded in products
Optimize product quality
Design for manufacturability and assembly
Coordinate system integration, ., product development network of subcontractors and component manufacturers
Rule 1: Make IT a Priority in Product Development
Use of Simulation Tools
Concept, design and prototyping
Integrate Product Data Management
Engineering, interface and integrate with core business processes, interconnect with development partners
Support Coordination and Information Flow
E-mail, groupware, project planning, shared engineering databases, etc.
Rule 2: Integrate IT into Marketing, Sales and Service
Use IT in order to
Let sales representatives spend more time with customers
Increase the amount of customer contact time which is spent on relationship development
Turn After-Sales Service into a revenue source rather than a cost sink
Rule 2: Integrate IT into Marketing, Sales and Service
Marketing & Sales
Integrated Standard Software to overcome barrier of dispersed data files
Data Warehousing/Mining
Customer Relationship Management
Product Configurators
Multimedia Marketing Techniques
Electronic Transaction Processing
Rule 2: Integrate IT into Marketing, Sales and Service
After-Sales Service
Stored customer data (product configuration, maintenance/repair status)
Product data (spare parts, specifications, defects)
Repair Support
Diagnostic systems
Best practices
Remote-servicing
Customer self-servicing
Rule 3: Use IT Selectively to Integrate Order Processing Across the Company
Use IT in order to
Shorten delivery times
Improve on-time delivery performance
Lower inventory stocks
Improve capacity utilization
Rule 3: Use IT Selectively to Integrate Order Processing across the Company
Materials and Logistics Management
Electronic materials ordering
Warehouse management
Supplier management
Tracking and tracing systems
Supply chain management
Partnering with logistics suppliers
Rule 3: Use IT Selectively to Integrate Order Processing Across the Company
Manufacturing
Production planning and scheduling systems
Plant layout planning
Assembly simulation and assembly support
Automation of manufacturing tasks
Rule 4: Shift Focus of IT in Administration to Business Planning & Mgt Development
Use IT in order to
Integrate core IT applications
Link administrative systems to order processing systems
Support short-term planning (improve precision)
Support long-term planning (move beyond pure financial planning)
Rule 4: Shift Focus of IT in Administration to Business Planning & Mgt Development
Data-Driven Short-Term Planning
Activity-based costing
Capital budgeting
Product planning (platform/module approach)
HR planning and development
EIS/DSS/data warehousing/automated data analysis
Knowledge management
Document management
Vision-Oriented Long-Term Planning (“Rolling back the Future”)
Market segment planning
Industry structure analysis
Scenario planning
Rule 5: Make IT a Top Management Affair
Why So Important?
Align IT strategy with business strategy
Establish clear and meaningful IT objectives
Success Factors
A few top managers with good IT-specific knowledge
Intensive collaboration on content issues
Concentrate on strategic issues
Process support
IT organization strategy
Make vs. buy
Major IT projects
Rule 6: Create a Customer-Oriented IT Service Network
Systematic planning
Zero-based planning
Clear understanding of user requirements
Detailed and reproducible IT cost structure
Internal customer-supplier relationships
Superior IT project management
Effective IT Outsourcing
Scope
Management
contracting
Proactive planning
Risk planning
Strong link between IT application development and business process redesign
Distributed and networked IT units
Involvement and participation of IT users
Continuous improvement of IS processes and performance
IT cost and performance controlling
Rule 7: Introduce Integrated Standard Software as a Fast-Follower – But Redesign the Business First
Preference for standard software over proprietary software
Only use proprietary software if it will provide a true competitive advantage
Effective Implementation
Limit complexity (always redesign biz process first)
Select software smartly (fast-follower; state-of-the-art)
Use well-organized implementation approach
Pilot tests
Rigorous project management
Outlook on the Future of IT
Increasing Complexity of IT Management
New base technologies
Technological change vs. standardization
Dynamic and complex market requirements
Four Key Application Areas
Knowledge management
The fractal enterprise
Restructuring the industry value chain
Multimedia sales/service centers
New Challenges for IT Management
Increasing demands on IT planning
New solutions for systems operations and service
Shifting roles in implementation management
