Appendix B
LorryMer Information Technology
This is a story about the information technology (IT) department within LorryMer Corporation, a leader in the specialized motor vehicle industry in North America. LorryMer specializes in designing, developing, and manufacturing a complete line of technologically advanced motor vehicles. The company has been in business for more than six decades and now operates seven major vehicle manufacturing plants, with one plant in North America. With more than 14,000 employees, its mission is to provide the highest standard of technological innovation and premium quality to its customers.
Saul McBarney, LorryMer's IT program management officer, has been with the company for 25 years. McBarney is proud of the company's history, strategy, and background. “We are unique in terms of listening to the customers. We find out what customers' business needs are first and then develop products for them that meet their needs.”
However, 2009 was a painful year for LorryMer. As a result of economic hardship in the motor vehicle industry, the company's sales and profits dropped, and its losses exceeded $1 billion. In September 2010, the Refrigerated Transporter reported that used automotive prices caused many transportation carriers to extend trade-in cycles because the resale prices on vehicles were less than what was owed.
As a response to the crisis, the company embarked on a major cost-saving initiative in late 2009, which later produced a number of cost-saving programs. James Ostar, a LorryMer business value account manager, said, “It was about cost, cost, cost, and nothing else.”
Nevertheless, LorryMer continued to experience substantial business challenges in the following years. With the economy still suffering, LorryMer's automobile production in 2010 did not meet 2009 production levels, which were significantly lower than 2008. Funding for any new product development programs was minimal, especially during 2011. LorryMer needed to change to survive. This renewed focus on operational cost reduction elevated the strategic importance of LorryMer's IT organization. A number of significant cost reduction programs were proposed and funded by the company.
Overcoming Strategic Obstacles
Bill Mennon, chief information officer for LorryMer, said, “The business environment for all automobile manufacturers remained depressed and was not expected to regain its historically high levels until late 2012. We knew we had to make some changes to be ready to compete.” LorryMer focused on reducing costs quickly. As a result of relentless cost cutting programs, LorryMer's operating costs were dramatically reduced and breakeven profit was achieved in 2011.
“However, we knew those changes were tactical and not sufficient,” Mennon said. “We had to make more strategic changes.” Therefore, during 2013, LorryMer modified its strategy by focusing on five new core values, as follows: providing market leadership and brand coverage; pursuing technological innovation; partnering with operators for maximum productivity; focusing on the needs of its customers, employees, communities, and the environment; and being an advocate for their industry.
Aligning IT Programs to Business Strategy
Historically, the IT strategy at LorryMer has been to maintain legacy systems. Most of the new IT investments were dedicated to e-business websites for after-market sales and marketing. Mennon said, “Eighty-five percent of what we sell is a complete commodity available from thousands of other people. So the only thing we really have to sell to increase profit is service.” The remaining incremental IT spending supported enhancements to keep the legacy systems compliant with government regulations and provided some basic level of additional functions.
To improve the company's competitive position, radical changes were needed to create an IT environment that was better positioned to support all five of the new core values. As part of the improvement efforts, the IT department was reorganized and made much more agile in 2013. That was done by replacing the functional structure with a matrix organization consisting of application (IT application developers and service providers) and program management (program managers and business system analysts) competency centers. Then, a business advisory group concept was introduced. It consisted of value account managers who provided IT focus in business units and acted as the IT voice of the customer, which was something LorryMer lacked previously. Also, a joint strategic planning session between the business units and IT was initiated in the 2013. Its purpose was to determine the cost reduction needs of the business units. McBarney commented, “This was previously unheard of. In the old system, IT goals were either left to IT or imposed on us by the business units. Now, our strategic goals and direction were determined by the end users in the joint strategic planning.”
To ensure IT strategy and business strategy alignment, IT activities and programs had to complement the needs of the business. The IT team used a strategy alignment chart to accomplish this (Figure B.1). Mennon explained, “The alignment chart provides a strategic mapping of the business goals, the business values (initiatives), and the IT programs. As part of the strategic changes, we were tasked by the company to design the alignment process, part of which was accomplished by the alignment chart which helped us visualize the alignment among business goals, business value, and the programs.”
Figure B.1 Aligning IT programs to business strategy.
Mennon offered an example of how to read the chart. “A bubble on the intersection of business goal 4 and business benefit 3 means that they are aligned. Further, a bubble indicates that business value 3 intersects with program 3, meaning they are aligned. In summary, program 3 delivers business benefit 3, which achieves business goal 4. The alignment is all about IT programs contributing to business benefits by helping us achieve our business goals. That is the language we want everyone to speak.”
The alignment chart is a useful mechanism that not only helps businesses visualize the alignment efforts, but also builds a standard language in the company in which every IT investment is aligned to an organizational need.
Alignment Begins at the Top
On paper, the alignment chart is straightforward, but the execution of the steps in the alignment process is more complex. LorryMer has a mix of formal and informal processes for ensuring proper IT strategy and business strategy alignment. The processes are internally embedded within the business strategy formulation and throughout the life of the IT programs.
The six steps in the alignment process are as follows:
- Strategic planning
- Informal portfolio management
- Program envisioning
- Program planning
- Program execution
- Capability deployment
In step 1, strategic planning, the strategic plan document is developed to help accomplish the goals of IT in support of the company's business strategies and goals for the three-year-planning horizon.
According to Mennon, “Our challenge within IT has always been to take a look at how we treat the goals, whether they're well defined or not, and determine what our strategic plan is to help accomplish those goals. Our approach is an evolutionary process. Once you know where you want to go, you take it one step at a time and one program at a time, and each program gets you closer to the goals.”
Then, business value, called programs, are formulated based on the goals of the business strategy. These are done by the business advisory group and Program Management Competency Center. Tools at the strategic level, which are used to ensure the quality of the alignment, include the strategic plan document, road map charts, and alignment charts, as follows:
- The strategic plan document is a tentative capital plan that shows the snapshot of all program summaries, program types, estimated head count and payback. It is based on the business strategy and goals of different business units that IT supports.
- Road map charts are used to define where the company wants to be in IT in the next three-year time frame. They address all of the business goals of different business units that IT attempts to support and their time frames.
- Alignment charts are the mapping of the business goals, the business benefits and the IT programs.
Step 2, the informal portfolio management process, is a significant part of LorryMer's alignment process. Once the portfolio management process is completed, it produces information about a set of candidate programs, their investment opportunities, and program priorities. In short, the process reveals the most viable programs and possible risks that could occur in the envisioning, planning, development, and deployment phases of a program. According to McBarney, “Portfolios help to assess and monitor programs that are the best investment.” Currently, this assessment is done in the portfolio process through business value assessment (BVA). BVA consists of a set of criteria prepared by value account managers. The program management office (PMO) is asked to rank the criteria regarding business-value weight, which is expressed on a 1–10 scale, with 1 being the lowest value and 10 being the highest value. Second, it assesses business risk, which is also expressed on a 1–10 scale with 1 being the highest risk and 10 being the lowest risk. An example of BVA criteria is shown in Table B.1.
Table B.1 LorryMer IT portfolio business value assessment
| Business-Value Weight | 1-Lowest 10-Highest | Business-Risk Weight | 1-Highest 10-Lowest |
| Generates at least $1 million in revenue per year | Necessary cost of doing business; key business processes will cease if not done | ||
| Cost savings of at least $500,000 per year | Required to support a new product | ||
| Improves employee communication, culture, or morale, resulting in a 10 % increase in the next annual employee survey results | Replaces legacy systems that inhibit required business process changes | ||
| Product quality that directly affects JD Powers measurement | Requires constrained resources | ||
| Improves dealer/customer experience, resulting in an increase of ½ percent market share | Affects existing product build capability | ||
| Cost avoidance of at least $500,000 per year | Affects existing motor vehicle and parts sales capability | ||
| Payback in less than 18 months | Current customer satisfaction level will decrease as measured by JD Powers | ||
| Regulatory requirement | Competitive threat will result in the loss of market share and/or net profit | ||
| TOTAL* | TOTAL* |
* Note: The higher the total the better, because it represents the highest business value at the lowest business risk.
Programs are then evaluated and selected based on BVA, program type, program size, priority, and business area. Once programs are selected, they go through the standard life cycle phases of envisioning, planning, development, and deployment. A program manager is usually assigned at the end of the portfolio process or the beginning of the envisioning phase, which is step 3 of the alignment process.
McBarney commented, “Ideally, we like to have a program manager on board when envisioning is just ready to begin. That allows enough time to develop a close relationship with the business system analyst. Sometimes we engage a program manager immediately at the time the portfolio process starts. Therefore, the program manager is responsible, along with the value account manager, for the business value of the program and is solely responsible for achieving the program's other requirements.”
“In the envisioning and planning stages (steps 3 and 4), the ball is squarely in the program manager's court,” Jeff Barrison, a program manager, said.
After the program plan is approved, the program team starts to implement step 5, or the development stage, of the alignment process and, later, the capability deployment stage (step 6). According to Barrison, program metrics are used as a mechanism to track progress to plan. At the end of each program life cycle phase, a program manager is required to present the program status to the PMO and get customer sign off to be able to proceed from one phase to the next. Therefore, customer sign off and PMO involvement are the other governance mechanisms to make sure that the program is still in line with the expectation throughout the program life cycle.
Learning through Practice
Aligning IT programs to business strategy is new to LorryMer. Mennon remarked, “We are learning the alignment process, and I am happy with its results. For the first time, we are aligning IT programs with the business strategy—and it works.”
The LorryMer experience offers a good example of the use of an integrated management system in practice to achieve strategic business objectives. Key elements of the LorryMer experience include the following:
- Alignment starts at the top—strategy drives intended business results and competitive advantage.
- To execute strategy, a company needs to consistently select, fund, and resource the programs that best align with the strategic goals and contribute the highest business value.
- Effective program management practices deliver the intended strategic business results and create business value for a company.