IT Investment at North American Financial

IT Investment at North American Financial:

 

Caroline Weese checked her makeup and then glanced at her watch for the tenth time.

Almost 10:45. Showtime. As North American Financial’s (NAF) first female CIO, she

knew she had to be better than good when she met with the company’s senior executives

for the first time to justify her IT budget. They had shown their faith in her three

months ago by giving her this position, when NAF’s long-serving senior vice president

of IT had had to retire early due to ill health. But women were just beginning to crack

the “glass ceiling” at the bank, and she knew there was a lot more riding on this presentation

than just this budget.

 

That said, the budget situation wasn’t great. As she well knew from her earlier

experience in more subordinate roles, the CIO had the unenviable task of justifying the

company’s $500 M budget to a group of executives who only saw the expense of IT, not

its value. This was especially frustrating because NAF’s IT management was excellent,

when looked at by any standard. NAF’s IT group consisted of almost 7,000 professionals

who followed all the recommended standards such as CMM, CMMI, ISO9001, and

ITIL to ensure that its IT processes were efficient, cost effective, and on par with, if not

higher than, industry standards. It had been certified at a minimum Level 3 CMMI and

was an industry leader in delivering projects on time, on budget, and in scope. But in

the past few years, NAF executives had implemented rigorous cost containment measures

for IT, leaving the CIO to struggle to be all things to all people.

 

“They want innovation, they need reliability and stability, and we’re required by

law to meet ever-more stringent government regulations, but they’re still nickel-anddiming

us!” Caroline thought indignantly. She envied the bank’s business units that

could clearly show profit-and-loss statements, and their ability to make strategic decisions

about what to do with the excess capital they often had. In her world, business

strategies changed regularly and, thus, IT’s goals had to as well. But strategies were not

linked to budgets, which were typically set six to nine months in advance. As a result,

IT was always struggling to keep up and find the resources to be flexible.

 

She squared her shoulders, took a deep breath, pasted a smile on her face, and

pushed open the door to the executive conference room to face her colleagues and her

future. The room was full of “suits”—a few females here and there, but mostly tough,

middle-age males who expected answers and action. Following a few pleasantries

about how she was adjusting to her new role, they got down to business. “The thing

we’re most concerned about, Caroline,” said Bill Harris, NAF’s CEO, “is we simply

don’t see where we’re getting value from our IT investments. There’s no proof in the

bottom line.” The CFO added, “Every year we approve hundreds of millions of dollars for IT projects, which are supposedly based on sound cost–benefit analyses, but the

benefits never materialize.” Heads around the room began nodding.

 

Caroline’s mind was whirling. What did they really want from her? Pulling her

thoughts together quickly, she responded. “If you’re looking for IT to tell you which

projects will deliver the most business value, or if you want me to monitor the business

units after the projects they asked for are implemented to see if they are delivering

value, you’re asking me to do something that’s well beyond IT’s scope of expertise.

We’re not the experts in your business case, and it shouldn’t be up to us to monitor

how you use the technology we give you. I’ll take full responsibility for the quality of

our work, its timely delivery, and its cost, but we really have to work together to ensure

we’re investing in the right projects and delivering benefits.”

 

“What do you recommend then?” asked Sam Patel, head of Retail Banking.

“I think we need an IT Investment Committee that I would co-lead jointly with you,

Matt,” Caroline said while looking pointedly at the CFO. “We need a strong partnership

to explore what can be done and who should be responsible for doing it. Finance is the

only place where all the money comes together in this organization. Although I have

to pull together an IT budget every year, it’s really contingent on what each business

unit wants to spend. We don’t really have an enterprise IT budgeting process that looks

across our business silos to see if what we’re spending is good for NAF as a whole.”

Matt Harper looked thoughtful. “You could be on to something here, Caroline. Let’s see

if we can figure this out together.”

 

The rest of the meeting passed in a blur, and before Caroline knew it, she and Matt

were trying to identify who they should assign to help them look at their IT investment

challenges. These were significant. First, there was inconsistent alignment of the total

IT development budget with enterprise strategies. “We have enterprise strategies but

no way of linking them to enterprise spending,” Caroline pointed out. IT budgets were

allocated according to the size of the business unit. Smaller lines of business had smaller

IT budgets than larger ones. “For some small business units like ours, government mandatory

projects eat up our entire IT budget,” complained Cathy Benson, senior vice

president of Business Banking Product Management. This made it extremely difficult

to allocate IT resources strategically—say, for example, to grow a smaller business unit

into a larger one.

 

Second, project approvals were made by business units without addressing crossunit

synergies. Looking at the projects IT had underway revealed that the company had

eighteen separate projects in different parts of the business to comply with anti–money

laundering regulations. “We’ve got to be reinventing the wheel with some of these,”

complained Ian Ha, senior director of NAF’s Risk and Compliance department.

Third, although business cases were required for all major projects, their formats

were inconsistent, and the data provided to justify the costs lacked rigor. “There seems

to be a lot of gaming going on here,” observed Michael Cranston, director of Financial

Strategy. “A lot of these numbers don’t make sense. How come we’ve never asked the

business sponsors of these projects to take ownership for the business benefits they

claim when they ask for the money in the first place?”

Fourth, once a project was approved, everyone focused on on-time, on-budget

delivery. No one ever asked whether a project was still necessary or was still on track to

deliver the benefits anticipated. “Do we ever stop projects once they’ve started or review

the business case ‘in-flight’?” mused Matt. Finally, no one appeared to be accountable for delivering these benefits once an IT project was developed and implemented; rather,

everyone just heaved a great sigh of relief and moved on to the next project.

 

Because the total IT budget for new development work was allocated by business

unit, the result was a prioritization process that worked reasonably well at the business

unit level but not for NAF as a whole. Enterprise executives created enterprise strategies,

but they didn’t get involved in implementing them in the business units, which

left the business unit heads to prioritize initiatives within their own silo. In prioritization

meetings, leaders would argue passionately for their own particular cause and

focusing on their own needs, not on NAF’s overall strategies. “We really need to align

this process with our enterprise priorities,” said Caroline. Matt agreed. “There’s got to

be a process to bring all our investment decisions for new projects together so we can

compare them across business units and adjust our resourcing accordingly.”

Looking deeper into these matters revealed that there was more to IT spending

than simply prioritizing projects, however. Almost 60 percent of the bank’s IT budget

was spent not on strategic new development projects but on maintaining existing

systems, interfaces, and data. And another 20 percent was work that had to be done

to meet the demands of government legislation or the bank’s regulators. “How is

this possible?” asked Sam. “No wonder we’re not getting much ‘bang for our buck’!”

Caroline exclaimed. “Every time we develop or acquire a new system without getting

rid of something else, we add to our ‘application clutter.’ When we continually add new

systems while holding IT budgets and head counts relatively flat, more and more of our

resources have to be devoted to supporting these systems.” New systems meant new

interfaces between and among existing systems, additional data and dependencies, and

increasing risk that something could go wrong. “We’ve tried to get the business

units interested in sponsoring an initiative to reduce duplication and simplify our applications

portfolio, but they’re not interested in what they call ‘IT housekeeping.’ They

don’t see how dealing with this will help them in the long run. I guess we haven’t

explained it to them very well.”

 

Brenda Liu, senior director of IT Infrastructure, added, “We also have to keep our

IT environment up to date. Vendors are continually making upgrades to software, and

there are also license fees to consider. And, as you know, we have to build in extra

reliability and redundancy for our critical systems and data, as well as privacy protection

for our banking customers. It’s an expensive process.” “I get all this,” said Benson,

“but why can’t you explain it to us properly? How can you just expect us to accept

that 80 percent of your budget is a ‘black box’ that doesn’t need justification? Although

every dime you spend may be critical to this company, the fact remains that IT’s lack of

transparency is damaging its internal credibility with the business.”

Round and round the issues they went. Over the next two months, Caroline, Matt,

and their team hammered away at them. Eventually, they came up with a set of five

principles on which their new IT investment process would be based:

1. Alignment of the IT development portfolio with enterprise strategies

2. Rigor and common standards around IT planning and business casing

3. Accountability in both business and IT for delivering value

4. Transparency at all levels and stages of development

5. Collaboration and cross-group synergies in all IT work

In their team update to the bank’s executive committee, Caroline and Matt wrote,

“Our vision is for a holistic view of our IT spending that will allow us to direct our

resources where they will have the greatest impact. We propose to increase rigor and

discipline in business casing and benefits tracking so NAF can invest with confidence

in IT. The result will be strategic partnerships between IT and business units based on

trust, leading us to surprise and delight our customers and employees and amaze our

competitors.”

With the executive committee’s blessing, the IT Investment Office was created

to design and implement a detailed investment optimization process that could be

implemented throughout the bank in time for the next budget cycle. Cathy Benson was

named its new director, reporting to Matt. Speaking to her staff after the announcement,

Caroline stated, “I really believe that getting this work out of IT and into the business

will be critical for this process. We need to make the decision-making process clearer

and more collaborative. This will help us learn how to jointly make better decisions for

the enterprise.”

With the hand-off from IT officially in place, Cathy and Matt knew they had to

move quickly. “We’ve got three months before the next budget cycle begins,” said Matt.

“You’ve got to make it real by then. I’ll back you all the way, but you’re going to have

to find some way to deal with the business unit heads. They’re not going to like having

their autonomy for decision making taken away from them. And you have to remember

they need some flexibility to do work that’s important to them.” Cathy nodded. She

had already heard some of the negative rumors about the process and knew she was

going to have to be tough if it was going to be successful and not torpedoed during its

implementation.

Calling her project team together for its first meeting, she summarized their

challenge.

“We have to design and implement three interrelated practices: a thorough

and rigorous method of project categorization and prioritization, comprehensive and

holistic governance of IT spending and benefits delivery at all levels, and an annual

IT planning process that provides transparency and accountability for all types of IT

spending and which creates an integrated and strategically aligned development

portfolio.

Then we have to roll it out across the organization. And the change management

is going to be massive. Now, who has any ideas about what to do next?”

 

Discussion Questions

Cathy Benson, the director of the newly created IT Investment Office, is tasked with the

“design and implementation of a detailed investment optimization process to be implemented

throughout the bank in time for the next budget cycle.” She has three months

to do this and it must be in accordance with the five established principles to guide the

bank’s IT investment process. Your task is to design and implement the following:

Question 2. A comprehensive and holistic governance of IT spending and benefits delivery at all

levels.