How information technology creates business value

¶ … Business Value

How Information Technologies Can Create Business Value

The frameworks and strategies derived for managing information technology from a strategic standpoint, aligning its core strengths to organization needs can lead to greater business value. There is no guarantee however that this will occur, as the many maturation points and steps that British Petroleum (BP) took in its journey to creating a more lean, cost-effective and high performance IT organization points out. Throughout the analysis shown as part of the study Transformation of the IT function at British Petroleum (Cross, Earl, Sampler, 1997) the progression of the organization from an inflexible, rapidly eroding IT infrastructure in terms of performance to one that is highly focused on the needs of the business and actually takes ownership over results is shown. IT can certainly deliver significant value and serve as the catalyst of transformation of businesses at the system process and people level as the BI case study illustrates (Cross, Earl, Sampler, 1997). The case is quick to point out that this is no panacea however and shows that it took literally decades for BP to navigate through the many popular approaches to process re-engineering (Davenport, 1993), centralized vs. decentralized operations (Ball, 1995), and the reliance on the CIO to define an outsourcing strategy when in an era of extreme cost cutting the conglomerate thought that was the path out of the IT confusion they were experiencing (Earl, Feeny, 1995).

The Transformation of IT from Cost Center to Catalyst of Growth

BP senior management was attempting over the last three decades to revitalize their business, yet kept failing at every turn. The case study shows that BP in part failed as it attempted to adopt the most topical and popular concepts of IT organization and alignment to strategic planning processes (Cross, Earl, Sampler, 1997). All of these failed to deliver results however and only served to alienate and increase costs over time.

At the beginning of their transformative journey, BP was burdened with a $360M IT budget, a headcount of 1,400 in IT alone with it and of itself remarkable, 170 applications and 20% desktop MIPS to Mainframe MIPS. This last statistic illustrates how highly dependent the company had become on rapidly aging mainframe and client/server technologies. The costs associated with just maintenance alone for 170 applications, the majority of them on mainframe systems, could conservatively be projected to be well over $40M a year alone. That's just maintenance fees to keep those applications current, not taking into account training of how to use them effectively. BP clearly had to get away from the very high costs of maintenance and more critically and urgently, solve the disconnect of IT spending to the strategic direction and operations of the company.

In 1989, BP had been in a classical IT organizational structure, with the CIO often defining how various mainframe systems would be used for complimenting strategic initiatives. As was the case during this era of mainframe and client/server-based computing, this process turned out to be exceptionally inefficient and often led to strategists only getting 40% of the information they needed if that (Earl, Feeny, 1995). With the centralized structure also fueling a budget of $360M in IT-related spending, BP began a program to align their strategic planning programs to their IT resources. The challenges of aligning IT to strategic planning is in making the data analysis, analytics, and entire report creating and maintenance process as seamless, agile and very quick as any business needs them to be (Kannabiran, Sundar, 2011). As the case analysis shows, BP failed during this phase of their analysis as their IT architecture and overlying infrastructure did not align well enough with its rapidly changing business objectives. This lack of congruity of infrastructure and reporting further slowed down data capture, analysis and reporting, making IT a bottleneck in moving forward on strategic initiatives over time. What this phase of the BP maturation process did accomplish however was to create a recognition of how critical the alignment of people, processes and systems are to the success of IT as a strategic management platform and information source, as exemplified by the diagnostic tool the company began using (Cross, Earl, Sampler, 1997).

As costs continued to escalate and IT was not creating any significant cost reductions through efficiencies, the focus shifted to outsourcing non-critical functions that were routine in nature and could be therefore replicated easily. In 1991, BP senior executives chose to begin outsourcing operations, telecommunications, systems development and IT maintenance. This strategy, along with the recentralization of IT led to the company eventually cutting their IT budget in half from $360M to $170M. BP also was able to redefine their entire centralized spending strategy for IT, with 70% of their budget going for core applications critical to their business including geophysical analysis software and core technologies to help the company be more effective in discovering new energy sources (Cross, Earl, Sampler, 1997). What had been so elusive for BP for decades of IT spending had been hidden in the high costs of duplicated enterprise software licenses that were spread across their global enterprise (Cross, Earl, Sampler, 1997). With IT centralized the company once again worked to redefine the structure of IT so it would be more aligned to strategic planning and execution objectives for the long-term. The company soon learned that effective strategic planning is never a one-and-done process (Kannabiran, Sundar, 2011).

One of the most valuable lessons learned during this time period was that streamlining core process areas while ensuring a high level of ownership on the part of IT personnel lead to much greater levels of productivity and performance, a point made often in the research of Dr. Michael Porter (Porter, Millar, 1985). Once BP shifted IT to be more focused on demand management while also having systems analysts shift to business consultants with a project management (and accountability-based) mindset, IT began to take ownership for results and for the first time, IT and groups were synchronized. Creating a more demand-driven strategy can drastically reduce overhead and quickly cut unnecessary costs, especially in IT (Barrett, 2007). BP had been able to achieve the transformation of their IT department and trim the annual budget to $132M, headcount to 150 and only support 75 applications. This was a remarkable achievement.

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