The Operating Model: Business Process Standardization And

UVA Center for the Management of Information Technology March 6, 2009

Strategy Execution and the Role of the CIO/IT

Jeanne W. Ross Director & Principal Research Scientist Center for Information Systems Research (CISR) MIT Sloan School of Management Phone: (617) 253-2348, Fax: (617) 253-4424 [email protected]; http://mitsloan.mit.edu/cisr/

This research was made possible by the support of CISR sponsors and patrons.

Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross MIT CISR gratefully acknowledges the support & contributions of its Research Patrons and Sponsors. CISR’s Mission Research Patrons • Founded in 1974; CISR has a strong track record of practice-based research on how firms – Boston Consulting Group – Gartner manage & generate business value from IT – BT Group – IBM Corporation – Diamond Management & – Microsoft Corporation • Research is disseminated via electronic Technology Consultants – Tata Consultancy Services research briefings, working papers, research workshops & exec. ed. programs including Research Sponsors http://mitsloan.mit.edu/cisr/education.php – Aetna Inc. – Det Norske Veritas – Mohegan Sun – Allstate Insurance Co. (Norway) – NASA 2009 CISR Research Projects – ANZ Banking Group – DHL Global Management – Nissan North America (Australia) GmbH (Germany) – Nomura Research The View from the Top: IT and Business Value – AstraZeneca – Direct Energy Institute, Ltd. (Japan) Pharmaceuticals, LP – Embraer – Empresa – Parsons Brinckerhoff • Achieving Superior Business Value from IT – Banco Bradesco S.A. Brasileira de Aeronautica – PepsiAmericas, Inc. —A Single Framework of What Matters (Brazil) S.A. (Brazil) – PepsiCo International • Communicating Effectively about IT Value – Banco Itaú S.A. (Brazil) – EMC Corp. – Pfizer Inc. • Maturing and Globalizing IT Governance – Bank of America – ExxonMobil Global – PNC Global Investment – BP Services Co. Servicing Building and Leveraging IT’s Assets – Campbell Soup Co. – Fidelity Investments – Procter & Gamble Co. • Managing Business Experiments: Web-based – Canadian Imperial Bank – Grupo Santander Brasil – Quest Diagnostics Innovations in Collaboration of Commerce – Guardian Life Insurance – Raytheon Company – CareFirst BlueCross Co. of America – Renault (France) • Learning from IT Projects: Effective BlueShield – Johnson & Johnson – Standard & Poor’s Post-Implementation Reviews – Caterpillar, Inc. – Hartford Life, Inc. – State Street Corp. • Benchmarks for IT Decision Making – Celanese – HBOS Australia – Sunoco, Inc. – Chevron Corp. – ING Groep N.V – TD Bank Managing Digitized Organizations – CHRISTUS Health (Netherlands) – Time Warner Cable • Leading the Transition to the Digitized Platform – Chubb & Son – Intel Corporation – Trinity Health • Designing and Managing Shared Services – Commonwealth Bank – Int’l Finance Corp. – TRW Automotive, Inc. • Managing the Information Explosion of Australia – Liberty Mutual Group – Unibanco S.A. (Brazil) – Credit Suisse – Marathon Oil Corp. – VF Corporation • Making Sense of “the Cloud” (Switzerland) – Mars, Incorporated – Wal-Mart, Inc. – MetLife – World Bank Contact Information: 5 Cambridge Center, NE25-778 Cambridge, MA 02142 CenterCenter for for Information Information Systems Systems Research Research (CISR) (CISR) Ph. 617-253-2348; Fax 617-253-4424 © 2009 MIT Sloan ©CISR 2009 , 20-Feb-09 MIT Sloan CISR - Ross E-mail [email protected]; http://mitsloan.mit.edu/cisr/ 1 Agenda

Why Firms Need a Digitized Platform Who Will Own the Platform? The SEO – Three key SEO responsibilities – Two Models of CIOs as SEOs – The non-IT SEO How the SEO Evolves The Future of the CIO

Corporate Data

Data

Applications

Technology Platforms

Data Warehouse

Middleware

Data

Applications

Technology Platforms

Business Standardized Optimized Business Silos Technology Core Modularity Business Agility

Standard Interfaces and Business Componentization

Enterprise-Wide Technology Standardized Standards Enterprise Processes/Data

Locally Optimal Business Solutions

25% 46% 27% 2% % of Firms

Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, Center for Information Systems Research (CISR) P. Weill, D. Robertson, HBS Press, 2006. © 2009 MIT Sloan CISR - Ross Percentage of firms in each stage is updated based on a 2007 survey of 1508 IT executives. 5 The strategy execution officer (SEO) owns the platform

3 roles of the SEO:

Enterprise IT & Ongoing Process Operations/ Governance Continuous Improvement

(11) (4)

Project Design & Implementation

(10)

Designs Builds Platform Leverages Platform Components Platform

Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross Numbers reflect how many of 12 SEOS we studied defined each responsibility. Responsibility 1: IT and Process Governance Ensure clarity among senior executives about platform design. Coordinate demands for enterprise change projects, most of which involve IT implementations. Establish priorities for change projects based on multiple criteria: – Organizational readiness – Contribution to platform – Ability to use platform – Expected benefits Work with senior executive team which either makes investment decisions or approves SEO recommendations.

Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross Responsibility 2: Project Design/Implementation Ensure disciplined, effective project methodology. Engage all key stakeholders early and often. Provide expertise on process design. Provide oversight and/or support of change management.

Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross Responsibility 3: Ongoing Operations Provide enterprise services, usually as a shared services organization. Accept accountability for continuous improvement of the platform. Ensure that the enterprise is driving value from the platform.

1. The all-inclusive SEO – Owns all three SEO responsibilities

2. The partnered SEO – Owns first two responsibilities and works closely with a COO or other operational leaders

The SEO: Dave Kepler, VP of Shared Services and CIO, Dow Chemical Company. SEO background: Started as CIO; role grew as CEO added responsibilities. Core of the platform is an SAP ERP, implemented in early 1990s. Shared services organization includes IT, six sigma team, customer service, supply chain, and purchasing processes. 6,000–7,000 of company’s 40,000 employees report to SEO. IT operations outsourced to IBM; Accenture is strategic partner for applications development. Growing responsibilities of the SEO facilitate global integration.

Source: Dow Chemical Company. Used with permission. See also: Ross and Beath, “The Federated Broker Model at The Dow Center for Information Systems Research (CISR) Chemical Company: Blending World Class Internal and External © 2009 MIT Sloan CISR - Ross Capabilities,” MIT Sloan CISR Working Paper No. 355, July 2005. Dow Chemical Company Shared Services Unit

President and COO The Dow Chemical Company Andrew Liveris

Corporate Vice President Shared Services Dave Kepler

Six Sigma and Information Systems Customer Service Work Process Global Purchasing Global Supply Chain Dave Kepler, CIO Expertise Center

Customer Service Six Sigma Expertise Centers Implementation Work Supply Chain Services Chemicals Dow and Accenture Chemicals and E-Business Process & Technology Center and Intermediates* Alliance Plastics* Customer Information Work Process Expertise Group Center Order to Cash Work Application Chemicals and Process Development and Intermediates Dow AgroSciences* Support Hydrocarbons & Energy Performance Chemicals and Thermosets Support Services Enterprise IT Hydrocarbons Plastics Operations and Energy* Finance and Services I.T. Strategy and Architecture for Dow Communications Human Resources All IT Operations and Legal Performance Services Management Chemicals and Thermosets* Facilities Management *Aligned to Business Leaders Source: Dow Chemical Company. Used with permission. See also: Ross and Beath, “The Federated Broker Model at The Dow Plastics* Chemical Company: Blending World Class Internal and External Dow AgroSciences* Capabilities,” MIT Sloan CISR Working Paper No. 355, July 2005. Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross Model 2: Southwest Airlines’ Partnered SEO

The SEO: Bob Jordan, EVP of Strategy and Technology, Southwest Airlines. SEO background: Previously head of Technology, Corporate Facilities and Procurement; has an IT background and has gradually assumed more responsibility for IT and change management. Platform development focused on ground and customer operations. Coordinates efforts of seven strategy teams (e.g., best place to work, largest domestic carrier, low-cost carrier, best customer experience). Teams comprised of 30 top executives, each is on more than one team so that they acquire cross-functional view of the firm. Investment decisions made by Executive Planning Committee (top eight executives) but guided by strategy teams. Strategy leaders participate in monthly project reviews to ensure progress and eventual business success. SEO heads corporate project management office. Team of 25 includes project and change managers. They lead projects but business heads are accountable.

Source: Southwest Airlines. Used with permission. Center for Information Systems Research (CISR) See also: Ross and Beath, “Building Business Agility at Southwest © 2009 MIT Sloan CISR - Ross Airlines,” MIT Sloan CISR Working Paper No. 369, May 2007. Southwest Airlines’ Senior Executive Team

Gary C. Kelly Vice Chairman and CEO

Ron Ricks Laura H. Wright Bob Jordan Mike Van de Ven Colleen Barrett Executive VP - Law, Airports, & Sr. VP - Finance & Chief Executive VP - Strategy & Executive VP & Chief of President & Corporate Secretary Public Affairs Financial Officer Technology Operations

Ginger Hardage Jan Marshall Greg Wells Sr. VP - Corporate VP - Technology & Chief Sr. VP - Operations Communications Information Officer

Jeff Lamb Daryl Krause Sr. VP - Chief People & Strategy Sr. VP - Inflight & Fleet Administration Officer Services

Kevin Krone Jim Sokol Codeshare Business VP - Marketing, Sales, & Development VP - Maintenance & Distribution Engineering

Joe Harris Chuck Magill Labor & Employee Relations VP - Flight Operations

Ellen Torbert Barry Brown VP - Reservations VP - Safety & Security

Jim Ruppel Customer Relations & Rapid Rewards

Source: Southwest Airlines. Used with permission. Center for Information Systems Research (CISR)See also: Ross and Beath, “Building Business Agility at Southwest Airlines,” MIT Sloan CISR © 2009 MIT Sloan CISR - Ross Working Paper No. 369, May 2007. Campbell Soup's Process Owners The Process Owners: David White, SVP; Global Supply Chain, Bob Schiffner, CFO; Doreen Wright, CIO Process owners' background: each head of one core process – David White brought in to Campbell to head new supply chain processes (make to buy) – Bob Schiffner created finance shared service to head new account to report process – Doreen Wright headed order to cash, but handed off to new VP of customer service Core of platform: SAP supporting 3 core business processes IT and business managers team up on Centers of Excellence to drive new processes and process improvements IT operations outsourced to IBM Carefully designed project governance clarified responsibilities for implementation; then shifted to COEs.

Governance

Build the Platform: Use the Platform: Set priorities and provide focus on Establish compliance and critical processes exception processes

Process Ownership Roles

Build the Platform: Use the Platform: Assign high-level process Create high-powered, full-time team to owners; establish centers of design and implement transformed excellence and shared processes services

People Development

Build the Platform: Use the Platform: Develop incentives and Provide training required for new roles, accountability for using data new mindset, and unlearning of habits and services

SEO: head of digitized business processes and services CTO: technical leader working closely with IT savvy business leaders Business partner: part of the senior management team designing processes and services Profit center leader: business head of services unit selling business and IT services to organizational entities Change leader: IT split between CIO (change management) and COO (operations)

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