by Tom Field

While CIOs have faced flat, to slow growth in their annual budgets, the same cannot be said of business expectations when it comes to innovative use of IT.

As a result, CIOs face this challenge: How to reduce costs while  simultaneously using IT to drive competitive advantage. As CIO magazine's fifth annual State of the CIO survey reveals, the best executives have realized that simple cost-cutting won't work. Technology innovation is a team sport, and it demands strong partnerships with business decision makers.

The survey asked nearly 100 senior CIOs for their thoughts on how to implement IT-led innovation throughout the company. Fifty-nine percent of them consider innovation a significant aspect of their job, but they also recognize that no executive is an island. More than one-third say that innovation initiatives are best led by a joint team made up of the CIO and other business leaders, and 28 percent say that innovative ideas best spring from collaboration and brainstorming with business-side peers. If the ideas and work are shared, so should be the responsibility as well: 42 percent of the respondents think that IT and the business units should share accountability for the results of their labors.

How much of your roll is concerned with innovation?

Where do innovative ideas come from?

Who leads innovation initiatives?

Who is accountable for innovation results?

by Howard Rohm and Larry Halbach

Reprinted with permission from the Balanced Scorecard Institute. Note: This article represents Part 2 of Howard Rohm's article "A Balancing  Act," published in Volume 2, Issue 2 of Perform Magazine.

Creating a High Performance Organization

"Build it and they will come" works for new cell phones, Internet services, residential home subdivisions, sports arenas, new dog food brands, and for many other new things. But it doesn't work so well with Balanced Scorecard systems.

"Let them build it and they will use it" works much better. "Them" and "they" refer to the people in an organization who are responsible and accountable for performance and results. In practical terms, this means using cross-functional teams to build the scorecard system rather than giving responsibility to strategic planning, finance, or any other single group or department. Besides using cross-functional teams, here are some other things you can do to increase the chance of a successful Balanced Scorecard implementation: spend at least as much time developing interactive communications, vision, and business strategy as you do developing performance measures; focus on aligning strategy with operations by starting with an organization's strategic components (mission, vision, core values, customer value proposition, and strategic themes) and working down to operations, projects, activities, and tasks; and plan for and follow through with deploying, managing, and sustaining the scorecard system after it is built. Simply put, we have found that building and implementing a scorecard system is more about changing hearts and minds and sustaining new directions, than it is about selecting performance measures and buying Balanced Scorecard software. If you are the Balanced Scorecard champion, think of your job to implement a Balanced Scorecard as one of helping to create a high-performance organization, and using the Balanced Scorecard as a framework for aligning the organization and human capital pieces needed to get to high performance.

This is the second article dealing with Building and Implementing A  Balanced Scorecard: Nine Steps to Success™. In the .rst article we described a framework for building a scorecard system using our Nine-Step process. By "building" we mean creating the components of a Balanced Scorecard using the following six steps: Assessment, Strategy, Strategic Objectives, Strategy Mapping, Performance Measures, and Strategic Initiatives. If you would like to receive a "Readiness Assessment Checklist" to prepare you for developing a scorecard system, contact us at: info@balancedscorecard.org.

In this article, we discuss the steps involved in implementing the Balanced Scorecard, and include recommendations for creating a management system and sustaining the system once it is built. We base our recommendations on our experience helping over 2,000 people in 13 countries and 60 organizations build and implement Performance Management scorecard systems, and on being part of the strategic planning and Performance Measurement landscape for 30 years.

Implementing the Balanced Scorecard

By "implementing" we mean turning the scorecard into a true management system and deploying, managing, and sustaining the newly created system. We use three steps to implement the scorecard: Automation, Cascading, and Evaluation. The output from each step links to the input of the next step, as shown in Figure 1.1. The circle of chevrons helps to convey the sense that scorecard building and implementation are a continuous journey, not a project.

Figure 1.1. Building and Implementing a Balanced  Scorecard

Following the completion of the building steps outlined above (Steps One through Six), the critical few performance measures have been developed. For a Tier 1 (enterprise-wide) scorecard, 20 to 30 strategic Tier 1 performance measures and targets (expected results) are typical. It is probably worth repeating a lesson shared in our previous article: avoid the temptation to treat performance measures as an end, rather than a means. We see many attempts at developing scorecards (and other performance frameworks, as well) where the effort is best characterized as a "rush to judgment" to get to measures. Precious strategic critical thinking is lost if this path is pursued.

Once we have a good set of strategic performance measures, a Performance Measurement information system is needed to collect and report performance data and transform the data into performance information. The distinction between data and information is important, as raw performance data is of little use to most people. Think of information as data with value added. The value comes in the form of context, visualization (reporting formats), trends, and benchmark comparisons to others' results.

Step Seven involves automating the Balanced Scorecard system, and consists of analyzing software options and user requirements to make the most cost-effective software choice for today and to meet enterprise performance information requirements in the future. Software options fall into the general categories shown in Figure 1.2, which shows relative comparisons of software solutions based on meeting overall enterprise requirements for performance information, and the relative cost and time to implement a software solution. Software options range from spreadsheets and databases, designed to meet very simple enterprise reporting requirements, to full data warehouses, designed to link disparate information (performance and other) together in an integrated management system.

Figure 1.2. Performance Information Software Solution  Space

We treat Automation as the seventh step in the nine-step framework, to make sure that the proper emphasis is placed on strategic thinking and strategy development before "software seduction" sets in. Building a scorecard system is a lot like building a house, where the pieces need to come together in the right shape, size and time, and need to be assembled by the right craftsperson to make the house structurally and functionally sound. Purchasing software too early limits creative strategic thinking, and purchasing software late makes it dif.cult to sustain momentum for the new system, as performance information reporting and utilization is clearly an early bene.t to be captured from the process of building the scorecard system. Having said this, it is also clear that software can help the critical thinking process (and the project management process at the end of the building steps -- Step Six: Strategic Initiatives) by capturing the results of strategy development, objective commentary, and strategy mapping as the process unfolds. Our recommendation is to analyze your software options early in the building process, decide if a software selection early on will add value to the process of building the scorecard, and then timing the software purchase to maximize the value to the Balanced Scorecard team and the managers and other employees who will use the performance information to better inform decision making.

The costs of deploying software information systems (including the price of the software, plus training and support) range from several thousand dollars to several hundred thousand dollars. A software choice should be based on value to the organization. In addition to the price of the software, key selection criteria include: visualization of performance results; ease of setup; training and maintenance; robustness of the underlying database engine; compatibility with existing enterprise IT architecture; vendor product and technical support; product maturity and vendor experience; and ease of use.

Step Eight involves cascading the corporate scorecard throughout the organization to business and support units, and ultimately to teams and individuals. Cascading means translating the corporate scorecard into department and division scorecards that are aligned with corporate strategy. In other words, aligning and translating corporate strategy throughout the organization. We have found that the most effective way of cascading is to start with the objectives and measures from the enterprise-wide (Tier 1) strategy map, and develop supporting objectives (and measures) for business and support units (Tier 2), and again for teams and business and support units (Tier 2), and again for teams and individuals (Tier 3). In a typical organization, separate scorecards are developed for each major department and support of.ce, and these scorecards are linked to the corporate scorecard through objectives. Since objectives are the building blocks of strategies, the alignment of objectives aligns strategy. Performance measures align as well, some as roll-ups to higher-tier measures, and sometimes to composite measures where the weighted average of a number of measures is used as a composite index.

Cascading to the objectives, tasks, and activities of Tier 3, aligns corporate and department strategy to teams and individuals. In some (typically large) organizations, an additional cascading level may be used, such as for customer-facing services.

Strategies developed during the corporate scorecard building process are the links that make the mission and vision of the corporate organization operational to operating business and support units, such as IT and human resources. Starting with a corporate scorecard and cascading objectives down to business and support units and then to teams and individuals assures that the work performed in all organization units is relevant and linked to organization mission and strategy. Each business and support unit can "connect the dots" and trace the work that they do back up to the overall "big picture" direction of the organization.

Figure 1.3 shows the concept of cascading, assuming one starts with a corporate scorecard at Tier 1, and then develops Tier 2 scorecards. One could continue the example to Tier 3 scorecards by developing Tier 3 objectives and connecting them to Tier 2 objectives. As a practical matter, objectives are more operational and less strategic as one goes farther down to lower tiers. For example, teams and individuals link what they do at Tier 3 (typically tasks and activities) to what the organization must do to be successful (objectives and strategies) at Tier 2.

Figure 1.3. Cascading Scorecards Based on Linked Strategic  Objectives

Some organizations start not with a Tier 1 scorecard, but with a Tier 2 scorecard. This could occur when a support unit scorecard is built .rst (e.g., IT). In this scenario, other scorecards are developed horizontally (e.g., to Finance or HR) and/or vertically (e.g., to Tier 1 corporate, or to Tier 3 teams and individuals). In these situations, it is important to keep strategic intent of the organization in mind, to avoid sub-optimizing a department's activities at the expense of enterprise goals.

Step Nine involves evaluating the success of chosen business strategies. The key question is: Were the expected results achieved? Remember that strategies developed in Step Two of our Nine Steps to Success™ framework were hypotheses of how an organization believes it creates value for customers and stakeholders. Adjustments to strategy (and mission and vision, if necessary) are likely as performance information is analyzed and market competitive forces are considered. Creating an analysis feedback loop to test strategy assumptions is an important step and one that many organizations overlook in their strategic planning implementation. The evaluation step includes the following components:

• Ensuring that organization learning and knowledge building are incorporated  into planning;
• Making adjustments to existing service programs;
• Adding new programs if they are more cost-effective;
• Eliminating programs that are not delivering cost-effective services or  meeting customer needs;
• Linking planning to budgeting.

The Nine Steps to Success™ framework is a disciplined way to develop the pieces needed to build a strategic management system. Now it is time to put the pieces together into a strategic management system and start using the system to produce the results you want.

Building the Management System and Managing with the Balanced Scorecard

Building and implementing a scorecard system is one thing; turning the scorecard into a useful and used management system is something else entirely.

The key to transforming a scorecard into a management system is to start at the right level of granularity and "connect the dots" among the components of strategy (mission, vision, values, pains, enablers, strategic results and themes, and strategic objectives) and the components of operations (projects, processes, activities, and tasks), and the budget formulation and cost reporting processes. Performance measures tie the parts together, and give us a way to measure how successful we are at achieving our goals. Figure 1.4 shows the logic for connecting strategy to operations. Strategy is shown as a vertical sequence of steps (equivalent to starting with expectations at a high altitude, such as expected organization-wide strategic results, and deriving aligned lower altitude initiatives, projects, and tasks). Operations is shown as a horizontal sequence of steps, with the activity or project outcomes linked to the outputs, process steps, and inputs required to deliver the activity or project results. The Balanced Scorecard gives us the ability to develop the aligned components of this strategic management system in an ordered, disciplined manner.

Figure 1.4. Linking Organization Strategy &  Operations

We are often asked "How do you effectively manage an organization once you have a Balanced Scorecard in place?" In other words, "What are the key things you should do that differ from your traditional way of managing?" We attempt to answer these questions below and give guidance on how to best take advantage of the strategic levers the Balanced Scorecard provides. This is a compilation of the experiences and wisdom of the associates of the Balanced Scorecard Institute, based on our collective knowledge from a wide variety of organizations. The following are management practices that we have seen lead to success in imbedding the scorecard philosophy into an organization and enhancing the results achieved from the scorecard system. These practices represent the key elements of using the Balanced Scorecard as a "Strategic Management System."

It's time for a change -- avoid "Business As Usual." Until you have been managing with a scorecard for some time, people will naturally be inclined to manage in the same ways they always have, without regard to the scorecard and the direction it provides. Now that your scorecard is built, be careful not to go back to business as usual. Work hard to cut off attempts to revert to the old ways. The scorecard provides a natural framework for reorganizing (actually revitalizing) discussion around your strategic themes and your scorecard perspectives (and maybe reorganizing the organization as well!). Organize all of your executive, management, and department meetings around the elements of strategy. In this way, attention will be focused on the strategically-important issues and the organization will naturally be led in those directions. People will likely try to structure meeting agendas in the same functional/departmental format that has been used in organizations for decades. Use a different approach after you have built your scorecard system, such as holding meetings around your strategies, your initiatives, or your perspectives (or, ideally, all of them!). Also, ensure that scorecard meetings are strategic, not operational. Focus meeting energy on strategic visioning ("How safe will our streets be in ten years?" not "How many potholes did we fill last month?") Avoid executive discussion on detailed, operational strategies, objectives, and measures that are not on the corporate scorecard. Push operational discussions down to the departmental (business or support unit) level, or to teams and individuals.

Assign permanent Balanced Scorecard roles. To continue emphasis on the scorecard and strategic management, it is important to have a number of people assigned to scorecard roles on a permanent basis. You should assign specific scorecard roles and responsibilities to key people throughout the organization. This imbeds strategic thinking in the organization and builds commitment to ongoing strategic management. These roles include the scorecard champion, corporate and departmental performance measure owners, and the assignment of responsibility for individual themes or perspectives to specific owners. Often, client organizations will assign departmental scorecard champions who are responsible for scorecard management and communication in their individual areas. In addition, these champions can be members of a scorecard advisory group that meets regularly to discuss scorecard issues and suggestions.

One client formed permanent teams around each of their strategic themes to provide guidance and continual direction that will carry the scorecard efforts forward into the future. Each of these teams is headed by a key manager, but made up of a combination of managers and cross-functional staff members from across the organization. This approach ensures that the strategic themes receive attention throughout the year, and year by year into the future.

Use the scorecard process to develop the strategic plan. Strategic planning is more valuable if you use the development of a Balanced Scorecard as your framework. Instead of using a consultant or the internal strategic planning department to write a plan, use key employees in the organization to build the plan and the management system. We find that the process of using cross functional teams to build the strategic plan and management system, with expert facilitation and guidance, is critical to longterm success of the new management system. Those of you who have experience with strategic planning the old way (i.e., giving the assignment to a few internal planners or hiring a consultant to do it for you), know how few times the resulting strategic plan becomes the ‘guiding light' of the organization's resourcing, and strategic and operations planning. In the old way, most strategic plans are little more than thinly veiled justi.cations for favorite programs and projects the organization is already funding. The Balanced Scorecard puts more strategic thinking into the strategic plan development process. When we .nish a scorecard system, the resulting strategic plan is under ten pages, and all the important strategic elements of the organization are laid out clearly and concisely, and aligned. The dots do, indeed, connect.

Your planning process will become an annual evaluation and revision of the corporate scorecard. Be sure to fully integrate the Balanced Scorecard into your strategic planning process. Each year you should assess your progress against the strategic goals and determine whether or not your strategic hypotheses (the causeand-effect linkages of your strategy map) are valid. You should also assess the strategic impact of external events and adjust the scorecard (strategies, objectives, measures, and initiatives) to re.ect your experience and the current environment. This is Step Nine of the Nine Steps to Success™ framework,  and is essential to long-term strategic management success.

Use the Balanced Scorecard strategic plan to drive budgeting and cost  control. In Balanced Scorecard organizations, the scorecard should play an active role in the organization's budgeting process. It is usually dif.cult to obtain funding for new initiatives, and in many organizations, the budgeting process is driven by funding "favorites," or day-to-day operations. The Balanced Scorecard improves the budget process because strategic initiatives have been identi.ed through the scorecard building process, and it is practical and even essential to set aside a portion of the budget for these strategic projects. Using the Balanced Scorecard to drive the budget results in a "strategic," or "performance budget." Day-to-day activities can be separately funded, but linked, in an "operating budget." A Performance Budget is a budget formulated by activities and programs, as opposed to organizational units. Results-oriented business planning is combined with planned measurable outcomes to produce a budget where policy decisions can be informed by program performance and cost information. Once those policy decisions are made, the same performance measures guide the day-to-day operational management of programs to ensure that budgeted services are delivered with the intended results. These measures (leading and lagging) provide information on how results are produced, what is working, how well, and where improvements are needed to achieve the strategic goals.

Some organizations have eliminated the formal annual budget "dance," and instead use a rolling quarterly budget that allows real-time adjustments based on a quarterly strategic assessment. In addition, many organizations use the scorecard to lead them into Activity Based Costing, which can further ensure that the strategic goals of the organization are accomplished cost-effectively.

Figure 1.5 shows how the elements of strategy, operations, budgeting, and employee accountability can be combined into an integrated strategy-driven management system. Employee Performance can then be aligned with enterprise and department performance to produce an integrated management system where what is accomplished is more important than what is produced or how many hours are spent in the production of services.

Figure 1.5. Balanced Scorecard Strategic Management  System

Continue to work on the strategic enablers. There are a number of the elements of scorecard building and implementing that need to be continued in order to sustain progress made and strategic focus. These enablers include: communications, change management practices, incentives, reporting results,  and prioritizing initiatives.

Early in the process of building your scorecard system, the importance of  communicating organization strategy and desired results will become obvious. So will the importance of communicating why you are building a new management system. In the absence of information on "why" from the leaders of the organization, employees will make up their own answer as to why. Ensure that you maintain and implement a communications strategy and plan even after the scorecard has been implemented. Remember that communications is an outcome, not an activity, and two-way communication is the key to a good outcome. The Balanced Scorecard strategic management system is a change initiative, designed to change behaviors, and this can only be accomplished by interactive, two-way communications at all levels of the organization. Regularly communicating results is important, listening to what employees think and feel is more important. Hearts and minds will not be won over with a news article or a web page, so communicate often and well. Also, be sure to highlight successes that resulted from the scorecard process. Highlighting early success is crucial to maintaining momentum of the new system and building sustainability. Periodically review your communications plan, and make changes as appropriate to reflect organizational or strategic changes.

You should also continue to follow good change management practices during and after development of the scorecard. These practices are incorporated in the Nine Steps for Success™ framework, and should be continued as you go forward to ensure that progress is sustained. Some of the key areas to consider are: continued communication of the vision and rationale behind the scorecard, involvement of people from across the organization in planning and implementing the changes, communication of results to everyone in the organization, ongoing scorecard training especially for new people, employing process teams to improve throughput, and use of rewards and recognition to emphasize and reinforce desired behaviors.

Be sure to continue to link incentive reward systems to performance (and scorecard measures). Some organizations decide for a variety of reasons to defer this step and some never do affect this linkage. We strongly recommend that reward systems reflect the scorecard objectives and do so as quickly as is reasonably possible. Of course, it is prudent to take time to ensure that the measures are properly de.ned, captured, validated, and calibrated before using them to provide signi.cant portions of people's compensation, but it is the most powerful way of getting people's attention and focusing on the things that matter. Once you have begun rewarding people for performance, continue to do so and make certain this linkage is incorporated into each year's rewardand-recognition program. Rewards and other incentives can take many forms, both monetary and non-monetary. Many studies have shown the importance of non-monetary incentives to achieving long-term positive impacts on behavior.

Continue to report performance results often and draw comparisons to expected results. Look for ways to visualize performance that employees will .nd useful. There are many ways to show data and information, and the usefulness of performance information will be tied to how it is visualized and presented. At different levels of an organization, different visualization techniques should be used to drive the behaviors being sought. People need to see regular feedback, and the frequent communication of results enables quick corrective actions to be taken when problems begin to develop. If people can easily and regularly see whether or not they are on track to reach corporate goals, and if their rewards are dependent on achieving those goals, they will naturally apply the effort required to stay on track. Use the scorecard system to improve organizational performance, not punish lack of individual performance, and to track progress across reporting periods.

Regularly use the Balanced Scorecard to help select and prioritize  initiatives. The scorecard process enables management to direct resources to those initiatives that have the greatest strategic value. We almost always .nd that an organization's overcommitted resources are assigned to a number of initiatives that do not have large strategic value. By consciously focusing resources on truly strategic initiatives and canceling projects, transferring resources, or deferring those initiatives that aren't strategic, organizations are much better able to implement changes needed to accomplish strategic goals. This prioritization should be part of the regular management practices and should be reviewed periodically to ensure that resources are being deployed only on the truly strategic initiatives.

Figure 1.6 shows the components of a sustained strategic management system. By continuing the essential elements of the Balanced Scorecard process, you will be able to sustain and continue to achieve progress in strategic management.

Figure 1.6. Sustained Strategic Management System

When you have completed the steps and taken the actions described in these two articles, you will be on your way to having developed a high-performance organization. Figure 1.7 shows the construction of a high-performance organization using the example of a house we mentioned earlier. The roof and attic represent the strategic elements of your organization, the load-bearing walls are your strategic focus areas (strategic themes), and the .oors are performance dimensions (perspectives) that allow you to translate your organization's vision and strategy into operational terms (through strategic objectives). Your performance "house" needs to be built on a strong foundation of engaged leadership and two-way communications.

Figure 1.7. Building a High-Performance  Organization

We hope that these ideas will help you in your efforts to achieve maximum long-term bene.t from your investment in a Balanced Scorecard. If you would like a checklist of additional tips and tricks, send us an email to receive a free copy. If you have questions or wish to discuss any of these recommendations, please contact either Howard Rohm (at hhr@balancedscorecard.org) or Larry  Halbach (at lah@balancedscorecard.org) at the  Balanced Scorecard Institute.*

The Balanced Scorecard Institute provides training and consulting services to private, public, and not-for-profit organizations worldwide. Their expertise is in Balanced Scorecard Systems, Strategic Planning, Performance Management and Measurement, and Performance Measurement Information Systems.

^*Several Balanced Scorecard Institute associates contributed to this article, including: Dr. Gerald Turner, Pam Weppler, Kitty McCoy, Kevin Zemetis, Dr. Kathy Fiedler, Dr. Gardner Shaw, Jeff Parks, and Paul Arveson. Marv Weidner of Weidner Consulting contributed ideas on performance-based budgeting.

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Howard Rohm is Vice-President of the Balanced Scorecard Institute, president of Howard Rohm Consultants, LLC and an international trainer, consultant, and facilitator. He has over 25 years of government and private industry strategic planning, Balanced Scorecard, Performance Measurement, and information technology experience. To learn more about the Balanced Scorecard Institute, visit their Web site at www.balancedscorecard.org.

Larry Halbach is Deputy Director of the Balanced Scorecard Institute and an international consultant and facilitator. He has over 20 years of experience with IBM, followed by his career as an insurance executive and consultant in strategic planning, Balanced Scorecard development and implementation, and information technology management.

by Elizabeth M. Ferrarini

How can one know whether a particular technology will change the way we live or work? What signs do you look for to tell if an emerging company is going to survive? These are just some of the questions that Enterpriseleadership.org put to Clayton M. Christensen, a technology management professor at the Harvard Business School.

In his groundbreaking bestseller, The Innovator's Dilemma, Christensen exposed the crushing paradox behind the failures of many key industry leaders -- (mis)judgments like pleasing the most profitable customers and ignoring disruptive technologies, such as Linux and network-attached storage devices. His book, The Innovator's Solution, makes the case that  innovation and profitability are more predictable than managers have come to  believe. Seeing What's Next, his latest book, provides a model for those of us without any proprietary information on how to forecast how innovations will affect companies and industries, and how to make the right decisions (while there's still time).

EL: How can a CEO monitor the pulse of his company's marketplace to  determine whether the company will succeed or fail?

CC: By looking at data in the present through a lens of good theories, a CEO can forecast whether the company is on track to become more prosperous or to fail. Data about the distant past always exists. If the CEO is using data to understand whether the company will be more successful or not, then the CEO will always be driving into the future, while glancing in the rear view mirror.

For example, if the innovations will help the company sell better products to existing customers, then these sustaining innovations will not necessarily result in future growth, even if it appears that you are innovating and that your profits are improving. If you look at it through the lens of my research, it would cause you to be worried. On the other hand, if your innovations are disruptive -- ones that create new growth markets -- even through they improve current financial results, you could say you are laying the foundation for an exciting future.

EL: What are the indicators that a business or an industry is ready for disruption? You talked about companies that produce products that no one buys and/or product improvements that no one will pay for. What are some of the other signs to look for?

CC: There are two types of disruptions: low-end and new  market. A low-end disruption might occur only if two conditions are met:

• customers at the low-end of a market don't value, and won't pay for, further  product improvements.
• someone has figured out a lower-cost business model that can be attractively profitable at the discount prices required to win the business of those customers at the low end.

The first condition identifies an entirely new market sector. If there is a specific population that doesn't have the skills to satisfactorily accomplish specific tasks, nor the money to buy the needed products, then they'll have to rely on the expensive and inconvenient help of experts. If that population exists, the second scenario occurs when someone else develops a technology that provides that specific population with an affordable and easy alternative for accomplishing their tasks.

EL: Given what you just said, where are the innovative opportunities for a major company, such as General Motors? How are they going to stay ahead of their competitors?

CC: If GM is trying to be innovative by making either better or larger sport utility vehicles, then I would really be worried. Seeing GM make innovations to its OnStar systems translates to a really exciting new growth business -- one that's disruptive. If GM tries to sell Buicks in Japan or China, then I would remark that it might yield profits -- but not create a lot of exciting new growth. On the other hand, if GM were to sell cars in China at a $4,000 price point, I would say the opposite.

By looking at innovations through the lens of good theory, you can tell whether today's innovations will produce tomorrow's results.

EL: How can a CIO encourage the company's use of innovative or  disruptive technologies?

CC: It's not the realm of a CIO to do this. The most exciting markets are the ones whose size can't be quantified. If the CIO finds himself or herself generating reports that innovating managers rely upon to assess the potential of the innovation, the CIO will be misleading people almost every time. To decide whether an innovation has potential, executives need to watch what people are doing, and then decide if the product they're proposing will help people do a better job of what they're already trying to do.

EL: In what industries is a lot of disruptive innovation going  on?

CC: Salesforce.com is a disruptive innovator to a sustaining technology company like Oracle. Linux has an operating system in Web-based computing that has become the OS of choice for handheld devices. It's really an exciting, disruptive innovation. Regional airlines are an exciting disruptive innovation that are just killing the major airlines, and SANdisk, which makes flash memory, is a disruptive innovation that is killing the disk drive industry. Wireless 802.11 and WiMax are pretty exciting innovations in telecom.

EL: Right now, another disruptive technology, the Blackberry wireless network, is embroiled in a patent lawsuit. Can a force like this hinder a disruption?

CC: It happens on occasion to sustaining innovations. Intellectual property protection impacts innovation in both positive and negative ways. A lot of times, patent issue thickets arise that make it difficult for anyone on the sustaining tier to create a meaningful innovation. For disruptive ones, the intellectual property issues almost never matter.

EL: About six years, StorageNetworks built an IT infrastructure from commercially available hardware, raised more than $200 million, and offered organizations a third-party source for immediate storage, likened to that of a public service utility. EMC validated the concept. But StorageNetworks couldn't make a go of that business and offered backup stores and eventually started licensing its software. Then, StorageNetworks went Chapter 11 and couldn't even find a buyer. What went wrong here?

CC: I haven't really studied this company in depth. With the caveat that I haven't crawled inside, I'll tell you some of the things I worry about as I watch emerging companies. First, when you start a business, you may think you know, but you don't really know if you have the right strategy. Likewise, you don't really know who are the right customers, and what job they are trying to get done. You start out with a deliberate strategy, and you think, this is the right thing, when in fact, you almost have to know for sure that, initially, you're going to be wrong. Therefore, you have to get in the market quick with a little of that conviction, then figure out what will work later.

One of my books cities a colleague's study of 400 Harvard Business School graduates who started new companies. Half have been successful; half haven't been. The graduates who founded about 90 percent of the companies that succeeded said they didn't entirely trust the strategy they used when they raised money. They ended up selecting another strategy that enabled them to succeed. The difference between the successes and the failures wasn't that the successful ones got it right the first time. They just had money left over after they got it wrong.

They learned from their mistakes in time to shift gears.

EL: What do you mean by "good investment money" and "bad investment  money"?

CC: Bad money flows into something with the willingness to accept big losses. You've got the expectation that the more you spend, the more you'll earn later. You spend the money expecting your strategy is right.

There probably was a good business opportunity somewhere for StorageNetworks. However, it's accurate to say that StorageNetworks didn't have the right initial strategy, and spent a lot of time pursuing it. Or you can say that StorageNetworks employed a deliberate strategy aggressively from the beginning, and spent to get big fast.

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Elizabeth M.  Ferrarini is an IT consultant from Boston, Massachusetts.

by Kurt Milne

In this first column, I am going to try my hand as a matchmaker. No, I am not going into the romance business. What I am going to do is propose bringing together two seemingly independent approaches to improve the quality of IT service delivery — the IT Infrastructure Library (ITIL® and Six Sigma. These two approaches, each of which has attractive features, can certainly function without the other. So why bring them together? Let me explain.

ITIL defines a framework for IT Service Management. It consists of a set of guidelines, based on industry best practices, that specify what an IT organization should do. ITIL does not, however, define how to do it. For example, ITIL specifies that IT should allocate a priority for each incident that comes into the service desk. But, it does not specify how to allocate those priorities.

With ITIL, it's up to the IT staff to flesh out the details of process flow, and create detailed work instructions, all in a way that makes sense for their organization.

Six Sigma, on the other hand, defines a specific process, based on statistical measurement, that drives quality improvement and reduces operational costs. It helps in developing detailed work instructions, and it defines a methodology for continually mapping, measuring, and improving the quality process. Six Sigma tells you how, but doesn't tell you what. This approach does not specify any best practices specifically for IT Service Management.

In summary then, ITIL defines the "what" of service management, and Six Sigma defines the "how" of quality improvement. Together, they are a perfect fit for improving the quality of IT service delivery and support.

As in any match, however, there is a challenge. That challenge comes in reconciling the egos and expectations of the parties involved. In the case of ITIL and Six Sigma, this involves reconciling two separate camps of purists, each of which is convinced that their approach is best. To make things harder, both camps have impressive credentials to support their claims. ITIL has master's level certification. Six Sigma has its "black belts." So, your challenge is to bring these two approaches (and their advocates) together to implement the optimum combination for your organization.

The good news is that as a Remedy customer, you already have a great solution that helps bring them together. Remedy IT Service Management applications for the Enterprise help implement ITIL best practices straight out of the box. Remedy supports the ITIL best practices described in incident and problem management, change management, configuration management, service level management, and availability management. At the same time, the applications provide a great source of data for Six Sigma quality improvements. Outside the manufacturing area where Six Sigma was invented, there is no better place than the service desk to find operational data that drives customer relevant quality improvement.

By using Remedy applications to help implement the processes that bring ITIL and Six Sigma together, you have a great opportunity to use them both to improve the quality of IT services that are critical to your business.

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Kurt Milne is Senior Manager of Strategic Marketing at  Remedy, a BMC Software company.

This article was originally published in the inaugural edition of Remedy Online Newsletter, a quarterly publication for Remedy customers worldwide. The article, which ran in Fall 2003, is the first of a recurring series on "Emerging Trends" in Service Management.

by Debby Young

Changing the game plan from cutting costs to increasing service.

With server virtualization, IT can dynamically provision resources for the corporate computing environment based on anticipated workload cycles, such as normal end-of-the-month spikes caused by payroll processing or increased demand on online ordering resources triggered by a planned promotion. Because virtualization can emulate multiple computer environments on any given server, IT can pool server resources across the enterprise, thus driving down the cost of operation. This just-in-time resource allocation is part of a predictive resource scheduling strategy that optimizes utilization and assures service levels despite fluctuating workloads.

"Ultimately, you want to be able to allocate resources based on business priorities," says David Cohen, vice president, research and development for Merrill Lynch. He likens it to the way the electric company distinguishes between hospitals and residences -- during a power outage, hospitals get priority service over the general public. "In a virtualized environment, IT can configure resources to enable mission-critical applications to take precedence over less vital applications when extra processing power is needed," he says.

Virtualizing such tasks as data storage and network support can reap similar efficiencies. Depending on its failover configuration, for instance, pooling standby servers alone could save a company upwards of 40 percent on idle infrastructure expenses, floor space, power consumption, and support personnel.

In the multitiered application environments endemic to large enterprises, IT tends to overprovision application clusters because need is calculated on the peak requirements of every application. By virtualizing servers, resources within the server cluster can be continually repurposed to meet changing capacity needs. When demand subsides from one application, the resources can be redirected to another application experiencing peak load. Therefore, the cluster can be provisioned closer to average requirements rather than to peak loads, optimizing resource usage and lowering the cost of ownership without compromising service-level agreements. In baseball terms, it's like having a utility player available instead of a specialized backup player for every position.

Because virtualization separates applications from the platforms they run on, disaster recovery -- one of today's key business priorities -- is quicker than in traditional IT environments. For instance, with a physical server, if hardware is modified after software is installed, the data restoration might fail because the licensing key no longer recognizes the configuration. "In a virtualized environment, from the operating system's perspective, it's all the same hardware," explains David Boyes, president and chief technologist for the Ashburn, Va.-based R&D company Sine Nomine Associates. "This can take literally hours and days off your disaster recovery time."

The Latest Advances

Advances in virtualization technology are occurring on a number of fronts. Foremost is dynamic, orchestrated provisioning -- that is, quickly reallocating servers from one pool of applications to another. This sophisticated process involves reconfiguring server parameters, allocating storage and other resources on the fly to meet the increased work-load demands of another application. VMotion technology from VMware, for example, allows IT architects and administrators to view the server farm as one aggregate computing pool and carve off logical servers to meet peak loads or to test new applications with no perceptible delay in service.

VMware is also innovating how memory is managed in virtualized, consolidated environments. With advanced memory management (AMM), IT no longer needs to calculate memory requirements based on the total amount of memory in each of the systems being consolidated. "Because AMM optimizes how the overall system is used, IT can often reduce actual memory requirements by 50 percent or more," explains Brian Byun, VP of software alliances for VMware.

In addition, progress is being made in balancing workloads across clusters in the enterprise to meet the service-level agreements for business applications. The goal is to prevent the reallocation of resources without first determining the underlying relevance to the business. For instance, is the spike in transactions in the Web store caused by an increase in purchases, or is it a denial-of-service attack? If it is the former, IT would need to reallocate resources to keep up response times in order to avoid losing sales. If it is the latter, IT would have to throttle back resources and address the attack.

Virtualization technology is rapidly gaining adoption. Innovators such as Merrill Lynch are using it to ease the transition to new computing platforms and manage application updates. For instance, when Merrill Lynch rolled out Windows XP across its user base, VMware allowed the company's financial advisors to toggle between Windows NT and Windows 2000 on the same desktop so that there was no disruption in service.

Industry experts observe that virtualization will enhance IT's ability to seamlessly integrate with partners that can provide additional resource capacity to handle workload spikes. There may be a slight premium on those resources, but it will cost a company far less than it would to retool the enterprise infrastructure to support peak requirements.

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Additional Reading - Sponsor Link:
Seven Requirements for Balancing Control and Agility in the Virtual Environment

Scott Dillon has earned an impressive track record, leveraging an understanding of both technology, and banking and financial operations at Wells Fargo & Company, a diversified financial services company with $540 billion in assets, 23 million customers, 6,000 stores, and a strong Web presence. Early in his Wells Fargo career, Dillon was vice president of performance reporting in cost accounting. He moved up to executive vice president and head of payment strategies.

From 2004 to 2006, Dillon made a number of key business process improvements  as a divisional chief information officer for the Wholesale, Investment, and Trust Technology group within the Technology Information group. In September 2006, he made one of the most challenging moves of his career to become the executive vice president and chief technology officer for Wells Fargo's Enterprise Hosting Services (EHS).

Often called the heartbeat of Well Fargo, EHS provides reliable and cost-effective, 24x7 data center operational support for Wells Fargo's mission-critical applications and for the vital delivery channel for Well Fargo's business partners.

Recently, enterpriseleadership.org sat down with Scott Dillon to discuss how he is transforming a monolithic data center operation into services designed to provide business partners with a higher level of value. Here's what Dillon had to say:

EL: Can you give me a quick overview of your organization's  structure?

SD: The EHS includes the entire data center infrastructure in our 40,000-square-foot structure, minus the network. We have about 1,000 professionals who collectively comprise both the data center team and the facilities team, along with as many as 300 contractors, depending on what we're doing.

We've been working hard to balance our decentralized enterprise organization, as well as our systems, with the needs of our business partners. For example, we've tried to make the distributed systems more business facing. We also have some shared functions, such as mainframe and storage groups, which are used by everyone.

EL: Why did you make the change from a business unit CIO to CTO of  Enterprise Hosting Services?

SD: It was a good personal move for me. I wanted to do it because I had a good understanding of the applications, the customers, and the infrastructure. This position has enabled me to bring a customer-centric focus to our hosting services. I have the challenge of balancing all the needs of the CIOs I used to work with, maintaining an infrastructure that makes sense to the business partners, and protecting all of the data on the floor.

EL: What process improvements did you make as a CIO that better  prepared you for your current position?

SD: As a CIO on the wholesale side of banking, I had to deliver the technology and the necessary resources to help our customers compete in the marketplace. Because we needed to have the right products coming to market faster, I worked in conjunction with the wholesale business group, which steered our innovation course. We developed pods, small groups free of the profit-and-loss corporate roadblocks. We were still very disciplined. My job was to make sure we had the right technical people; the business partners selected their team members to work with us. We could get very close to the business problems of how to deliver a treasury workstation or how to deliver a new file transport system within six, to 12 months. We were able to have many pillars-of-truth sessions with team members from the business. By breaking down all processes, we could take the product from pod concept to production very quickly.

EL: What technologies have you brought in to make better use of your  data center resources?

SD: We've started to look strategically at our data centers. Specifically, we've applied the concept of supply management and demand management as a best practice for how we want to manage our data centers. On the supply side, data center managers have to work hard to control the supply of resources as our consumption of those resources grows and their related costs go up. For example, we've done a very good job of buying things for less money. We've also done a great job of bringing in new technologies for doing end-to-end monitoring, not just component monitoring.

A lot of our energy goes into looking at pre-emptive ways to find out if we're having failures. On the open systems side, if a customer experiences a longer-than-normal response time logging on to our portal, our monitoring helps us to understand that we might have an emerging problem. We have the capability to move a tier-one application from one location to another very quickly.

On the demand side, we've started to use tools that provide information about how resources are being used. This information, in turn, has helped us to partner more with how the business partners can make better use of its resources. For example, when it comes to storage, we're using optimization tools (storage resource management tools) to get a better understanding of how our storage devices have been deployed and how much excess storage capacity we have. If a storage device was over-allocated, we can find out specifically which applications or which business partners are consuming the storage. If a group only needs 10 terabytes of its 50 assigned terabytes, then we can re-deploy the remaining capacity to other organizations that need it.

EL: Can you go into a little more detail about how you'll use your storage management tools to conserve storage more proactively?

SD: When it comes to lifecycle management, we're interested in the retention and archiving of our data and the procurement to disposal of our servers. It's our priority for 2008. The SRM agents we have on our servers will provide some metrics, which will go into our storage dashboard. We've been able to tell a business partner how much it's spending on storage and what we can do to reduce that cost. We're also able to ask ourselves whether or not we need to go with high-priced near-line storage or low-cost offline storage. The SRM tools will also help provide us with metrics to make decisions about the retention and the final destruction of data. The bottom line is that SRM will provide us with the technical metrics we need and the transparency that will enable our business partners to make decisions about their storage resources.

EL: How are you making your data centers greener?

SD: It all gets back to our demand-side partnership with the business. By creating incentives for not adding new resources, we've seen groups consolidate servers or redeploy some of them. As a result, we've been able to slow down the growth rate of the devices on the floor, as well as to cut our power usage. We're still trying to do more things on the demand size side to add functionally to the business without adding resources. For example, we're piloting configuration management so we can look holistically at our resources from data center to data center. We'll be able to do a better job of managing everything -- from the operating system to the application configurations -- on a server.

EL: What's your feeling about the IT Infrastructure Library as a  management framework for your data centers?

SD: ITIL provides a very powerful framework for how an IT organization can manage it infrastructure. However, if you don't mesh the ITIL processes into the services you want to provide the business, then you can become enslaved by the ITIL processes and drift father away from your business partners.

We're moving to a just-in-time concept for creating a service of standards on the supply side. For example, a business partner would be able to request, via a few clicks, that it needed a Weblogic blade server to be on the floor to run a Web application. Again, provisioning tools, along with configuration management, will enable to us to be more service-centric or customer-centric. That's a cultural shift for us.

EL: Are you changing the way you manage service level  agreements?

SD: We're moving away from the traditional, “five 9's” component SLA monitoring. We've put a discipline in place that we call CAPS and TOPS – Customer Acceptable Performance Standards and Technology and Operations Performance Standards. It's a balancing act between what are meaningful service levels to the business partners and what are acceptable service levels to us. If a customer clicks on our URL and can't get to our site, that's the metric we're concerned about. Behind the scenes, we're always doing component monitoring to safeguard our customer availability metrics. So, component SLAs become the underpinning to our customer-centric SLAs.

EL: Can you provide an overview of the Wells Fargo management  training program for IT leaders?

SD: Wells Fargo is a very big place. We started the program so we could grow some leaders who understood our business. The program has both internal and external candidates rotate through assignments in the key areas of IT, ranging from security to infrastructure. Towards the end of the training, the candidates focus on a set of disciplines and competencies. We're committed to tracking their progress after they complete the program. I've hired several managers who've completed the program.

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Elizabeth M. Ferrarini is a writer from Boston,  Massachusetts. Reach her at elizabethferrarini@yahoo.com.