Over the past 35 years, information and to strengthen the connection technology in organizations has between providers and customers. evolved to the point of near ubiquity. Technology has become so embedded Today, it is hard to imagine any in both the internal functions and organization ? for-profit enterprise, the external value propositions of non-profit, government ? that does modern organizations that it is nearly not rely on IT on a daily basis. Now, impossible to execute strategy in any another evolution is taking place organization without it. in the role of IT. By necessity, the formal organizations that deliver it Strained Relations

must change as well. Yet despite the essential nature of IT, The rapid growth of general purpose relations between IT and its internal business computing in the 1960s was customers are often strained. In driven by the opportunity to replace working closely with about a manual labor processes (such as hundred different IT organizations billing and record-keeping) with over the last twenty years, I have faster, more accurate, and automated often heard a litany of issues that IT processes at far lower costs. Today, and its customers have with each enterprises use technology to enable other: the design of new business processes, ? Most business managers say that functions, and capabilities (e.g., ERP they need IT to be more aligned systems, customer relationship with the business ? to better management, Internet banking, etc.) understand how it can enable the

Evolutionary Stages in the Development of IT Organizations

success of the business, and to use that knowledge to develop more valuable solutions. Managers want dial-tone reliability of systems. They want to know that their technology costs are competi?tive, not necessarily the lowest possible cost. However, most managers have an incomplete understanding of IT expenditures, especially the structural factors that affect total IT cost. As a result, managers generally believe that their IT costs are too high.

? Most managers in traditional IT organizations believe that their responsibility is to deliver high-quality, reliable systems at the lowest possible cost. Spending for IT is usually constrained by an externally-set budget. The organization's business units compete for IT's limited financial and people resources, and political tradeoffs ensue. Inevitably, business unit managers feel short?changed by IT. In extreme cases, this disenchantment leads to the outright decentralization of IT management to the business units themselves, with a significant sacrifice of scale economies. Not surprisingly, it is unusual to find an IT organization that is focused on aligning with its business unit customers.

Not all IT organizations are focused on cost and quality. Many firms born within the last decade (and some older firms) have information tech?nology at the center of their value proposition. They use technology in innovative ways to create and sustain competitive advantage, focusing on quickly bringing these innovations to the marketplace. Amazon.com uses sophisticated analysis of indi?vidual and group purchasing patterns to greet repeat customers with personalized recommendations. Fidelity Investments offered trading and account management services on wireless devices well ahead of many of its competitors.

But while these organizations excel

at agility and innovation, they

More complex IT organizations may well fall within various stages simultaneously, but IT and business managers generally agree on these classifications. sometimes overlook the disciplines

of effective systems management. America Online's rapid growth in subscribers during the late 1990s resulted in busy signals, disconnects, and other service problems because of AOL's inattention to such estab?lished practices as capacity planning and performance management.

Balancing Cost and Quality With Agility and Innovation

It is easy to see how striking a balance between these two extremes

? cost and quality vs. agility and innovation ? works to the benefit of the enterprise. By adding an emphasis on agility and innovation, traditional IT organizations can become more focused on using technology to create value for the firm; they can recognize the impor?tance of rapid implementation in achieving competitive advantage. Similarly, newer IT organizations ? those oriented toward agility and innovation ? realize significant benefit by incorporating the estab?lished disciplines of cost and quality management into their operating objectives.

By necessity, every traditional IT organization is evolving away from an exclusive focus on cost and quality. Each of the organizations I've observed falls into one of the four distinct stages identified in Figure 1 (previous page).

Before IT can begin contributing to the execution of business strategy, it must first demonstrate its competency in cost control and quality. Cost management and high quality are necessary but not sufficient to meet the enterprise's IT needs. Competency is merely eliminating dissatisfaction with IT's performance. Strategic contribution enables value creation in the business. Once competency is established, IT can seek to understand and participate in realizing business strategies, not just operational objectives.

how business managers view it. Shows of hands I've taken at public conferences indicate that IT managers generally see their organizations at the ?Responsive? stage, while business unit managers generally see their IT organizations as merely ?Reactive.? IT managers and their business unit customers do agree on one thing: that IT must become strategy-focused.

The Strategy-Focused IT Organization

The Balanced Scorecard enables the Strategy-Focused IT organization by creating a shared language between IT and its business unit customers. Scorecard measures communicate IT's competence in delivering com?petitive costs and meeting service quality objectives. IT's strategy map establishes that it has a strategy distinct from that of the business units, and clearly shows how IT's strategy is aligned with the success of the business units.

offers a strategy map template for a generic IT organization. From the financial perspective of enter?prise management, IT is simply a means for accomplishing the strategy of the business units and, by extension, the enterprise itself. The optimal use of IT resources ? to maximize value creation by the business units ? is distinct from the traditional goal of controlling IT expenditure. In progressive organizations, the financial emphasis is not on reducing overall IT expenditure, but rather on under?standing and managing the unit costs of IT resources, as well as on predicting demand, which together ease the traditional budgetary con?straints on IT investment. Establishing the value-creating potential of IT helps business managers (and senior management) recognize the difference between IT investment and IT expense.

The strategy map also expresses IT's need to balance its focus on both competency and contribution. From the perspective of IT's primary customer, the business unit manager, IT competency means both quality service and competitive cost, while IT contribution refers to both the implicit benefit of IT on the

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productivity of the business unit, and the explicit achievement of business unit strategies. Agility and innovation are embedded in the man-ager's definition of achieving strategy. But to deliver on the customer's expectations, everyone within the IT organization needs to embrace the balanced themes of competency and contribution.

My colleagues and I have interpreted the Treacy/Wiersema model1 to guide the organization of IT internal activities in several IT organizations. The Operational Excellence objectives within the internal business process perspective of the strategy map reflect the IT organization's commitment to deliver competitive unit costs and quality service. The centralized IT organization exists to realize scale economies by aggregating and opti?mizing standardized resources and processes.

By achieving these objectives, IT's credibility increases, permitting the organization to shift its orientation outward to its customers. The Business Unit Alliance component reflects a new focus on productivity in the business unit itself. By setting and meeting deadlines for the delivery of services and new functions, by ensuring that end-users have access to effective support, and by under?standing the way the business works, IT earns the opportunity to participate in creating and executing strategy as a true partner of the business unit.

True Solutions Leadership results from IT's intimate understanding of the business unit's value proposition and value-creating processes, along with its proactive thinking about the practical application of emerging technology. Increasingly, business value-creating opportunities and solutions will originate in the Strategy-Focused IT organization.

Strategy-Focused IT depends on having the right people and the right climate in which they can perform. Intense competition for people with leading-edge skills necessitates an explicit focus on staff development and retention that is often absent from IT organizations that are focused only on reducing cost.

A Starting Point

Every IT organization faces unique challenges, and the template presented here is just a starting point for facili?tating the evolution toward the Strategy-Focused IT organization. Our approach to developing IT Balanced Scorecards begins with the formation of a small team of key IT managers, business unit managers, and senior enterprise executives. We use their input to create a strategy map, and then to select measures that capture the unique objectives of the enterp