Managing Information

Technology for Business

Value
Practical Strategies for IT and Business
Managers

Martin Curley

INTEL
PRESS
These pages were excerpted from Chapter 6 of Managing Information Technology for
Business Value, by Martin Curley. Visit Intel Press to learn more about this book.

154 Chapter 6: Managing the IT Capability

The IT Value Chain

IT assets lead to business value through their impact on an IT value
chain, which consists of the sequence of processes that create value:
dreaming up a solution, building that solution, and then delivering the
solution as a service that meets the business need or capitalizes on the
business opportunity.
The key inputs to the value chain are business opportunities and
business needs that can be matched with potential IT solutions. The
output of the value chain is a stream of solutions that solve business needs
or capitalize on emerging opportunities. Another output of the value
chain is future business opportunities that arise out of prior investments
managed through the value chain.
In 1987, Cyrus Gibson, in his book, The Information Imperative,
described the four basic value-chain activities of the IT organization as
follows:
■ Planning of applications and of technical infrastructure
■ Development of applications
■ Operations or use of developed applications
■ Technical service and support of applications

Notice Gibson’s focus on the technical aspects of the IT value chain and
his focus on applications. A significant change in mindset has occurred
over the past decade. The term application has been replaced by the
term solution. This is a good development because delivering a solution
emphasizes that a business problem is being solved rather than just that
another application of information technology is being deployed.
At the same time, enterprises are increasingly coming to view their IT
organizations as service organizations rather than product organizations.
 Competing on IT Capability 155

An IT service provides a solution to a business need and typically has

intangible benefits associated with it. In the old days, the IT organization
would have delivered a server and a database as a product. Today, the IT
organization delivers a customer care solution, an inventory management
solution, and so on.
More recent research by Agarwal and Sambamurthy (2003) suggests
that the IT value chain comprises both primary and secondary value-
adding activities.
As shown in Figure 6.3, the primary value creating activities are IT
innovation, solutions delivery, and services provisioning. IT innovation
is the conceiving and prototyping of innovative new solutions that could
provide competitive advantage; solutions development is the process of
building and deploying solutions; and services provisioning refers to the
flexible ongoing operation and support of these solutions.
Depending on the profile and maturity of the firm, the resource
allocation profile across the steps in the primary value chain will differ.
Many IT organizations place a significant majority of their resources on
services provisioning. For these organizations, an objective for
improvement may be to move resources back in the value chain by
driving cost out of services provisioning and investing the savings in
improved innovation and solutions development.
Resource allocation varies by global region as well. In November of
2003, I hosted a group of CIOs from Russia at Intel Ireland’s IT Innovation
Centre. In most western companies, the majority of IT resources are
deployed in the services provisioning stage in the value chain. In
contrast, in emerging markets there are fewer legacy systems to maintain.
These IT organizations can afford to dedicate proportionally more

IT Solutions Services
Innovation Delivery Provisioning

Inellectual Capital Program/Project Financial Management/

Management Management IT Business Value

Customer Management/
Strategic Planning Technical
Communication

Source: Adapted from Sambamurthy and Agarwal

Figure 6.3 IT Value Chain
156 Chapter 6: Managing the IT Capability

resources to IT innovation and solutions development. Also, since IT

people resources in these countries are less expensive than resources in
more developed economies, IT leaders have more people assets to put
more horsepower behind IT innovation and solutions development.
Agarwal and Sambamurthy also describe secondary IT value chain
activities that include processes such as strategic planning, financial
management. These secondary activities provide a necessary foundation
for the primary value chain. Quality leadership and management are
other activities required in the IT organization.

Primary Activities in the IT Value Chain

I want to take a closer look at IT innovation, solution delivery, and
services provisioning, which are the activities that define the primary
stages in IT value chain.
IT Innovation. IT innovation is the process of creatively developing
intelligent combinations of new and existing technology and knowledge
to deliver new business solutions that can add new value or perform an
existing function better, faster, or cheaper. While you might think that
innovation is mostly about invention, the invention of entirely new tech-
nologies is generally only a small part of innovation. Innovation is all
about knowing how to put technology to use to create or capitalize on
new business opportunities, strengthen business competencies and
customer relationships, and improve business processes. Along the way,
IT innovators must ensure that innovation is in alignment with the stra-
tegic business thrusts of the firm.
Using a combination of satellite-based wireless WAN, peer-to-peer file
transfer, and wireless LAN technologies to field eLearning at a remote site
is an example of IT innovation. This combination of technologies can
deliver near-broadband experience for learners while using narrow band
connections. Once a single copy of an eLearning file is downloaded to
the remote site, it can be replicated using peer-to-peer techniques. With
a wireless LAN, learners are free to study lessons in their offices, in
meeting rooms, or in the cafeteria.
While IT innovation in firms has generally taken place in ad-hoc
fashion, firms are now trying to implement more systematic robust
methods. Many firms cannot yet accurately identify the innovation activ-
ities underway in their firms. In the future, developing systems to
support innovation and making the innovation visible will be increasingly
important. At Intel IT, we are prototyping an IT innovation methodology
aimed at capturing creative ideas, business problems, and enterprise
 Competing on IT Capability 157

needs. We expect this methodology to help systematically manage

innovation.
Our methodology highlights the importance of rapid solutions proto-
typing. Moving quickly from thought leadership to working prototypes—
analogous to the automotive industry’s use of concept cars—allows us to
run the pilot studies that evaluate the potential value and practicality of
new ideas and innovations. If an idea or prototype demonstrates suffi-
cient potential value, we can then shift to solutions delivery, which is the
next stage in the IT value chain.
Solutions Delivery. Based on the output from innovation, solutions
delivery focuses on delivering the solutions either through internal
development, external contracting, or through solutions integration
using packaged software. The goal of the solution delivery stage is to
ensure timely and cost-effective deployment of IT solutions to support
business needs.
Depending on the profile of the company, IT organizations predomi-
nately either develop software solutions from scratch or integrate
solutions purchased as building blocks. In the last decade, the pendulum
has swung very much from build to buy. IT and business managers have
come to believe that buying and integrating packaged software is more
cost effective and carries less risk than developing custom software.
However, I believe that we will see some rebounding in the years to
come, with more organizations increasing their capability to develop
custom solutions. Packaged software does not always fit an organization’s
need, integrating packaged solutions is increasingly complex, and more
powerful development tools are available for custom solutions.
The Software Capability Maturity Model (S/W CMM) developed at
Carnegie Mellon University’s Software Engineering Institute (SEI) is the
most widely recognized tool for improving competence in solution
delivery.
The capability maturity frameworks (CMFs) that I put forward are
based on the same principles that underpin the CMMs developed at
Carnegie Mellon. For more information on CMM, look at the SEI Web site:
www.sei.cmu.edu.
Services Provisioning. Services provisioning is about delivering the
primary services and products to support the firm. Activities include the
allocation of IT services and resources, such as a share of the data center,
the help desk, remote desktop management, and IT solutions. The
primary objective of services provisioning is to deliver the services and
solutions the firm needs in the most cost-effective manner. Rather than
158 Chapter 6: Managing the IT Capability

allocating fixed resources to users of IT within and outside the corpora-

tion, one objective of services provisioning is to be able to reallocate
resources efficiently as workloads shift.
Service provisioning was once primarily an internal function and more
recently has had an increasing external focus. The IT organization at
Cisco Systems provides a case in point. While IT at Cisco supports 40,000
employees, it also provisions IT services to over a half million extranet
users, the suppliers and customers of Cisco. It is a quantum shift for an
IT organization to host more outsiders than insiders. Doing so puts new
pressure on the services provisioning function and a stronger emphasis
on security. The IT organization, once relegated to back-office activities,
finds itself customer facing and supplier facing.
Many firms spend over 80 percent of their IT budget in the area of
services provisioning. Surprisingly, there are few frameworks and
approaches to support the formal development of services provisioning
methods. Digging deeply into services provisioning is beyond the scope
of this book, but I encourage readers to watch this area closely.
Here are activities that I feel are particularly important:

■ The IT Infrastructure Library (ITIL), formulated by the U.K govern-

ment’s Central Computing and Telecommunications Agency
(CCTA), now overseen by its Office of Government Commerce
(OGC) is a popular framework that specifies what tasks should be
accomplished when building a foundation for provisioning. The
ITIL defines a set of best practices in 24 IT disciplines.
■ The IT Service CMM is a practical framework for improving service
provisioning competence. The IT Service CMM is being developed
at the Software Engineering Research Centre (SERC), which is
based in The Netherlands. For more information, check the SERC
Web site://www.serc.nl.

Measuring and Improving IT Value Chain Performance

The performance of an IT value chain is ultimately measured by the busi-
ness value it delivers. We have discussed many of these performance
measures in Chapters 3 through 5. In terms of improving performance in
a value chain, it is important to look at a number of different perfor-
mance indicators:

■ Operational excellence—the measured ability to deliver and

support solutions efficiently and reliably
 Competing on IT Capability 159

■ Creativity—the number of innovative solutions conceived,

developed, and delivered
■ Productivity—improvements in the amount of work output
enabled by IT solutions
■ Speed of delivery—the time elapsed between conceptualizing a
solution and deploying a working solution that returns value to the
customer
■ Agility—the speed with which IT resources can be realigned with
with changing business priorities
■ Quality—the usability, accuracy, and reliability of new solutions
aiming to address business needs
■ Modularity—the degree to which an IT organization successfully
minimizes the potentially complex relationships among solutions
Firms have high expectations for IT capability on each of these dimen-
sions. Taken together, these performance indicators represent a broad-
ranging agenda for the IT organization. Although delivering high quality,
creative, productive, and efficient solutions with speed, and agility is a
tall order, doing so means delivering business value and competitive
advantage to the firm.
IT Program Governance. Managing the flow of products and
services is often called IT program governance, which is a subset of port-
folio management. IT staff responsible for program governance evaluate
these services at checkpoints or stage-gates to re-assess expected future
value based on risk, benefits, cost, and other factors. Managers respon-
sible for program governance must decide whether to accelerate, stay
the course, or halt IT initiatives depending on shifting business priorities
or new estimates of contributions to business value. The ability of an IT
organization to pick the right solutions and move them through the IT
value chain quickly and in a cost-effective manner is a key determinant
as to whether IT can provide sustainable competitive advantage to a
firm. In some cases, the right decision may enable the firm to stay in busi-
ness.
In my opinion, program governance is the single most important
practice in the IT value chain because it provides oversight for all IT
decisions in the IT value chain from initial concept to system testing,
deployment to production, up to and including a solution’s end-of-life.
Program governance describes the key processes and tools used for
developing and deploying new or incremental solutions in response to
160 Chapter 6: Managing the IT Capability

Measuring Solutions Delivery Performance at ING Bank

ING Bank uses an integrated approach to measuring the perfor-
mance of their value chain that reflects not only the solutions
delivery process, but also the benefits that are delivered as the solu-
tions and services are provisioned and operated. The integrated
measure shown in Figure 6.4 reflects the real risks and trade-offs
associated with solutions delivery and the IT value chain.

On-time

On-budget

100% Functionality

100% Benefits

All criteria

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

% of Achievement

Source: ING Bank

Figure 6.4 Risks and trade-offs for Solution Delivery

Business priorities and conditions determine which performance

measures are most important. Time-to-market concerns may drive
on-time delivery as the most important measure, with a willingness
to exceed budget in order to drive on-time benefits delivery where
these benefits are likely to be significant.

business problems or opportunities. Program governance often maps

directly onto the software development or solution development life
cycle in a company. Typical stages in this life cycle include:

1. Conceiving the solution

2. Evaluating the investment’s costs and benefits
3. Initiating the project
4. Analyzing the requirements
5. Designing, building, and testing
 Competing on IT Capability 161

6. Piloting and validating

7. Implementing and deploying
8. Operating and supporting
9. Retiring the solution at the end of its life

As we have discussed earlier, ongoing measurement and accountability

throughout the life cycle is crucial for benefit realization, keeping in
mind that different phases in a program life cycle incur different costs. If
a project is abandoned early in the life cycle, the sunken costs are gener-
ally small. However, abandoning a project just before deployment or,
worse still, after deployment can be very costly. Efficient IT organiza-
tions should follow the example of product development in pharmaceu-
tical companies by maintaining a pipeline of projects that have the
potential to deliver future value.
Program Governance at Intel. Intel IT has adopted the program
governance approach that our own product divisions use to develop
Intel’s microprocessors and communications products. Adopting a
program governance methodology for IT solutions has been a major
breakthrough for us. According to Keith Reese, VP of our supply
network group, “First, program governance provides a framework that
allows us to consistently manage a program from inception to comple-
tion using a system that has been proven by others. Second, program
governance gives us a common language … so that people can talk about
where a program is and know what that means.”
Intel’s program governance revolves around a product development
life cycle called Intel PLC. The three major components to the Intel PLC
are phases, decisions, and program information. The phases for creating

Value Commit Go/No-go Closure

Decision Decision Decision Decision

Exploration Planning Development Deployment

Figure 6.2 Intel’s Product Life Cycle (PLC)

162 Chapter 6: Managing the IT Capability

a product or service, shown in Figure 6.2, are exploration, planning,

development, and deployment.
At Intel we use a stage-gate approach (described in Chapter 1 on
page 19) that requires a decision at every transition between phases. The
approach gives us the ability to accelerate, decelerate, or even halt
programs depending upon their progress and depending upon their
ongoing business alignment and importance. We believe in tracking
benefits after IT solutions are deployed and we hold program managers
accountable for post-deployment benefits. And, finally, we believe that
program governance includes responsibility for retiring solutions from
the firm’s IT ecosystem at the right time.
An important component of program governance is developing
standard templates and methods for each of the stage-gate review
processes. Standard templates enable employees to focus on the content
of their programs without having to worry about how to develop and
present their evaluations. Similarly, standard templates simplify compar-
isons among IT programs and also help provide benchmark information
at each stage gate.

IT Assets and the IT Value Chain: A Virtuous Relationship

IT assets and the IT value chain should be mutually reinforcing. As IT
assets accrue, they need to be regularly reallocated to meet the changing
needs of the business. At the same time, IT managers should strive to
tighten the links in an IT value chain that delivers solutions more quickly
and efficiently. In the process of delivering new business solutions, IT
staff will gain new skills and the IT infrastructure will assimilate new
hardware and software. The integration of the asset management and
value chain optimization provides a useful conceptual model for the
proactive management of IT.
I believe that the IT organization’s theory of business should embrace
the value chain and asset management. Here are six basic strategies that
I recommend to systematically maximize business value delivered to the
firm. I shall provide some examples of principles in action, and link this
discussion on IT assets and IT value chain to topics covered elsewhere.
■ Develop and manage IT assets based on projected demand and
growth.
Any business needs to scale its assets based on project demands
and growth. For example, manufacturing firms build factories to a
specific size based on projected growth. Similarly, the IT assets of a
firm should be scaled to meet forecasts of future demand. For the
 Competing on IT Capability 163

IT infrastructure, this means either having needed capacity in place

or developing the ability to provision capacity in response to new
demands.
At Intel we use a scale-up/scale-out approach when designing IT
infrastructure. In response to increased demand, we can either
scale up by adding more processors to make a single server more
powerful or we can scale out by adding more servers.
In a similar manner, we manage our people asset as a flexible
resource by using a mix of internal and external IT professionals to
obtain the skill sets that we need. As skill sets at Intel change, we
invest in developing new competencies for our people with
vigorous training programs. In this way we upgrade the value of
our IT people asset.
■ Focus on the highest leverage services and on strategic initiatives.
We make a point of identifying capabilities that are crucially impor-
tant to Intel and improving the links in the IT value chain that
delivers these capabilities. Input to the value chain is always a busi-
ness opportunity or a business need. For some needs and opportu-
nities, we need new and innovative approaches and for others, we
need to tune the deployment and operation of the systems
currently in place.
Investment governance, outlined in Chapter 4, is a key process
area for ensuring that the IT value chain is focused on the right
issues. The business capability roadmap (BCR) discussed in
Chapter 4 is an example of locking of the IT value chain on a partic-
ular vector and sequencing a number of solutions along the vector
based on priority and need for the business.
■ Improve speed and effectiveness of value chain transformation and
execution.
The speed and effectiveness of the IT value chain needs to be
continuously improved. I think the key issue is usually quality IT
program governance. The value chain requires leadership and over-
sight. Governance assures that IT is focused on satisfying business
needs and opportunities by efficiently and effectively delivering
the right solutions in the time frame required by the enterprise.
Methodologies such as rapid application prototyping or Xtreme
Programming are examples of approaches that can be used to
speed up the “beat rate” of the IT value chain, that is, how quickly
the IT organization responds to new needs or opportunities.
164 Chapter 6: Managing the IT Capability

Someone in the IT organization should be directly accountable for

the IT value chain. That individual’s challenge is to ensure that each
stage in the value chain is performed effectively and that the links
between stages are as tightly integrated as possible. I believe that
the IT value chain itself is a candidate for a business process re-
engineering exercise. Regular reviews to seek out improvements
are often handsomely rewarded.
■ Improve conversion efficiency by raising asset utilization and
improving alignment between IT and business objectives.
Redeployable IT assets, underpinned by open and scalable IT archi-
tectures, enable an efficient IT value chain. When the enterprise
invests in new IT assets, the IT organization’s goal is to create a
virtuous circle where new assets are integrated with existing assets
to provide useful new IT services at a small incremental cost. The
goal is high utilization and I believe that infrastructure and people
assets are often underutilized. Here are two examples:
– Highly skilled IT professionals are often bogged down in
supporting IT customers in tasks such as resetting passwords.
Such tasks as this are better performed by an automated system.
The enterprise is incurring an opportunity cost because that
same professional could be focused on delivering a higher-value
IT solution to the firm.
– Many firms add computing assets, particularly servers and
storage, on an application-by-application basis and lack an archi-
tecture that supports shared resources. As a result, server and
storage assets are effectively stranded, and thus under-utilized.
New technologies such as peer-to-peer computing and grid
computing are aimed at enabling better IT asset utilization.
■ Sharpen customer focus by investing in improved customer
account management.
The IT organization must understand the firm’s information needs
and opportunities in order to deploy IT capability accurately and
effectively. Customer account management, discussed in Chapter
8, is a key part of running IT like a business. The ability to under-
stand the needs of the firm and identify how information tech-
nology solutions can be used to meet or exceed business needs is
essential in optimizing the use of the IT capability. Excellent
customer account management will ensure strong business and IT
alignment.
 Managing IT Assets For Value and Agility 165

■ Migrate IT resources upstream in the IT value chain (i.e., to the

innovation and solution development states).
I believe that the IT organization should have a profile of budgeted
expenses that is balanced across the IT value chain. Without
aggressive management, resources tend to migrate downstream in
the value chain. Over time, ongoing operations can consume
nearly all resources. Lost is the opportunity to provide new and
innovative IT solutions that might truly provide competitive advan-
tage.
When resources can be directed upstream to IT innovation, there
is a greater likelihood that more business value will be generated. I
encourage IT managers to automate service provisioning as much
as possible. Move the people asset freed by automation upstream
in the value chain so that they can seek out better IT solutions.
I am not suggesting that services provisioning is not important.
Keeping IT services running smoothly is a crucial first step in
improving the IT capability. Only after successfully automating
daily functions as much as possible will it be possible to shift
resources to earlier stages in the IT value chain.

In the remainder of this chapter, I discuss strategies to develop and

manage the IT assets. Other chapters cover the other strategies listed
above in more detail.